<PAGE>
As filed with the Securities and Exchange Commission
on January 30, 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. 41 [x]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 42 [x]
(Check appropriate box or boxes)
________________________
STAGECOACH FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
__________________________
Registrant's Telephone Number, including Area Code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[x] Immediately upon filing pursuant [_] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[_] 60 days after filing pursuant [_] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[_] 75 days after filing pursuant [_] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE>
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 to the Registration Statement (the
"Amendment") of Stagecoach Funds, Inc. (the "Company") is being filed to add
to the Company's Registration Statement certain financial information for the
fiscal periods ended September 30, 1997 and March 31, 1997 for the following
of the Company's funds and classes: the Institutional Class of the Balanced
Fund, Equity Value Fund, Growth Fund, and Small Cap Fund ("Equity Funds"); the
Institutional Class of the Intermediate Bond Fund, Short-Intermediate U.S.
Government Income Fund, and U.S. Government Income Fund ("Income Funds"); the
Institutional Class of the National Tax-Free Money Market Mutual Fund, Prime
Money Market Mutual Fund, and Treasury Money Market Mutual Fund ("Money Market
Funds"); Class S of the Money Market Mutual Fund; the single class shares of
the Money Market Trust; Class A shares of the Prime Money Market Mutual Fund;
the Administrative Class of the Prime Money Market Mutual Fund and Treasury
Money Market Mutual Fund; the Service Class of the Prime Money Market Mutual
Fund and Treasury Money Market Mutual Fund; Class E of the Treasury Money
Market Mutual Fund; the single class shares of the Overland Express Sweep
Fund; and the Institutional Class of the Arizona Tax-Free Fund, California Tax-
Free Bond Fund, California Tax-Free Income Fund, National Tax-Free Fund, and
Oregon Tax-Free Fund, ("Tax-Free Income Funds").
This Amendment also makes certain non-material changes to the
Registration Statement. The Amendment does not affect the Registration
Statement, prospectuses or Statements of Additional Information ("SAIs") for
the Company's other Funds or classes.
<PAGE>
STAGECOACH FUNDS, INC.
----------------------
Cross Reference Sheet
---------------------
(Plain English)*
---------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
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 Other Information
7 Exchanges
Other Information
Your Fund Account
8 Other Information
Exchanges
Your Fund Account
9 Not Applicable
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
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
<PAGE>
Part C Other Information
- ------ -----------------
24-32 Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part
C of this Document.
*Plain-English refers to the following of the Company's funds and classes: the
Institutional Class of the Balanced Fund, Equity Value Fund, Growth Fund, and
Small Cap Fund ("Equity Funds"); the Institutional Class of the Intermediate
Bond Fund, Short-Intermediate U.S. Government Income Fund, and U.S. Government
Income Fund ("Income Funds"); the Institutional Class of the National Tax-Free
Money Market Mutual Fund, Prime Money Market Mutual Fund, and Treasury Money
Market Mutual Fund ("Money Market Funds"); the Administrative Class of the
Prime Money Market Mutual Fund and Treasury Money Market Mutual Fund; the
Service Class of the Prime Money Market Mutual Fund and Treasury Money Market
Mutual Fund; the single class shares of the Overland Express Sweep Fund; and
the Institutional Class of the Arizona Tax-Free Fund, California Tax-Free Bond
Fund, California Tax-Free Income Fund, National Tax-Free Fund, and Oregon Tax-
Free Fund, ("Tax-Free Income Funds").
<PAGE>
STAGECOACH FUNDS, INC.
----------------------
Cross Reference Sheet
---------------------
(Non-Plain English)**
---------------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 Prospectus Summary
Summary of Fund Expenses
3 Financial Highlights
4 The Fund(s) and Management
Prospectus Appendix - Additional Investment
Policies
5 How the Fund(s) Work(s)
The Fund(s) and Management
Management, (Distribution) and Servicing Fees
6 Investing in the Fund(s)
The Fund(s) and Management
7 Investing in the Fund(s)
Dividend and Capital Gain Distributions
Taxes
8 Investing in the Fund(s)
How to Redeem Shares
9 Not Applicable
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
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
<PAGE>
Part C Other Information
- ------ -----------------
24-32 Information required to be included in Part C
is set forth under the appropriate Item, so
numbered, in Part C of this Document.
**Non-Plain English refers to the following of the Company's Funds and Classes:
Class S of the Money Market Mutual Fund, the single class shares of the Money
Market Trust, Class A of the Prime Money Market Mutual Fund, and Class E of the
Treasury Money Market Mutual Fund.
<PAGE>
February 1, 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 you with
Equity Value Fund important information and to help you decide if a
Fund's goals match your own.
Growth Fund
These securities have not been approved or
Small Cap Fund disapproved by the U.S. Securities and Exchange
Commission, any state securities commission or any
other regulatory authority, nor have any of these
Institutional Class authorities passed upon the accuracy or adequacy of
this Prospectus. Any representation to the contrary
is a criminal offense.
Investment Advisor
and Administrator: Fund shares are NOT deposits or other obligations
of, or issued, endorsed or guaranteed by, Wells
Wells Fargo Bank Fargo Bank, N.A. ("Wells Fargo Bank"), or any of
its affiliates. Fund shares are NOT insured or
Distributor and guaranteed by the U.S. Government, the Federal
Co-Administrator: Deposit Insurance Corporation ("FDIC"), the Federal
Reserve Board or any other governmental agency. AN
Stephens Inc. INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Balanced Fund 8
This section contains Equity Value Fund 12
important information
about the individual Growth Fund 16
Funds.
Small Cap Fund 20
General Investment Risks 24
- --------------------------------------------------------------------------------
Your Account Your Fund Account 29
Turn to this section for How to Buy Shares 30
information on how to
open and maintain How to Sell Shares 31
your account, including
how to buy, sell and Exchanges 32
exchange Fund shares.
Other Information 33
- --------------------------------------------------------------------------------
Reference Organization and
Management of the Funds 36
Look here for
details on the How to Read the Financial
organization of Highlights 40
the Funds and Glossary 42
term definitions.
<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:
- --------------------------------------------------------------------------------
Investment Objective and Investment Policies
[LOGO OF What is the Fund trying to achieve? How do we intend to invest
ARROW] your money? What makes a Fund different from the other Funds
offered in this Prospectus? Look for the arrow icon to find
out.
- --------------------------------------------------------------------------------
Permitted Investments
[LOGO OF A summary of the Fund's key permitted investments and
PERCENT practices.
SIGN]
- --------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF What are key risk factors for this Fund? This will include the
EXCLAMATION factors described in "General Investment Risks" together with
POINT] any special risk factors for the Fund.
- --------------------------------------------------------------------------------
Additional Fund Facts
[LOGO OF Provides additional information about the Fund.
ADDITION
SIGN]
- --------------------------------------------------------------------------------
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 1-800-260-5969.
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Equity Funds
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:
* you are looking to add equity 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 investing, including the
risk that share prices may rise and fall significantly.
You should not invest in these Funds if:
* 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 to accept the risks involved in the securities
markets; or
* you are seeking monthly dividend income.
What are Institutional shares?
Institutional shares are typically held for your benefit by affiliate, franchise
or correspondent banks of Wells Fargo & Company and other select institutions.
The Funds offered here are available in other share classes. A prospectus for
additional share classes can be obtained by calling 1-800-260-5969.
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.
4 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 Fund, which pays annual dividends.
Stagecoach Equity Funds Prospectus 5
<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 Equity Growth Small Cap
Fund Value Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on a purchase None None None None
- ----------------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None
- ----------------------------------------------------------------------------------------------------------------
Maximum sales charge on
Redemptions None None None None
- ----------------------------------------------------------------------------------------------------------------
Exchange fees None None None None
=================================================================================================================
Annual Fund Operating Expenses (as a Percentage of Average Net Asset)
=================================================================================================================
Annual Fund Operating Expenses reflect amounts paid by each Fund during the
prior fiscal period. For the Balanced and Equity Value Funds they have been
restated to reflect current expenses and fee waivers. Fee waivers and expense
reimbursements are voluntary and may be discontinued without prior notice.
- -----------------------------------------------------------------------------------------------------------------
Balanced Equity Growth Small Cap
Fund Value Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee
(after waivers) 0.54% 0.50% 0.50% 0.60%
- ------------------------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.63% 0.57% 0.51% 0.15%
- ------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.17% 1.07% 1.01% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.60% 0.50% 0.50% 0.60%
- ------------------------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.58% 0.57% 0.51% 1.05%
- ------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.18% 1.07% 1.01% 1.65%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Equity Funds Prospectus
<PAGE>
<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 $1,000 investment Balanced Equity Growth Small Cap
assuming a 5% annual return and that you redeem your shares Fund Value Fund Fund Fund
at the end of each period.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year $12 $11 $10 $8
- ------------------------------------------------------------------------------------------------------------------------------------
3 years $37 $34 $32 $24
- ------------------------------------------------------------------------------------------------------------------------------------
5 years $64 $59 $56 $42
- ------------------------------------------------------------------------------------------------------------------------------------
10 years $142 $131 $124 $93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 7
<PAGE>
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 2/97)
Scott Smith (since 2/98)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 debt 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.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
* 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:
* both large, well-established companies and smaller companies
with market capitalization exceeding $50 million; and
* 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:
8 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
* commercial paper rated "A-2" (S&P) or "Prime-2" (Moody's) or
better;
* corporate debt securities rated "BBB" (S&P) or "Baa" (Moody's)
or better; and
* 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
- -------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 24 and the specific risks listed below. They are both
POINT] 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.
- --------------------------------------------------------------------------------
Additional Fund Facts
[LOGO OF Tamyra Thomas is the manager of the income portion of the Fund and
ADDITION Rex Wardlaw is the manager of the equity portion. They jointly
SIGN] determine the portfolio's asset allocation.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 9
<PAGE>
<TABLE>
<CAPTION>
Balanced Fund Financial Highlights
See "Historical Fund Information" on page 33.
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Institutional Class Shares - Investor Shares
Commenced on October 1, 1995
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, May 31,
1997/1/ 1997/2/ 1996/3/ 1995 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.00 $11.45 $11.84 $11.67 $12.71
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.22 0.21 0.40 0.46/4/ 0.43/4/
Net realized and unrealized gain (loss)
on investments 1.68 0.74 0.89 0.68/4/ (0.13)/4/
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.95 1.29 1.14 0.30
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22) (0.21) (0.40) (0.47) (0.46)
Distributions from net realized gain 0.00 (0.19) (1.28) (0.50) (0.88)
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.22) (0.40) (1.68) (0.97) (1.34)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.68 $12.00 $11.45 $11.84 $11.67
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 15.86% 8.27% 10.80% 10.62% 2.30%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $54,605 $55,456 $72,327 $89,034 $108,290
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.95% 0.95% 0.94% 1.03% 1.09%
Ratio of net investment income to
average net assets 3.14% 3.30% 3.29% 4.05% 3.55%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 27% 43% 131% 90% 35%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid ($) 0.0666 0.0802 0.0603 -- --
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.23% 1.18% 1.11% 1.05% 1.11%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.86% 3.07% 3.12% 4.03% 3.53%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Share Calendar-Year
Returns 1996 1995 1994
========================================================================================================
Returns for other share classes may vary 16.39% 17.71% -3.80%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
10 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 40.
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30,
1992 1991 1990
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.80 $ 9.50 $10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.42/4/ 0.52 0.14
Net realized and unrealized gain (loss)
on investments (0.53)/4/ 1.40 (0.64)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.95 1.92 (0.50)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.43) (0.62) --
Distributions from net realized gain (0.14) -- --
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.57) (0.62) --
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.18 $10.80 $ 9.50
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.03% 20.78% (5.00)%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $65,226 $50,038 $33,185
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 1.02% 0.96% 0.93%
Ratio of net investment income to
average net assets 3.76% 5.88% 5.87%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 49% 30% 12%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid ($) -- -- --
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.11% 1.18% 1.60%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 3.60% 5.66% 5.20%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Shares Calendar-Year 1992 1991
Returns
========================================================================================================
Returns for other share classes may vary 8.79% 18.53%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</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 11
<PAGE>
Equity Value Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 1/97)
Allen Wisniewski (since 9/96)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
* primarily in common stocks of both large, well-established
companies and smaller companies with market capitalizations
exceeding $50 million;
* in debt instruments that may be converted into the common stock
of both U.S. and foreign companies; and
* 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.
12 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Risk Factors
You should consider both the General Investment Risks beginning on
page 24 and the specific risks listed below. They are both
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.
- --------------------------------------------------------------------------------
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 13
<PAGE>
<TABLE>
<CAPTION>
Equity Value Fund Financial Highlights
See "Historical Fund Information" on page 33.
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Institutional Class Shares - Investor Shares
Commenced on October 1, 1995
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, Sept. 30,
1997/1/ 1997/2/ 1996/3/ 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.43 $12.65 $13.27 $12.36 $13.17
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09 0.09 0.22 0.24/4/ 0.20/4/
Net realized and unrealized gain (loss)
on investments 3.48 1.89 1.61 1.63/4/ 0.74/4/
- --------------------------------------------------------------------------------------------------------
Total from investment operations 3.57 1.98 1.83 1.87 0.94
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.09) (0.08) (0.23) (0.25) (0.21)
Distributions from net realized gain 0.00 (0.12) (0.22) (0.71) (1.54)
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.09) (0.20) (2.45) (0.96) (1.75)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.91 $14.43 $12.65 $13.27 $12.36
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 24.79% 15.73% 14.58% 16.58 7.49%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $220,963 $193,161 $206,620 $170,406 $168,852
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.95% 0.95% 0.87% 0.96% 0.99%
Ratio of net investment income to
average net assets 1.11% 1.25% 1.69% 1.97% 1.60%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 21% 45% 91% 75% 41%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid ($) 0.0656 0.0800 0.0558 -- --
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.99% 0.99% 0.92% 0.98% 1.01%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 1.07% 1.21% 1.64% 1.95% 1.58%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Share Calendar-Year Returns 1996 1995 1994
========================================================================================================
Returns for other share classes may vary 26.69% 24.37% -1.71%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
14 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.73 $10.45 $ 8.48 $10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.21/4/ 0.20/4/ 0.28 0.08
Net realized and unrealized gain (loss)
on investments 2.75/4/ 0.49/4/ 1.98 (1.60)
- --------------------------------------------------------------------------------------------------------
Total from investment operations 2.96 0.69 2.26 (1.52)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) (0.22) (0.29) 0.00
Distributions from net realized gain (0.29) 0.19 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.52) (0.41) (0.29) 0.00
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.17 $10.73 $10.45 $ 8.48
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 28.22% 6.81% 27.05% (15.20)%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $140,551 $92,915 $68,412 $26,100
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.98% 1.02% 0.98% 0.91%
Ratio of net investment income to
average net assets 1.73% 1.86% 2.69% 3.38%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 82% 78% 36% 21%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid 0.0 0.0 0.0 0.0
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.99% 1.02% 1.11% 1.86%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 1.72% 1.86% 2.56% 2.43%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Share Calendar-Year Returns 1993 1992 1991
========================================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary 25.82% 10.54% 20.79%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</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 15
<PAGE>
Growth Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Allen Ayvazian (since 12/97)
Kelli Hill (since 2/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
* at least 65% of our total assets in equity securities, including
common and preferred stock, and securities convertible into common
stocks;
* at least 65% of our total assets in income producing securities;
* the majority of our assets in issues of companies with market
capitalizations that fall within the range of the Russell 1000
Index (as of December 1997, this range was from $3.0 billion to
$240.0 billion. The range is expected to change frequently);
* up to 25% of our assets in American Depositary Receipts and
similar instruments; and
* 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.
16 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 24 and the specific risks listed below. They are both
POINT] 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.
- --------------------------------------------------------------------------------
Additional Fund Facts
[LOGO OF We have a quarterly dividend policy. The Fund is not suitable for
ADDITION investors requiring monthly income. Prior to December 15, 1997, the
SIGN] 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 17
<PAGE>
Growth Fund Financial Highlights
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
For a Share Outstanding
================================================================================
For the period ended: Institutional Class Shares -
Commenced on September 6, 1996
----------------------------------------
Sept. 30, March 31, Sept. 30,
1997/1/ 1997/2/ 1996/3/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $22.52 $21.01 $20.03
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09 0.09 0.02
Net realized and unrealized gain
on investments 4.63 1.57 0.97
- --------------------------------------------------------------------------------
Total from investment operations 4.72 1.66 0.99
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.09) (0.09) (0.01)
Distributions from net realized gain 0.00 (0.06) 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.09) (0.15) (0.01)
- --------------------------------------------------------------------------------
Net asset value, end of period $27.15 $22.52 $21.01
- --------------------------------------------------------------------------------
Total return (not annualized) 20.98% 7.92% 3.41%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $21,807 $19,719 $ 18,508
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.97% 1.01% 0.96%
Ratio of net investment income to
average net assets 0.69% 0.78% 1.27%
- --------------------------------------------------------------------------------
Portfolio turnover 51% 40 83%
- --------------------------------------------------------------------------------
Average commission rate paid ($) $0.0633 $0.0799 $0.0702
- --------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 0.97% N/A N/A
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 0.69% N/A N/A
- --------------------------------------------------------------------------------
================================================================================
Institutional Share Calendar-Year Returns 1996
================================================================================
Returns for other share classes may 21.48%
vary due to different fees and expenses.
This return reflects fee waivers and
reimbursements, does not reflect sales
loads, is not a guarantee of future
performance and has not been audited.
- --------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed fiscal year-end from December 31 to September 30.
/4/ For the period prior to September 6, 1996, this figure reflects the
performance and expenses of the Fund's Class A shares.
18 Stagecoach Equity Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
Small Cap Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Jon Hickman (since 9/96)
Kenneth Lee (since 6/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 capitalization falls within the range of the
Russell 2000 Index. As of December 1997, that range was between
$200.0 million and $3.0 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.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
* in an actively managed, broadly-diversified portfolio of growth-
oriented common stocks;
* in at least 20 common stock issues spread across multiple
industry groups and sectors of the economy;
* up to 40% of our assets in initial public offerings or recent
start-ups and newer issues;
* up to 25% of our assets in foreign companies through American
Depository Receipts or similar issues; and
* 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
20 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
or as a temporary 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 35% of total assets.
- --------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 24 and the specific risks listed below. They are both
POINT] important to your investment choice.
This Fund is designed for investors willing to assume above-
average risk. We may invest in companies that:
* pay low or no dividends;
* have smaller market capitalizations;
* have less market liquidity;
* have no or relatively short operating histories, or are newly
public companies or are initial public offerings;
* have aggressive capital structures including high debt levels;
or
* 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 a
higher-than-average portfolio turnover ratio, increased trading
expenses, and higher short-term capital gains.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] 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 21
<PAGE>
<TABLE>
<CAPTION>
Small Cap Fund Financial Highlights
See "Historical Fund Information" on page 33.
See "How to Read Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
================================================================================
For a Share Outstanding
================================================================================
For the period ended: Institutional Class Shares -
Commenced on September 16, 1996
----------------------------------------
Sept. 30, March 31, Sept. 30,
1997/1/ 1997/2/ 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.01 $22.45 $22.01
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.02) 0.00
Net realized and unrealized gain
(loss) on investments 9.23 (3.46) 0.44
- --------------------------------------------------------------------------------
Total from investment operations 9.22 (3.44) 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 $28.23 $19.01 $22.45
- --------------------------------------------------------------------------------
Total return (not annualized) 48.50% (15.32)% 2.00%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $59,637 $29,200 $24,553
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets/3/ 0.75% 0.75% 1.60%
Ratio of net investment income (loss)
to average net assets/3/ (0.10)%/3/ 0.16%/3/ (1.15)%
- --------------------------------------------------------------------------------
Portfolio turnover 120% 69% 10%
- --------------------------------------------------------------------------------
Average commission rate paid ($)/4/ $0.0597 $0.0265 $0.0800
- --------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses/3/ 1.32 1.65 1.63
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses/3/ (0.67) (0.74) (1.18)
- --------------------------------------------------------------------------------
================================================================================
Institutional Share Calendar-Year Returns 1996 1995
================================================================================
Returns for other share classes may 23.45% 69.60%
vary due to different fees and expenses.
These returns reflect fee waivers and
reimbursements, do not reflect sales
loads, are not a guarantee of future
performance and have not been audited.
- --------------------------------------------------------------------------------
</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.
/4/ Reflects activity of the Master Portfolio.
22 Stagecoach Equity Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your tolerance and preferences. You
should carefully consider risks common to all mutual funds, including the
Stagecoach Funds. Chief among these risks are the following:
* Unlike bank deposits such as CDs or savings accounts, mutual funds are
not insured by the FDIC.
* We cannot guarantee that we will meet our investment objectives.
* We do not guarantee the performance of 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 an Institution or
investment advisors, offer or promise to make good any such
losses.
* Share prices-and therefore the value of your investment-will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as volatility.
* Investing in any mutual fund, including those deemed conservative,
involves risk, including the possible loss of any money you
invest.
* An investment in a single Fund, by itself, does not constitute a
complete investment plan.
The Funds invest in securities that involve particular kinds of risk.
* The Funds invest in equity securities 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.
* The Funds invest in debt securities, 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 securities with longer maturities are generally more
sensitive to interest rate changes than those with shorter maturities.
Changes in market interest rates do not affect the rate payable on debt
securities held in a Fund, unless the security has adjustable or
variable
24 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
rate features. Changes in market interest rates may also extend or
shorten the duration of certain types of securities, such as asset-
backed securities, thereby affecting their value and the return on your
investment.
* The 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.
* 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.
* The Funds may also use certain derivative instruments, such as options
or futures contracts. The term "derivatives" covers a wide range 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 25
<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.
Leverage Risk- The risk that a practice may increase a Fund's exposure to Market
Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk- The risk that a security cannot be sold, or cannot be sold
without adversely affecting the price.
Market Risk- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all
securities.
Political Risk- The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's industry,
government or markets.
Regulatory Risk- The risk that changes in government regulations will adversely
affect the value of a security. Also the risk that an insufficiently regulated
market might permit inappropriate trading practices.
26 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 27
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity Small
Balanced Value Growth Cap
=============================================================================================================
<S> <C> <C> <C> <C> <C>
INVESTMENT PRACTICE: RISK:
=============================================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates Interest Rate and * * * *
that are adjusted either Credit Risk
on a schedule or when an index
or benchmark changes.
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the Credit and * * * *
seller of a security agrees Counter-Party Risk
to buy back a security at an
agreed upon time and
price, usually with interest.
- --------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in Market Risk * * * *
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 non-U.S. Information, Political, * * * *
company or debt of a foreign Regulatory, Diplomatic,
government in the form of an Liquidity and Currency
American Depository Receipt or Risk.
similar instrument. Limited to
25% of assets.
- --------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
Investments in companies located Information, Political, * * * *
or operating in countries Regulatory, Diplomatic,
considered developing or to have and Currency Risk.
"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 receive Credit, Information, Leverage
or deliver a security or cash and Liquidity Risk
payment depending on the security's
price or the performance of an index
or benchmark.
------------------------------------------------------------------------------------------------------------
Options on Specific Securities * * *
Options on a Stock Index *
Stock Index Futures and options on Stock * *
Index Futures to protect liquidity and portfolio value.
- -----------------------------------------------------------------------------------------------------------------
PRIVATELY ISSUED SECURITIES
Securities that are not publicly Liquidity Risk * * * *
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 securities Credit, Leverage, * * * *
in brokers dealers Counter-Party Risk
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 equivalent Leverage Risk * * * *
of 10% of total assets from banks for
temporary purposes to meet
shareholder redemptions.
- --------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be Liquidity Risk * * * *
readily sold, or cannot be
readily sold without negatively
affecting its fair price.
Limited to 10% of assets for the
Growth Funds, and limited to 15%
of assets for the other funds.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
28 Stagecoach Equity Funds Prospectus
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Institutional Class shares are bought and held on your behalf by the
Institution through which you are investing. Check with your customer account
representative or your Customer Account agreement for the rules governing your
investment.
Minimum Investments:
* Minimum, initial and subsequent investment amounts are determined by
your Customer Account agreement with your Institution, and are
generally:
* $1,000,000 per Fund minimum initial investment.
* $25,000 per Fund for all investments after your first.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with
your Institution. You may also ask for copies of the Statement of
Additional Information and Annual Report. Copies are available free of
charge from your Institution or by calling 1-800-260-5969.
* 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.
* 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.
* Purchase orders and payments must be received in proper form by an
Institution by 1:00 PM (Pacific time) on any business day to be
processed on that day. Payment for a purchase order may be made by
Institutions in funds available to us no later than the next business
day. If such payment is not received, the order will be cancelled and
the Institution will be responsible for any loss.
* 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.
Stagecoach Equity Funds Prospectus 29
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
How to Buy Shares
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
* Share purchases are made through a Customer Account at an Institution
in accordance with the terms of the Customer Account involved;
* Institutions are usually the holders of record of Institutional shares
held through Customer Accounts and maintain records reflecting their
customers' beneficial ownership of the shares;
* Institutions are responsible for transmitting their customers' purchase
and redemption orders to the Funds and for delivering required payment
on a timely basis;
* The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the Customer
Account involved; and
* Institutions may charge their customers account fees and may receive
fees from us with respect to investments their customers have made with
the Funds. See "Organization and Management of the Funds" for further
details about these fees.
30 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Sell Shares
Institutional shares must be redeemed in accordance with the account agreement
governing your Customer Account at the Institution. Please read the Customer
Account agreement with your Institution for rules governing selling shares.
General notes for selling shares
* We process requests we receive in proper form before the close of the
New York Stock Exchange, usually 1:00 P.M. Pacific Time, at the NAV
determined on the same business day. Requests we receive after this
time are processed on the next business day.
* Redemption proceeds are usually wired to the redeeming Institution the
following business day.
* 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 SEC in order
to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not
our policy to delay such payments.
* Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund
by a single shareholder over any ninety-day period. If a request for a
redemption is over these limits it may be to the detriment of existing
shareholders. Therefore, we may pay the redemption in part or in whole
in securities of equal value.
Stagecoach Equity Funds Prospectus 31
<PAGE>
Exchanges
- --------------------------------------------------------------------------------
Exchanges between Stagecoach Funds are two transactions: a sale of one Fund and
the purchase of another. In general, the same rules and procedures that apply to
sales and purchases apply to exchanges. There are, however, additional factors
you should keep in mind while making or considering an exchange:
* You should carefully read the Prospectus for the Fund into which you
wish to exchange.
* Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
* If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount
of the Fund you are redeeming, unless your balance has fallen below
that amount due to market conditions.
* Any exchange between Funds you already own must meet the minimum
redemption and subsequent purchase amounts for the Funds involved.
* In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of
any changes in your exchange privileges.
* You may make exchanges only between like share classes.
32 Stagecoach Equity Funds Prospectus
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distribution
Distributions paid by a Fund are automatically reinvested to purchase new shares
of the Fund. The new shares are purchased at NAV, generally on the day the
distributions are paid.
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. Corporate shareholders may be able to exclude a portion of dividend
income from their taxable 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 on July 2, 1990, until it was reorganized as a series
of Stagecoach Funds, Inc. on September 6, 1996. The Institutional Class shares
of the Fund commenced operations on October 1, 1995. Financial information for
periods prior to this date is for the Investor Class shares of the Pacifica
series. 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.
Stagecoach Equity Funds Prospectus 33
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Equity Value Fund-The Fund operated as a series of Pacifica Funds Trust from its
commencement of operations on July 2, 1990, until it was reorganized as a series
of Stagecoach Funds on September 6, 1996. The Institutional Class shares of the
Fund commenced operations on October 1, 1995. Financial information for periods
prior to this date is for the Investor Class shares of the Pacifica series.
Prior to April 1, 1996, the Fund was advised by 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.
Small Cap Fund-On December 12, 1997, the Overland Express Small Cap Strategy
Fund was merged into the Small Cap Fund of 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.
Share Class - This Prospectus contains information about Institutional Class
shares. The Funds offer additional share classes with different expenses and
returns than those described here. Call Stephens at 1-800-643-9691 for
information on these or other investment options in Stagecoach Funds.
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
$1,000,000 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 - The Institutions mail statements after any account activity,
including transactions, dividends or capital gains, and at year-end. The
Institutions will also send any necessary tax reporting documents in January,
and will send Annual and Semi-Annual Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. The
Statement of Additional Information should be read along with this Prospectus
and may be obtained free of charge by calling Investor Services at 1-800-260-
5969.
34 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 35
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different companies provide services to the Funds. This section
shows how the Funds are organized, the companies that perform different
services, and how they are compensated. Further information is available in the
Statement of Additional Information for the Funds.
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
================================================================================
Institutions and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agent Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various
111 Center St. 525 Market St. 525 Market St. Institutions
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Manages the Funds' Maintains records Provide services
Funds, distributes business activities of shares and to customers
shares, and manages supervises the
the Funds' paying of dividends
business activities
- --------------------------------------------------------------------------------
|
================================================================================
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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
36 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Institutional Class shares 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:
- --------------------------------------------------------------------------------
Balanced Fund 54%
- --------------------------------------------------------------------------------
Equity Value Fund 50%
- --------------------------------------------------------------------------------
Growth Fund 50%
- --------------------------------------------------------------------------------
Small Cap Fund* 60%
- --------------------------------------------------------------------------------
* Prior to December 15, 1997, the Small Cap Fund 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.
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.
Stagecoach Equity Funds Prospectus 37
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Institutional Class shares. We have
agreements with various Institutions as 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:
- --------------------------------------------------------------------------------
Balanced Fund .25%
- --------------------------------------------------------------------------------
Equity Value Fund .25%
- --------------------------------------------------------------------------------
Growth Fund .25%
- --------------------------------------------------------------------------------
Small Cap Fund .25%
- --------------------------------------------------------------------------------
38 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.
* Allen J. Ayvazian
Managing Director and Chief Equity Officer
With Wells Fargo since 1989.
* 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.
* Scott Smith
Senior Taxable Investments Specialist with Wells Fargo since 1988.
* Kenneth Lee
With Wells Fargo since 1993. Was with Wells Fargo Nikko Investment
Advisors and Dean Witter prior to 1993.
* Kelli Hill
With Wells Fargo since 1987.
* Rex Wardlaw, CFA
With Wells Fargo since 1986.
* Allen Wisniewski, CFA
Member of Los Angeles Society of Financial Analysts
With Wells Fargo since 1987.
Stagecoach Equity Funds Prospectus 39
<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 1-800-260-5969. Other auditors audited the
financial 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.
40 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 41
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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 and Semi-Annual Reports
Documents that provide certain financial and other important information for the
most recent reporting period, including 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 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".
42 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.
Stagecoach Equity Funds Prospectus 43
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
Initial Public Offering
The first time a company's stock is offered for sale to the public.
Investment-Grade
A type of bond rated in the top four investment categories by nationally
recognized ratings organization such as Moody's or Standard & Poors. Generally
these are bonds who's issuers are considered to have a strong ability to pay
interest and repay principal, although some investment-grade bonds may have some
speculative characteristics.
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and other
institutions.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV is calculated separately for each class of the
Fund, and is determined as of the close of regular trading on each business day
the New York Stock Exchange is open, typically 1:00 p.m. Pacific Time.
Options
An option is the right to buy or sell a security based on an agreed upon price
for at a specified time. For example, an option may give the holder of a stock
the right to sell the stock to another party, allowing the seller to profit if
the price has fallen below the agreed price. Options can also be based on the
movement of an index such as the S&P 500.
44 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar
functions.
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.
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.
Stagecoach Equity Funds Prospectus 45
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
46 Stagecoach Equity Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
STAGECOACH FUNDS/R/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this
Prospectus. The Statement of Additional
Information has been filed with the SEC
and is incorporated by reference into this
Prospectus and is legally part of this
Prospectus.
Annual/Semi-Annual Report
provides certain financial and other
important information for the most recent
reporting period and each Fund's portfolio
of investments.
These are available free of
charge by calling
1-800-260-5969, 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] SC EQI P (2/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS/R/
February 1, 1998
Stagecoach
Income Funds
Prospectus
Intermediate Please read this Prospectus and keep it for
Bond Fund future reference. It is designed to provide you
with important information and to help you
Short-Intermediate U.S. decide if a Fund's goals match your own.
Government Income
Fund These securities have not been approved or
disapproved by the U.S. Securities and Exchange
U.S. Government Commission, any state securities commission or
Income Fund any other regulatory authority, nor have any of
these authorities passed upon the accuracy or
Institutional Class adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
Investment Advisor
and Administrator: Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
Wells Fargo Bank guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), or any of its affiliates. Fund
Distributor and shares are NOT insured or guaranteed by the U.S.
Co-Administrator: Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve Board
Stephens Inc. or any other governmental agency. AN INVESTMENT
IN A 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, 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:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
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.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and
practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors about this Fund? This will include the
factors described in "General Investment Risks" together with any
special risk factors for the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Provides additional information about the Fund.
- --------------------------------------------------------------------------------
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 1-800-260-5969.
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- -------------------------------------------------------------------------
The Funds Intermediate Bond Fund 8
This section contains
important information Short-Intermediate U.S. Government
about the individual Income Fund 12
Funds.
U.S. Government Income Fund 16
General Investment Risks 19
- -------------------------------------------------------------------------
Your Account Your Fund Account 24
Turn to this section for
information on how to How to Buy Shares 25
open and maintain
your account, including How to Sell Shares 26
how to buy, sell and
exchange Fund shares. Exchanges 27
Other Information 28
- -------------------------------------------------------------------------
Reference Organization and Management
of the Funds 31
Look here for details on the
organization of the Funds
and term definitions. How to Read the Financial Highlights 35
Glossary 37
<PAGE>
Key Information
- -------------------------------------------------------------------------------
Summary of the Stagecoach Income Funds
The Funds described in this Prospectus invest primarily in debt securities and
seek to distribute monthly income and have varying degrees of principal
stability. Each Fund has a different investment objective intended to meet
different investment needs. You should consider each Fund's objectives,
investment practices, permitted investments and risks carefully before investing
in a Fund.
Should you consider investing in these Funds? Yes, if:
* you are looking to add an income investment to your portfolio;
* you are looking for monthly income;
* you are looking for more stability of principal than equity funds typically
provide; and
* you are willing to accept the risks of income investing, including the risk
that share prices may rise and fall.
You should not invest in these Funds if:
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you are unwilling to accept that you may lose money on your investment;
* you are unwilling to accept the risks of investing in the bond markets; or
* you are looking for returns characteristic of equity investments.
What are Institutional shares?:
Institutional shares are typically held for your benefit by affiliate, franchise
or correspondent banks of Wells Fargo & Company and other select institutions.
The Funds offered here are available in other share classes. A prospectus for
additional share classes can be obtained by calling 1-800-260-5969.
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.
4 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
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
The term "debt securities" used in this Prospectus refers to a broad variety of
fixed-income and variable-rate securities including bonds, bills, notes and
mortgage-backed securities. The term "instruments" is used to describe a
negotiable contract or promise to pay money, such as a Certificate of Deposit or
a Banker's Acceptance. The "Permitted Investments" for each Fund and "Investment
Practices and Risks" table describe some of the particular instruments and
securities used for each Fund.
Dividends
We pay dividends, if any, monthly.
Stagecoach Income Funds Prospectus 5
<PAGE>
<TABLE>
<CAPTION>
Income 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.
- --------------------------------------------------------------------------------
Intermediate Short-Int. U.S. Government
Bond U.S. Govt. Inc. Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on a purchase None None None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None
- --------------------------------------------------------------------------------
Maximum sales charge on redemptions None None None
- --------------------------------------------------------------------------------
Exchange fees None None None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Annual Fund Operating Expenses (As a Percentage of Average Net Assets)
================================================================================
Annual Fund Operating Expenses reflect amounts paid by each Fund during the
prior fiscal period. In some cases they have been restated to reflect current
expenses and fee waivers. Fee waivers and expense reimbursements are voluntary
and may be discontinued without prior notice .
- --------------------------------------------------------------------------------
Intermediate Short-Int. U.S. Government
Bond U.S. Govt. Inc. Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee
(after waivers) 0.23% 0.26% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.69% 0.64% 0.33%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.92% 0.90% 0.83%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.72% 0.64% 0.67%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.22% 1.14% 1.17%
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Income Funds Prospectus
<PAGE>
<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 $1,000 investment assuming a 5%
annual return and that you redeem your Intermediate Short-Int. U.S. Government
shares at the end of each period. Bond U.S. Govt. Inc. Income
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 year $9 $9 $8
- ---------------------------------------------------------------------------------------------
3 years $29 $29 $26
- ---------------------------------------------------------------------------------------------
5 years $51 $51 $46
- ---------------------------------------------------------------------------------------------
10 years $113 $111 $103
- ---------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Income Funds Prospectus 7
<PAGE>
Intermediate Bond Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Scott Smith (since 9/96)
- -------------------------------------------------------------------------------
Investment Objective
[LOGO OF The Intermediate Bond Fund seeks to provide investors with a high
ARROW] level of current income consistent with the preservation of
capital and the maintenance of liquidity.
Investment Policies
We actively manage a broad range of corporate debt securities,
U.S. Government obligations and other debt securities and
instruments. When deciding the allocation between corporate debt
securities and U.S. Government Obligations, we consider the
differences between the yields for corporate and government bonds,
as well as the yield differences for various corporate sectors,
and the current economic cycle's likely effect on the various
types of bonds. When buying individual securities, we consider
credit-quality and the security's attractiveness. We actively
manage a diversified portfolio.
Under normal market conditions, we will maintain a dollar-weighted
average portfolio maturity of between 3 and 10 years.
- -------------------------------------------------------------------------------
Permitted Investments
[LOGO OF Under normal market conditions, the Fund will invest:
PERCENTAGE
SIGN] * at least 65% of total assets in corporate and government bonds;
* no more than 20% of total assets in the dollar-denominated debt
of foreign issuers; and
* in zero coupon bonds, repurchase agreements, municipal bonds,
and obligations convertible into common stock.
The debt securities we buy for the portfolio generally will be
rated "BBB" (S&P) or "Baa" (Moody's) or better. We may also invest
in unrated debt securities that we feel are of comparable quality.
The dollar-weighted average credit quality of the corporate bonds
will be "A" or better. 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
8 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
investments, either to maintain liquidity or for short-term
defensive purposes when we believe it is in the best interest of
shareholders to do so.
_______________________________________________________________________________
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 19 and the specific risk listed below. They are both
POINT] important to your investment choice.
The U.S. Government does not directly or indirectly insure or
guarantee the performance of the Fund.
- -------------------------------------------------------------------------------
Additional Fund Facts
[LOGO OF As a general matter, we will not invest in common stocks. Common
ADDITION stock received through the conversion of convertible securities
SIGN] will be sold as soon as possible in an orderly manner.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Income Funds Prospectus 9
<PAGE>
<TABLE>
<CAPTION>
Intermediate Bond Fund Financial Highlights
See "Historical Fund Information" on page 28.
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
For A Share Outstanding
==================================================================================================================================
For the period ended: Institutional Class Shares -
Commenced on June 1, 1988
----------------------------------------------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Sept. 30, May 31, May 31, May 31,
1997/1/ 1997/2/ 1996/3/ 1995/4/ 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $14.30 $14.52 $14.76 $14.77 $14.36 $15.72 $15.69
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.46 0.46 0.85 0.30 0.91 0.99 1.17
Net realized and unrealized
gain (loss) on investments 0.36 (0.22) (0.23) (0.01) 0.47 (0.90) 0.40
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.82 0.24 0.62 0.29 1.38 0.09 1.57
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.46) (0.46) (0.85) (0.30) (0.97) (0.85) (1.04)
Distributions from net rea-
lized gain 0.00 0.00 (0.01)/6/ (0.00) (0.00) (0.60) (0.50)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.46) (0.46) (0.86) (0.30) (0.97) (1.45) (1.54)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.66 $14.30 $14.52 $14.76 $14.77 $14.36 $15.72
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 5.83% 1.64% 4.19% 6.14%/5/ 10.13% 0.35% 10.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s) $40,958 $42,386 $44,348 $55,628 $56,087 $58,199 $61,207
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratios of expenses to
average net assets 0.75% 0.75% 0.73% 0.89% 0.81% 0.79% 0.76%
Ratio of net investment
income to average net
assets 6.38% 6.32% 5.82% 5.94% 6.35% 5.33% 6.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 35% 28% 96% 54% 76% 163% 146%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 1.25% 1.22% 0.89% 0.94% 0.85% 0.83% 0.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior
to waived fees and reimbursed
expenses 5.88% 5.85% 5.66% 5.89% 6.31% 5.30% 5.98%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
Institutional Share Calendar Year Returns 1996 1995 1994 1993 1992
===================================================================================================================================
Returns for other share classes may vary 2.86% 15.46% -2.75% 8.30% 6.64%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance and have not been audited.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisors during the fiscal year.
10 Stagecoach Income Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 35.
- ---------------------------------------------------------------------------------
====================================================================================================
====================================================================================================
For the period ended: Institutional Class Shares -
Commenced on June 1, 1988
----------------------------------------------------
May 31, May 31, May 31, May 31,
1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $15.52 $15.08 $15.13 $15.00
- ----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 1.14 1.25 1.26 1.22
Net realized and unrealized
gain (loss) on investments 0.65 0.54 (0.05) 0.08
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.79 1.79 1.21 1.30
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (1.41) (1.25) (1.26) (1.17)
Distributions from net rea-
lized gain (0.21) (0.10) -- --
- ----------------------------------------------------------------------------------------------------
Total from distributions (1.62) (1.35) (1.26) (1.17)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $15.69 $15.52 $15.08 $15.13
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) 11.96% 12.36% 8.25% 9.07%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s) $54,203 $54,074 $79,471 $74,007
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratios of expenses to
average net assets 0.68% 0.66% 0.68% 0.69%
Ratio of net investment
income to average net
assets 7.14% 8.00% 8.25% 8.25%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 102% 78% 32% 36%
- ----------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 0.73% 0.71% 0.73% 0.74%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior
to waived fees and reimbursed
expenses 7.09% 7.95% 8.20% 8.20%
- ----------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================
Institutional Share Calendar Year Returns 1991 1990 1989
====================================================================================================
Returns for other share classes may vary 16.00% 8.62% 13.07%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance and have not been audited.
- ----------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
/5/ Annualized.
/6/ Tax return of capital.
Stagecoach Income Funds Prospectus 11
<PAGE>
Short-Intermediate U.S. Government Income Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Madeleine Gish (since 7/96)
Jeff Weaver (since 7/96)
- -------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Short-Intermediate U.S. Government Income Fund seeks to
provide investors with current income while preserving capital, by
investing primarily in a portfolio consisting of short- to
intermediate term securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
Investment Policies
We seek current income by actively managing a diversified
portfolio consisting primarily of short- to intermediate-term U.S.
Government obligations. We may invest in securities of any
maturity. Under ordinary circumstances, we expect to maintain a
dollar-weighted average maturity of between 2 and 5 years. We seek
to preserve capital by shortening average maturity when interest
rates are expected to increase and to increase total return by
lengthening maturity when interest rates are expected to fall.
- -------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* at least 65% of our total assets in U.S. Government obligations;
* in investment grade corporate debt securities including asset-
backed securities;
* in repurchase agreements;
* no more than 5% of our total assets in securities downgraded
below investment grade after we acquired them;
* up to 25% of our assets in dollar-denominated debt of U.S.
branches of foreign banks or foreign branches of U.S. banks; and
* in stripped Treasury securities, adjustable-rate mortgage
securities, adjustable portions of collateralized mortgage
obligations.
12 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other short-
term investments, either to maintain liquidity or for short-term
defensive purposes when we believe it is in the best interest of
shareholders to do so.
- --------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 19 and the specific risks listed below. They are both
POINT] important to your investment choice.
Stripped Treasury securities have greater interest rate risk than
traditional government securities with identical credit ratings.
The U.S. Government does not directly or indirectly insure or
guarantee the performance of the Fund.
- --------------------------------------------------------------------------------
Additional Fund Facts
[LOGO OF For information on Fund fees and expenses, see "Summary of
ADDITION Expenses" on page 6.
SIGN]
Stagecoach Income Funds Prospectus 13
<PAGE>
Short-Intermediate U.S. Government Income Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================
For A Share Outstanding
==============================================================================
For the period ended: Institutional Class Shares -
Commenced on September 6, 1996
----------------------------------------------
Sept. 30, Mar. 31, Sept. 30,
1997/1/ 1997/2/ 1996/3/
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period $9.45 $9.54 $9.46
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.25 0.34 0.03
Net realized and unrealized
gain (loss) on investments 0.23 (0.09) 0.08
- -------------------------------------------------------------------------------
Total from investment operations 0.48 0.25 0.11
- -------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.25) (0.34) (0.03)
Distributions from net
realized gain 0.00 0.00 0.00
- -------------------------------------------------------------------------------
Total from distributions (0.25) (0.34) (0.03)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.68 $9.45 $9.54
- -------------------------------------------------------------------------------
Total return (not annualized) 5.17% 2.58% 1.08%
- -------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $57,691 $60,150 $73,637
- -------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to average
net assets 0.65% 0.65% 0.59%
Ratio of net investment
income to average net assets 5.28% 7.01% 5.14%
- -------------------------------------------------------------------------------
Portfolio turnover 27% 52% 389%
- -------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 1.06% 1.02% 0.84%
- -------------------------------------------------------------------------------
Ratio of net investment
income to average net assets
prior to waived fees and
reimbursed expenses 4.87% 6.64% 4.89%
- -------------------------------------------------------------------------------
<CAPTION>
===============================================================================
Institutional Share Calendar
Year Returns 1996 1995 1994
===============================================================================
Returns for other share classes may 3.55% 12.67% -1.42%
vary due to 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.
/4/ These returns were audited only for the years ended December 31, 1994 and
1995. For periods prior to September 6, 1996, these figures reflect the
performance and expenses of the Fund's Class A shares.
14 Stagecoach Income Funds Prospectus
<PAGE>
This page intentionally left blank
- -------------------------------------------------------------------------------
<PAGE>
U.S. Government Income Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Scott Smith (since 12/97)
Paul Single (since 5/95)
- -------------------------------------------------------------------------------
Investment Objective
[LOGO OF The U.S. Government Income Fund seeks a long-term total rate of
ARROW] return through preserving capital and earning high interest income
by investing principally in a portfolio of U.S. Government
mortgage pass-through securities, consisting primarily of
securities issued by GNMA, FNMA and FHLMC.
Investment Policies
We actively manage a diversified portfolio of U.S. Government
mortgage pass-through securities (including those issued by GNMA,
FNMA and FHLMC), U.S. Treasury securities and repurchase
agreements.
- -------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* at least 65% of total Fund assets in U.S. Government mortgage
pass-through securities; and
* in Treasury securities and repurchase agreements collateralized
by U.S. Government obligations.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other short-
term investments, either to maintain liquidity or for short-term
defensive purposes when we believe it is in the best interest of
shareholders to do so.
16 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
Important Risk Factors
[LOGO OF You should consider both the General Investment Risks beginning on
EXCLAMATION page 19 and the specific risks listed below. They are both
POINT] important to your investment choice.
The United States Government guarantees the timely payment of
interest and principal of GNMA and Treasury securities with its
full faith and credit. FNMA and FHLMC securities, however, are
guaranteed by the issuing agencies and not by the U.S. Government.
There is no guarantee that the U.S. Government will support FNMA
and FHLMC securities if they are unable to meet their
obligations.
The U.S. Government does not directly or indirectly insure or
guarantee the performance of the Fund. Mortgage-backed securities
are subject to the risk that homeowners may refinance existing
mortgages to take advantage of lower rates. Such "prepayments"
result in an early return of principal that is then reinvested at
what is likely to be a lower yield.
_______________________________________________________________________________
Additional Fund Facts
[LOGO OF Mortgage pass-through securities are residential home mortgages
ADDITION bundled together and sold as a single security. Mortgage payments
SIGN] are "passed through" the issuing agency to the security's holder
as interest and principal payments.
GNMA securities are commonly known as "Ginnie Maes" and are
issued by the Government National Mortgage Association. FNMA
securities are known as "Fannie Maes" and are issued by the
Federal National Mortgage Association, and FHLMC securities as
"Freddie Mac" and are issued by the Federal Home Loan Mortgage
Corporation.
Prior to December 15, 1997, the Fund was known as the Ginnie Mae
Fund.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Income Funds Prospectus 17
<PAGE>
U.S. Government Income Fund Financial Highlights
See "Historical Fund Information" on page 28.
See "How to Read the Financial Highlights" on page 35.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================
Financial Highlights
==============================================================================
For the period ended: Institutional Class Shares -
Commenced on September 6, 1996
----------------------------------------------
Six Months Six Months Period
Ended Ended Ended
Sept. 30, Mar. 31, Sept. 30,
1997/1/ 1997/2/ 1996/3/
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period $15.21 $15.34 $15.19
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.54 0.08
Net realized and unrealized
gain (loss) on investments 0.41 (0.14) 0.15
- -------------------------------------------------------------------------------
Total from investment operations 0.91 0.40 0.23
- -------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.50) (0.50) (0.08)
Distributions from net
realized gain 0.00 0.00 0.00
Tax return of capital 0.00 (0.03) 0.00
- -------------------------------------------------------------------------------
Total from distributions (0.50) (0.53) (0.08)
- -------------------------------------------------------------------------------
Net asset value, end of period $15.62 $15.21 $15.34
- -------------------------------------------------------------------------------
Total return (not annualized) 6.03% 2.62% 1.30%
- -------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $ 7,294 $ 7,863 $ 7,381
- -------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to average
net assets 0.77% 0.77% 0.78%
Ratio of net investment
income to average net assets 6.41% 7.05% 7.48%
- -------------------------------------------------------------------------------
Portfolio turnover 96% 72% 183%
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 1.16% 1.17% 1.31%
- -------------------------------------------------------------------------------
Ratio of net investment
income to average net assets
prior to waived fees and
reimbursed expenses 6.02% 6.65% 6.95%
- -------------------------------------------------------------------------------
<CAPTION>
===============================================================================
Institutional Shares Calendar-
Year Returns 1996
===============================================================================
Returns for other share classes may -0.11%
vary due to different fees and
expenses. This return reflects
fee waivers and reimbursements,
does not reflect sales loads,
is not a guarantee of future
performance, and has not been
audited. /3/
- --------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ For the period prior to September 6, 1996, this figure reflects the
performance of the Fund's Class A shares.
18 Stagecoach Income 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:
* Unlike bank deposits, such as CDs or savings accounts, mutual funds are
not insured by the FDIC.
* We cannot guarantee that we will meet our investment objectives.
* We do not guarantee the performance of 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 provide certain services for a Fund, such as an
Institution or investment advisors, offer or promise to make good any
such losses.
* Share prices-and therefore the value of your investment-will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as volatility.
* Investing in any mutual fund, including those deemed conservative,
involves risk, including the possible loss of any money you
invest.
* An investment in a single Fund, by itself, does not constitute a
complete investment plan.
The Funds invest in securities that involve particular kinds of risk.
* The Funds invest in debt securities, such as notes and bonds, that are
subject to credit risk. Credit risk is the possibility that an issuer
of a security will be unable to make interest payments or repay
principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value.
* The Funds' debt securities are also subject to interest rate risk.
Interest-rate risk is the possibility that interest rates may increase
and reduce the resale value of securities in a Fund's portfolio. Debt
securities with longer maturities are generally more sensitive to
interest rate changes than those with shorter maturities. Changes in
market interest rates do not affect the rate payable on debt securities
held in a Fund, unless the security has adjustable or variable rate
features. Changes in market interest rates may also extend or shorten
the duration of certain types of securities, such as asset-backed
securities, thereby affecting their value and the return on your
investment.
Each Fund may continue to hold debt securities that cease to be rated by a
nationally recognized ratings organization or whose rating falls below the
Stagecoach Income Funds Prospectus 19
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
levels permitted for such Fund, provided Wells Fargo Bank continues to believe
that holding the instrument is in the best interest of the Fund. Unrated or
downgraded securities may be more susceptible to interest rate and credit risk
than rated or higher-rated securities.
* The 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.
* The Funds also invest a portion of their assets in GNMAs, FNMAs and
FHLMCs. Each are mortgage-backed securities representing partial
ownership of a pool of residential mortgage loans. A "pool" or group of
such mortgages is assembled and, after being approved by the issuing
entity, is offered to investors through securities dealers. Once
approved by GNMA, a government corporation within the U.S. Department
of Housing and Urban Development, the timely payment of interest and
principal of a GNMA security is guaranteed by the full faith and credit
of the U.S. Government. FNMA and FHLMC are federally chartered
corporations supervised by the U.S. Government, acting as government-
sponsored enterprises. FNMA and FHLMC securities are not direct
obligations of the U.S. Treasury, and are supported by the credit of
FNMA or FHLMC only. FNMA guarantees timely payment of interest and
principal on its securities; FHLMC guarantees timely payment of
interest and ultimate payment of principal only.
* The 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.
20 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Credit Risk- The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Currency Risk- The risk that a change in the exchange rate between U.S. dollars
and a foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency.
Diplomatic Risk- The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
Experience Risk- The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Extension Risk- The risk that as interest rates rise, prepayments slow, thereby
lengthening the duration and potentially reducing the value of certain asset-
backed securities.
Information Risk- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk- The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk- The risk that a practice may increase a Fund's exposure to Market
Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all
securities.
Prepayment Risk- The risk that, as interest rates fall, homeowners will
refinance existing mortgages, causing mortgage-backed securities to have reduced
yields.
Political Risk- The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's industry,
government or markets.
Regulatory Risk- The risk that changes in government regulations will adversely
affect the value of a security. Also the risk that an insufficiently regulated
market might permit inappropriate trading practices./R/
Stagecoach Income Funds Prospectus 21
<PAGE>
General Investment Risks
_______________________________________________________________________________
-----------------------------------------------------------------------
Investment Practice/Risk
The following table lists some of the additional investment practices
of the Funds, including some not disclosed in the Investment
Objectives 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.
The Investment Objectives described for the Intermediate Bond Fund are
not fundamental and may be changed without approval by vote of a
majority of shareholders. The Investment Objectives described for the
other Funds are fundamental and cannot be changed without approval by
vote of a majority of shareholders.
Remember, each Fund is designed to meet different investment needs and
has a different investment objective and investment policies. 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.
------------------------------------------------------------------------
22 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National
Bond Prime Treasury
=============================================================================================================
<S> <C> <C> <C> <C>
INVESTMENT PRACTICE: RISK:
=============================================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates Interest Rate and * * *
that are adjusted either Credit Risk
on a schedule or when an index
or benchmark changes.
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the Credit and * * *
seller of a security agrees Counter-Party Risk
to buy back a security at an
agreed upon time and
price, usually with interest.
- --------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in Market Risk * * *
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.
- --------------------------------------------------------------------------------------------------------------
STRIPPED OBLIGATIONS
Dollar-denominated debt Interest Rate Risk * * *
obligations of foreign branches
of U.S. banks or U.S. branches
of foreign banks.
- --------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be Liquidity Risk * * *
readily sold or cannot be
readily sold without negatively
affecting its fair value.
The limit is 15% of assets for all
but the California
Tax-Free Bond Fund, which has a
limit of 10%.
- --------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Leverage, * * *
in brokers, dealers and Counter-Party Risk
and financial institutions to
increase return on those securities.
Loans may be made in accordance with
existing investment policies. Oregon,
Arizona and National Tax-Free Funds,
Limited to 30% of total assets for
the 33 1/3% for the other Funds.
- --------------------------------------------------------------------------------------------------------------
FORWARD COMMITMENTS, WHEN-ISSUED
SECURITIES AND DELAYED DELIVERY
TRANSACTIONS
Securities bought or sold for delivery Interest Rate, Credit and * * *
at a later date or bought or Experience Risk
sold for a fixed price at a fixed
date.
- --------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk * * *
of 10% of assets from banks for
temporary purposes to meet
shareholder redemptions.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Income Funds Prospectus 23
<PAGE>
Your Fund Account
_______________________________________________________________________________
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Institutional Class shares are bought and held on your behalf by the
Institution through which you are investing. Check with your customer account
representative or your Customer Account agreement with your Institution for the
rules governing your investment.
Minimum Investments:
* Minimum, initial and subsequent investment amounts are determined by
your Customer Account agreement with your Institution, and are
generally:
* $1,000,000 per Fund minimum initial investment, and
* $25,000 per Fund for all investments after your first.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with
your Institution. You may also ask for copies of the Statement of
Additional Information and Annual Report. Copies are available free of
charge from your Institution or by calling 1-800-260-5969.
* 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.
* 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.
* Purchase orders and payments must be received in proper form by an
Institution by 1:00 PM (Pacific time) on any business day to be
processed on that day. Payment for your purchase order may be made by
Institutions in funds available to us no later than the next business
day. If such payment is not received, the order will be cancelled and
the Institution will be responsible for any loss.
* 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.
24 Stagecoach Income Funds Prospectus
<PAGE>
_______________________________________________________________________________
How to Buy Shares
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
* Share purchases are made through a Customer Account at an Institution
in accordance with the terms of the Customer Account involved;
* Institutions are usually the holders of record of Institutional shares
held through Customer Accounts and maintain records reflecting their
customers' beneficial ownership of the shares;
* Institutions are responsible for transmitting their customers' purchase
and redemption orders to the Funds and for delivering required payment
on a timely basis;
* The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the Customer
Account involved; and
* Institutions may charge their customers account fees and may receive
fees from us with respect to investments their customers have made with
the Funds. See "Organization and Management of the Funds" for further
details about these fees.
Stagecoach Income Funds Prospectus 25
<PAGE>
Your Fund Account
_______________________________________________________________________________
How to Sell Shares
Institutional shares must be redeemed in accordance with the account agreement
governing the Customer Account at the Institution. Please read the Customer
Account agreement with your Institution for rules governing selling shares.
General Notes for Selling Shares
* We process requests we receive from an Institution in proper form
before the close of the New York Stock Exchange, usually 1:00 P.M.
Pacific Time, at the NAV determined on the same business day. Requests
we receive after this time are processed on the next business day.
* Redemption proceeds are usually wired to the redeeming Institution the
following business day.
* 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 SEC in order
to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not
our policy to delay such payments.
* Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund
by a single shareholder over any ninety-day period. If a request for a
redemption is over these limits it may be to the detriment of existing
shareholders. Therefore, we may pay the redemption in part or in whole
in securities of equal value.
26 Stagecoach Income 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:
* You should carefully read the Prospectus for the Fund into which you
wish to exchange.
* Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
* If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount
of the Fund you are redeeming, unless your balance has fallen below
that amount due to market conditions.
* Any exchange between Funds you already own must meet the minimum
redemption and subsequent purchase amounts for the Funds involved.
* In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of
any changes in your exchange privileges.
* You may make exchanges only between like share classes.
Stagecoach Income Funds Prospectus 27
<PAGE>
Other Information
_______________________________________________________________________________
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new shares
of the Fund. The new shares are purchased at NAV, generally on the day the
distributions are paid.
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 also be subject to back-up withholding.
Historical Fund Information:
Intermediate Bond Fund-The Fund operated as the Bonds Plus Fund of Westcore
Trust and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on June 1, 1988, until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory responsibilities.
The Fund operated as a series of Pacifica Funds Trust until it was reorganized
as a series of Stagecoach Funds on September 6, 1996. In connection with the
merger of First Interstate Bancorp into Wells Fargo & Company on April 1, 1996,
FICM was renamed Wells Fargo Investment Management, Inc.
28 Stagecoach Income Funds Prospectus
<PAGE>
_______________________________________________________________________________
U.S. Government Income Fund-Commenced operations on April 7, 1988 as the U.S.
Government Income Fund of Overland Express Funds, Inc., another investment
company advised by Wells Fargo Bank. On December 12, 1997, the Overland Express
Fund was reorganized as the U.S. Government Income Fund of Stagecoach Funds,
Inc. For accounting purposes, the Overland Express Fund is considered the
surviving entity. The Overland Fund did not offer Institutional Class shares.
The Financial Highlights for the Institutional Class shares reflect prior
performance of the Stagecoach Institutional Class shares and are no longer part
of the Fund's formal financial statements.
Share Class - This Prospectus contains information about Institutional Class
shares. The Funds 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.
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
$1,000,000 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 - Your Institution mails statements after any account activity,
including transactions, dividends or capital gains, and at year-end. The
Institutions will also send any necessary tax reporting documents in January,
and will send Annual and Semi-Annual Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. Statement of
Additional Information should be read along with this Prospectus and may be
obtained free of charge by calling Investor Services at 1-800-260-5969.
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.
Stagecoach Income Funds Prospectus 29
<PAGE>
Other Information
_____________________________________________________________________________
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 Income Funds Prospectus 30
<PAGE>
Organization and Management of the Funds
_______________________________________________________________________________
A number of different companies provide services to the Funds. This section
shows how the Funds are organized, the companies that perform different
services, and how they are compensated. Further information is available in the
Statement of Additional Information for the Funds.
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 or amending fundamental investment strategies or policies.
================================================================================
Shareholders
================================================================================
Institutions and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agent Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various
111 Center St. 525 Market St. 525 Market St. Institutions
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Manages the Funds' Maintains records Provide services
Funds, distributes business activities of shares and to customers
shares, and manages supervises the
the Funds' paying of dividends
business activities
- --------------------------------------------------------------------------------
|
================================================================================
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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Income Funds Prospectus 31
<PAGE>
Organization and Management of the Funds
_______________________________________________________________________________
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Institutional Class shares 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:
- ----------------------------------------------------
Intermediate Bond Fund .23%
- ----------------------------------------------------
Short-Intermediate U.S. Government Income .26%
- ----------------------------------------------------
U.S. Government Income Fund .39%
- ----------------------------------------------------
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.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator.
32 Stagecoach Income Funds Prospectus
<PAGE>
________________________________________________________________________________
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Institutional Class shares. We have
agreements with various Institutions as 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:
- ------------------------------------------------------
Intermediate Bond Fund .25%
- ------------------------------------------------------
Short-Intermediate U.S. Government Income .25%
- ------------------------------------------------------
U.S. Government Income Fund .25%
- ------------------------------------------------------
Stagecoach Income Funds Prospectus 33
<PAGE>
Organization and Management of the Funds
______________________________________________________________________________
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.
* Scott Smith, CFA
Senior Taxable Investments Specialist
With Wells Fargo since 1988.
* Paul Single
Senior Taxable Investments Specialist
With Wells Fargo since 1988.
* Jeff Weaver
With Wells Fargo since 1994.
With Bankers Trust Company in New York since 1991.
* Madeleine Gish, CFA
With Wells Fargo since 1989.
34 Stagecoach Income Funds Prospectus
<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 or Semi-Annual Report and are
available free of charge by calling 1-800-260-5969. Other auditors audited the
financial statements for the Intermediate Bond Fund for periods prior to October
1, 1995.
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 Gain."
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.
Stagecoach Income Funds Prospectus 35
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
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.
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.
36 Stagecoach Income Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Annual and Semi-Annual Reports
Documents that provide certain financial and other information for the most
recent reporting period, including each Fund's portfolio of investments.
Asset-Backed Securities
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "Total Return".
Debt Securities
Generally, a promise to pay interest and repay principal by a single debtor or
group of single debtors sold as a security. The owner of the security is
entitled to receive any such payments. Examples include bonds and mortgage-
backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived, in part, from the value of another
security or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by 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 a 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 duration typically
more sensitive to interest rate changes than shorter duration.
Stagecoach Income Funds Prospectus 37
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization such as Moody's or Standard & Poors. Generally
these are bonds whose issuers are considered to have a strong ability to pay
interest and repay principal, although some investment-grade bonds may have some
speculative characteristics.
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and other
institutions
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.
Preservation of Capital
The attempt by a fund's manager to reduce drops in the net asset value of fund
shares in order to preserve the initial investment.
38 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Principal Stability
The degree to which share prices for a fund remain steady. Money market funds
attempt to achieve the highest degree of principal stability by maintaining a
$1.00 per share net asset value. More aggressive funds may not consider
principal stability an objective.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
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.
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 U.S. economy.
Statement of Additional Information
A document that supplements the disclosures made in this Prospectus.
Stripped Treasury Securities
Debt obligations in which the interest payments and the repayment of
principal are separated and sold as securities.
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.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
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.
Stagecoach Income Funds Prospectus 39
<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
1-800-260-5969, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
-----------------------------------------------------------------------
STAGECOACH FUNDS:
-----------------------------------------------------------------------
* are not insured by the FDIC
* are not obligations or deposits of Wells Fargo Bank, nor guaranteed
by the Bank
* involve investment risk, including possible loss of principal.
----------------------------------------------------------------------
SC ICI P (2/98)
<PAGE>
February 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Funds
Prospectus
National Tax-Free Money Market Please read this Prospectus and keep it for
Money Market future reference. It is designed to provide
Mutual Fund you with important information and to help
Prime Money Market you decide if a Fund's goals match your
own.
Mutual Fund
These securities have not been approved or
Treasury Money Market disapproved by the U.S. Securities and
Mutual Fund Exchange Commission, any state securities
commission or any other regulatory
Institutional Class authority, nor have any of these
authorities passed upon the accuracy or
Investment Advisor adequacy of this Prospectus. Any
and Administrator: representation to the contrary is a
criminal offense.
Wells Fargo Bank
Fund shares are NOT deposits or other
Distributor and obligations of, or issued, endorsed or
Co-Administrator: guaranteed by, Wells Fargo Bank, N.A.
("Wells Fargo Bank"), or any of its
Stephens Inc. affiliates. Fund shares are NOT insured or
guaranteed by the U.S. Government, the
Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board or any
other governmental agency. AN INVESTMENT IN
A FUND INVOLVES CERTAIN RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL. WE CANNOT
ASSURE YOU THAT A FUND WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
<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:
_____________________________________________________________________________
[LOGO OF Investment Objective and Investment Policies
ARROW]
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.
_______________________________________________________________________________
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
A summary of the Fund's key permitted investments and
practices.
_______________________________________________________________________________
[LOGO OF Important Risk Factors
EXCLAMATION POINT]
What are key risk factors for this Fund? This will include
the factors described in "General Investment Risks"
together with any special risk factors for this
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 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 1-800-260-5969.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Key Information 4
Summary of Expenses 6
_______________________________________________________________________________
The Funds National Tax-Free Money Market
Mutal Fund 8
This section contains
important information Prime Money Market Mutual Fund 10
about the individual Funds.
Treasury Money Market Mutual Fund 14
General Investment Risks 18
________________________________________________________________________________
Your Account Your Fund Account 22
Turn to this section for How to Buy Shares 23
information on how to
open and maintain your account, How to Sell Shares 24
including how to buy, sell and
exchange Fund shares. Exchanges 25
Other Information 26
_______________________________________________________________________________
Reference Organization and Management
of the Funds 29
Look here for details on
the organization of the How to Read the Financial Highlights 32
Funds and term definitions.
Glossary 33
</TABLE>
<PAGE>
Key Information
_______________________________________________________________________________
Summary of the Stagecoach Money Market Funds
The Funds described in this Prospectus invest in money market instruments, seek
to maintain a $1.00 per share net asset value in order to preserve principal,
and distribute dividends once a month. 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:
* you are looking for a fund in which to invest short-term cash;
* you are looking to preserve principal; and
* you are looking for monthly income.
You should not invest in these Funds if:
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you are unwilling to accept that you may lose money on your investment;
* you are unwilling to accept the risk that we may be unable to maintain a
$1.00 per share net asset value and that your investment principal may
fluctuate; or
* you are seeking long-term total return.
What are Institutional shares?
Institutional shares are typically held for your benefit by affiliate, franchise
or correspondent banks of Wells Fargo & Company and other select institutions.
The Funds offered here are available in other share classes. A prospectus for
additional share classes can be obtained by calling 1-800-260-5969.
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.
4 Stagecoach Money Market Funds Prospectus
<PAGE>
_______________________________________________________________________________
Key Terms
The term "money market instruments" is used in this Prospectus to refer to a
broad variety of short-term debt securities, commercial paper, certificates of
deposit, repurchase agreements and other investment activities described in the
Glossary and the Investment Practice/Risk table on page 21.
Dividends
We declare dividends, if any, daily and pay them monthly. You earn dividends
from the day your purchase of shares is effected and you continue to earn them
until the day before your shares are redeemed.
Stagecoach Money Market Funds Prospectus 5
<PAGE>
Money Market Funds Summary of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
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.
- --------------------------------------------------------------------------------
National
Prime Tax-Free Treasury
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on a purchase None None None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
redemptions None None None
- --------------------------------------------------------------------------------
Exchange fees None None None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Annual Fund Operating Expenses (as a percentage of average net assets)
================================================================================
Annual Fund Operating Expenses reflect amounts paid by each Fund during the
prior fiscal period. For the National Tax-Free Money Market Mutual Fund, the
amounts shown for "Other Expenses" and "Total Fund Operating Expenses" are
based on estimated amounts expected to be in effect during the current fiscal
year. Fee waivers and expense reimbursements are voluntary and may be
discontinued without prior notice.
- --------------------------------------------------------------------------------
National
Prime Tax-Free Treasury
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee (after waivers) 0.12% 0.19% 0.12%
- --------------------------------------------------------------------------------
Other expenses (after waivers
or reimbursements) 0.13% 0.11% 0.13%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.25% 0.30% 0.25%
- --------------------------------------------------------------------------------
Management fee (before waivers) 0.25% 0.30% 0.25%
- --------------------------------------------------------------------------------
Other expenses (before waivers
or reimbursements) 0.13% 0.47% 0.14%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 0.38% 0.77% 0.39%
- --------------------------------------------------------------------------------
<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 $1,000 investment assuming a 5%
annual return and that you redeem your
shares at the end of each period.
National
Prime Tax-Free Treasury
- --------------------------------------------------------------------------------
1 Year $3 $3 $3
- --------------------------------------------------------------------------------
3 Years $8 $10 $8
- --------------------------------------------------------------------------------
5 Years $14 $17 $14
- --------------------------------------------------------------------------------
10 Years $32 $38 $32
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Money Market Funds Prospectus
<PAGE>
This page intentionally left blank
_______________________________________________________________________________
<PAGE>
National Tax-Free Money Market Mutual Fund
_______________________________________________________________________________
Advisor: Wells Fargo Bank
_______________________________________________________________________________
[LOGO OF A Investment Objective
RIGHT POINT The National Tax-Free Money Market Mutual Fund seeks to
ARROW] provide investors with a high level of income exempt from
federal income tax, while preserving capital and
liquidity.
Investment Policies
We actively manage a portfolio of U.S. dollar-denominated,
high-quality, short-term instruments, primarily municipal
obligations with remaining maturities of 397 days or less.
Among the municipal obligations we buy are bonds, notes and
commercial paper issued by or on behalf of the states,
territories and possessions of the United States and their
political subdivisions and other public authorities. Under
normal market conditions we invest substantially all of our
assets in debt obligations that are exempt from federal
income tax. We maintain an overall dollar-weighted average
maturity of 90 days or less.
_______________________________________________________________________________
[LOGO OF A Permitted Investments
PERCENTAGE Under normal market conditions, we invest:
SIGN]
* at least 80% of our net assets in municipal
obligations the interest on which is exempt from
federal income tax and not subject to the federal
alternative minimum tax; and
* in obligations rated within the two highest
categories by a nationally recognized ratings
organization.
We may also invest up to 20% of our assets in permitted
taxable investments as a defensive measure due to unusual
market conditions or to maintain liquidity.
8 Stagecoach Money Market Funds Prospectus
<PAGE>
_______________________________________________________________________________
[LOGO OF AN Important Risk Factors
EXCLAMATION You should consider both the General Investment Risks
POINT] beginning on page 18 and the specific risks listed below.
They are both important to your investment choice.
Up to 25% or more of our assets invested in municipal
obligations may be related in such a way that political,
economic or business developments affecting one obligation
would affect the others. For example, we may own different
obligations that pay interest based on the revenue of
similar projects.
There is no guarantee that we will be able to maintain a
$1.00 per share net asset value. Fluctuations in share value
may cause a loss or gain in principal. Generally, short-term
funds do not earn as high a level of income as funds that
invest in longer-term instruments. No government agency
either directly or indirectly insures or guarantees the
performance of the Fund.
_______________________________________________________________________________
[LOGO OF A Additional Fund Facts
PLUS SIGN] Although it is our intention to minimize such exposure, a
portion of the income earned by the Fund may be subject to
the federal alternative minimum tax. We will send you a
letter each year informing you what percentage, if any, may
be subject.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 9
<PAGE>
Prime Money Market Mutual Fund
_______________________________________________________________________________
Advisor: Wells Fargo Bank
_______________________________________________________________________________
[LOGO OF A RIGHT Investment Objective
POINT ARROW] The Prime Money Market Mutual Fund seeks to provide
investors with maximized current income to the extent
consistent with preservation of capital and maintenance of
liquidity.
Investment Policies
We pursue this objective by actively managing a portfolio
consisting of a broad range of U.S. dollar-denominated, high
quality money market instruments, including debt obligations
with remaining maturities of 397 days or less. We maintain
an overall dollar-weighted average maturity of 90 days or
less. We may also make certain other investment including,
for example, repurchase agreements.
_______________________________________________________________________________
[LOGO OF A Permitted Investments
PERCENTAGE SIGN] Under normal market conditions, we invest in:
* U.S. Government obligations;
* commercial paper rated at the date of purchase as P-
1 by Moody's or A-1+ or A-1 by S&P;
* negotiable certificates of deposits and banker's
acceptances;
* repurchase agreements;
* short-term, U.S. dollar-denominated debt of U.S.
branches of foreign banks; and
* shares of other money market funds.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
_______________________________________________________________________________
[LOGO OF A RIGHT Important Risk Factors
POINT ARROW] You should consider both the General Investment Risks
beginning on page 18 and the specific risks listed below.
They are both important to your investment choice.
There is no guarantee that we will be able to maintain a
$1.00 per share net asset value. Fluctuations in share value
may cause a loss or gain in principal. Generally, short-term
funds do not earn as high a level of income as funds that
invest in longer-term instruments. No government agency
either directly or indirectly insures or guarantees the
performance of the Fund.
_______________________________________________________________________________
[LOGO OF A PLUS Additional Fund Facts
SIGN] For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 11
<PAGE>
<TABLE>
<CAPTION>
Prime Money Market Mutual Fund Financial Highlights
See "Historical Fund Information" on page 26.
See "How to Read the Financial Highlights" on page 32.
- --------------------------------------------------------------------------------
=================================================================================================================================
For a Share Outstanding
=================================================================================================================================
For the period ended: Institutional Class Shares - Commenced Investor Shares
on August 11, 1995 (prior years
-service class)
--------------------------------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30, March 31,
1997/1/ 1997/2/ 1996/3/ 1995 1995 1994/4/ 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.03 0.05 0.01 0.05 0.02 0.03
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.05 0.01 0.05 0.02 0.03
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.05) (0.01) (0.05) (0.02) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.03) (0.05) (0.01) (0.05) (0.02) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.74% 2.64% 5.39% 5.65% 5.60% 3.71%/6 3.00%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $506,339 $538,195 $423,959 $30,606 $ 614,101 $565,305 $527,599
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.25% 0.25% 0.25% 0.26% 0.41% 0.41% 0.41%
Ratio of net investment income to
average net assets 5.40% 5.25% 5.33% 5.67% 5.47% 3.67% 2.96%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.41% 0.38% 0.60% 0.69% 0.68% 0.89% 0.89%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 5.24% 5.12% 4.98% 5.24% 5.20% 3.19% 2.48%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===============================================================================================================================
Institutional Share Calendar-Year Returns 1994
===============================================================================================================================
Returns for other share classes may vary 3.88%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor during this fiscal year.
12 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
Prime Money Market Mutual Fund Financial Highlights
See "Historical Fund Information" on page 26.
See "How to Read the Financial Highlights" on page 32.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.07 0.08 0.08 0.06
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.05 0.07 0.08 0.08 0.06
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 3.32% 5.22% 7.72% 8.82% 7.88% 6.50%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $468,479 $528,397 $543,834 $493,641 $496,675 $628,987
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.41% 0.43% 0.47% 0.54% 0.56% 0.58%
Ratio of net investment income to
average net assets 3.27% 5.09% 7.38% 7.95% 7.58% 7.38%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.89% 0.91% 0.94% 0.90% 0.90% 0.93%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.79% 4.61% 6.91% 7.59% 7.24% 6.03%
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Share Calendar Year Returns 1993 1992 1991 1990 1989 1988
========================================================================================================
Returns for other share classes may vary 3.00% 3.61% 5.85% 8.03% 9.04% 7.31%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
/5/ Annualized
/6/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class Shares.
Stagecoach Money Market Funds Prospectus 13
<PAGE>
Treasury Money Market Mutual Fund
_______________________________________________________________________________
Advisor: Wells Fargo Bank
______________________________________________________________________________
[LOGO OF Investment Objective
ARROW]
The Treasury Money Market Mutual Fund seeks to provide
investors with current income and stability of principal.
Investment Policies
We actively manage a portfolio composed of obligations
issued or guaranteed by the U.S. Treasury. We also invest
in notes, repurchase agreements and other instruments
collateralized or secured by Treasury obligations. We buy
obligations with remaining maturities of 397 days or less.
We maintain an overall dollar-weighted average maturity of
90 days or less.
______________________________________________________________________________
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
Under normal market conditions, we invest:
* in U.S. Treasury obligations; and
* in repurchase agreements collateralized by U.S.
Treasury obligations.
As a temporary defensive measure, or to maintain
liquidity, we may invest in shares of other money market
funds that have similar investment objectives.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
_______________________________________________________________________________
[LOGO OF AN Important Risk Factors
EXCLAMATION POINT] You should consider both the General Investment Risks
beginning on page 18 and the specific risks listed below.
They are both important to your investment choice.
There is no guarantee that we will be able to maintain a
$1.00 per share net asset value. Fluctuations in share
value may cause a loss or gain in principal. Generally,
short-term funds do not earn as high a level of income as
funds that invest in longer-term instruments. The U.S.
Treasury does not directly or indirectly insure or
guarantee the performance of the Fund.
_______________________________________________________________________________
[LOGO OF A Additional Fund Facts
RIGHT PLUS SIGN] Treasury obligations have historically involved little
risk of loss of principal if held to maturity. However,
fluctuations in market interest rates may cause the market
value of Treasury obligations in the Fund's portfolio to
fluctuate.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 15
<PAGE>
<TABLE>
<CAPTION>
Treasury Money Market Mutual Fund Financial Highlights
See "Historical Fund Information" on page 26.
- --------------------------------------------------------------------------------
================================================================================================================================
For a Share Outstanding
=================================================================================================================================
For the period ended: Institutional Class Shares - Commenced Investor Shares
on August 11, 1995 (prior years
-service class)
--------------------------------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30, March 31,
1997/1/ 1997/2/ 1996/3/ 1995 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.03 0.05 0.01 0.05 0.02 0.03
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.05 0.01 0.05 0.02 0.03
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.05) (0.01) (0.05) (0.02) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.03) (0.05) (0.01) (0.05) (0.02) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.65% 2.58% 5.26% 5.51%/5/ 5.42% 3.75%/5/ 2.81%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $485,723 $449,647 $540,689 $36,443 $1,001,707 $690,630 $654,950
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.25% 0.25% 0.25% 0.26% 0.42% 0.43% 0.43%
Ratio of net investment income to
average net assets 5.22% 5.11% 5.21% 5.42% 5.32% 3.72% 2.77%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.41% 0.39% 0.59% 0.69% 0.66% 0.90% 0.90%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 5.06% 4.97% 4.87% 4.99% 5.08% 3.25% 2.30%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===============================================================================================================================
Institutional Share Calendar-Year Returns 1994 1993
===============================================================================================================================
Returns for other share classes may vary 3.84% 2.88%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor during this fiscal year.
16 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
Treasury Money Market Mutual Fund Financial Highlights
See "How to Read the Financial Highlights" on page 32.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended:
--------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.07 0.08 0.07 0.06
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.05 0.07 0.08 0.07 0.06
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 3.13% 5.03% 7.42% 8.58% 7.63% 6.20%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $614,237 $281,343 $118,623 $98,398 $90,672 $101,066
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.43% 0.45% 0.48% 0.56% 0.63% 0.69%
Ratio of net investment income to
average net assets 3.04% 4.73% 7.10% 7.73% 7.36% 6.12%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.91% 0.93% 0.94% 0.97% 0.98% 1.05%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.56% 4.25% 6.64% 7.32% 7.01% 5.76%
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Share Calendar Year Returns 1992 1991 1990 1989 1988
========================================================================================================
Returns for other share classes may vary 3.32% 5.65% 7.75% 8.78% 7.06%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
/5/ Annualized
/6/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class Shares.
Stagecoach Money Market Funds Prospectus 17
<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 we will meet our investment objectives. In particular,
we cannot guarantee that we will be able to maintain a $1.00 per share net
asset value.
* You cannot recover through insurance any loss due to investment practices,
nor can the Fund, the Institutions or investment advisors "make good" any
losses you might have.
* 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 Funds invest in debt securities, 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
securities with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Interest rate risk does
not affect the interest paid by a debt security unless it is specifically
designed to pay an adjustable rate.
* The Funds' advisor may also use certain derivative instruments such as
options or futures contracts. The term "derivatives" covers a wide range 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 following types of floating-rate derivative securities are NOT permitted
investments in the Funds:
* Capped floaters on which interest is not paid when market rates move above
a certain level;
* Leveraged floaters whose interest rates reset based on a formula that
magnifies changes in market interest rates;
18 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
* Range floaters on which interest is not paid if market interest rates move
outside a specified range;
* Dual index floaters whose interest rate reset provisions are tied to more
than one index; and
* Inverse floaters which have interest rates that reset in an opposite
direction of their index.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
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.
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.
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.
Leverage Risk- The risk that a practice may increase a Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing
assets available for investment.
Liquidity Risk- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------
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 has a
different investment objective and investment policies. 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.
------------------------------------------------------------------------------
20 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National
Bond Prime Treasury
=============================================================================================================
<S> <C> <C> <C> <C>
INVESTMENT PRACTICE: RISK:
=============================================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates Interest Rate and * * *
that are adjusted either Credit Risk
on a schedule or when an index
or benchmark changes.
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the Credit and * * *
seller of a security agrees Counter-Party Risk
to buy back a security at an
agreed upon time and
price, usually with interest.
- --------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in Market Risk * * *
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 OBLIGATIONS
Dollar-denominated debt Information, Liquidity * * *
obligations of foreign branches Political, Regulatory, and
of U.S. banks or U.S. branches Diplomatic Risk
of foreign banks.
- --------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Leverage, * * *
in brokers, dealers and Counter-Party Risk
and financial institutions to
increase return on those securities.
Loans may be made in accordance with
existing investment policies. Oregon,
Arizona and National Tax-Free Funds,
Limited to 30% of total assets for
the 33 1/3% for the other Funds.
- --------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk * * *
of 10% of assets from banks for
temporary purposes to meet
shareholder redemptions.
- --------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be Liquidity Risk * * *
readily sold or cannot be
readily sold without negatively
affecting its fair value.
The limit is 15% of assets for all
but the California
Tax-Free Bond Fund, which has a
limit of 10%.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 21
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Institutional Class shares are bought and held on your behalf by
the Institution through which you are investing. Check with your customer
account representative or your Customer Account agreement for the rules
governing your investment.
Minimum Investments:
* Minimum, initial and subsequent investment amounts are determined by your
Customer Account agreement with your Institution, and are generaly:
* $5,000,000 per Fund minimum initial investment for the Prime and
Treasury Money Market Mutual Funds;
* $150,000 minimum initial investment for the National Tax-Free
Money Market Mutual Fund; and
* $25,000 per Fund for all investments after your first.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with
your Institution. You may also ask for copies of the Statement of
Additional Information and Annual Report. Copies are available free
of charge from your Institution or by calling 1-800-260-5969.
* We process requests to buy or sell shares each business day.
* Requests we receive from an Institution in proper form before 12:00
Noon (Pacific time) for the Prime Money Market Mutual Fund and the
Treasury Money Market Mutual Fund generally are processed at 12:00
Noon on the same day.
* Requests we receive from an Institution in proper form before 9:00
a.m. (Pacific time) for the National Tax-Free Money Market Mutual
Fund generally are processed at 9:00 a.m. on the same day.
* Requests we receive after the above-specified times for each Fund are
processed the next business day at the applicable Net Asset Value
(NAV).
* Payment for shares may be made by Institutions in funds immediately
available to us no later than 1:00 p.m. (Pacific time) on the same
business day as the purchase order is processed. If payment is not
received on the same business day, the order will be cancelled and
the Institution will be responsible for any loss.
22 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
* As with all mutual fund investments, the price you pay to purchase
shares or the price you receive when you redeem shares is the NAV
next determined after a request has been received in proper form.
* We determine the NAV of each Fund's shares by subtracting the Fund
liabilities from its total assets, and then dividing the result by
the total number of outstanding shares of that Fund. See the
Statement of Additional Information for further information.
* On any day the trading markets for both U.S. government securities
and money market instruments close early, the Funds will close
early.
How to Buy Shares
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
* Share purchases are made through a Customer Account at an Institution
in accordance with the terms of the Customer Account involved;
* Institutions are usually the holders of record of Institutional
shares held through Customer Accounts and maintain records reflecting
their customers' beneficial ownership of the shares;
* Institutions are responsible for transmitting their customers'
purchase and redemption orders to the Funds and for delivering
required payment on a timely basis;
* The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the
Customer Account involved; and
* Institutions may charge their customers account fees and may receive
fees from us with respect to investments their customers have made
with the Funds. See "Organization and Management of the Funds" for
further details about these fees.
Stagecoach Money Market Funds Prospectus 23
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
How to Sell Shares
Institutional Class shares must be redeemed in accordance with the account
agreement governing your Customer Account at the Institution. Please read the
Customer Account agreement with your institution for rules governing selling
shares.
General Notes for Selling Shares
* We process requests we receive in proper form before 12:00 noon
(Pacific Time) on any business day for the Prime and Treasury Money
Market Mutual Funds at the NAV determined as of 12:00 noon on the
same business day. Requests we receive after this time are processed
on the next, business day.
* We process requests we receive in proper form before 9:00 a.m.
(Pacific Time) on any business day for the National Tax-Free Money
Market Mutual Fund at the NAV determined as of 9:00 a.m. on the same
business day.
* Redemption proceeds are usually wired to the redeeming Institution
the following business day.
* Requests we receive after 12:00 noon (Pacific Time) for the Prime and
Treasury Money Market Mutual Funds or after 9:00 a.m. (Pacific Time)
for the National Tax-Free Money Market Mutual Fund are processed the
next business day at the applicable NAV.
* 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 SEC
in order to protect remaining shareholders. Payments of redemptions
also may be delayed up to seven days under normal circumstances,
although it is not our policy to delay such payments.
* Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund
by a single shareholder over any ninety-day period. If a request for
a redemption is over these limits it may be to the detriment of
existing shareholders. Therefore, we may pay the redemption in part
or in whole in securities of equal value.
24 Stagecoach Money Market 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:
* You should carefully read the Prospectus for the Fund into which you
wish to exchange.
* Every exchange involves selling Fund shares and that sale may produce
a capital gain or loss for federal income tax purposes.
* If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase
amount of the Fund you are redeeming, unless your balance has fallen
below that amount due to market conditions.
* Any exchange between Funds you already own must meet the minimum
redemption and subsequent purchase amounts for the Funds involved.
* 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.
* Institutional Class shares may be exchanged for other Institutional
Class shares, or for Class A shares in certain qualified accounts.
Contact your account representative for further details.
Stagecoach Money Market Funds Prospectus 25
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new
shares of the Fund. The new shares are purchased at NAV, generally on the day
the distributions are paid.
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. However, dividends distributed by the National Tax-Free Money
Market Mutual Fund which are attributable to the Fund's net interest income
from tax-exempt securities will not be subject to federal income tax.
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
National Tax-Free Money Market Mutual Fund- Prior to December 15, 1997, the
Fund invested all of its assets in a Master Portfolio with an identical
investment objective. The Fund currently invests directly in a portfolio of
securities and no longer invests in a Master Portfolio. The Institutional
Class shares commenced operations on December 15, 1997.
Prime Money Market Mutual Fund-The Fund operated as Pacific American Liquid
Assets, Inc. from commencement of operations on April 30, 1981 until it was
reorganized as a portfolio of Pacific American Fund on October 1, 1985. On
26 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
October 1, 1994, the Fund was reorganized as the Pacific American Money Market
Portfolio, a portfolio of Pacifica Funds Trust. In July 1995, the Fund was
renamed the Pacifica Prime Money Market Fund, and on or about September 6,
1996, the Fund was reorganized as the Prime Money Marker Mutual Fund of the
Company. The Institutional Class shares of the Fund commenced operations on
August 11, 1995. Financial information prior to this date is for the Service
Class shares of the Pacifica portfolio. Prior to April 1, 1996, First
Interstate Capital Management, Inc. ("FICM") served as the Fund's adviser. In
connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment Management,
Inc.
Treasury Money Market Mutual Fund-Prior to August 1, 1990, the Treasury Money
Market Mutual Fund was known as the Short-Term Government Fund, which
commenced operations on October 1, 1985, and invested in obligations issued or
guaranteed by agencies and instrumentalities of the U.S. Government. The Fund
operated as a portfolio of Pacific American Funds through October 1, 1994,
when it was reorganized as the Pacific American U.S. Treasury Portfolio, a
portfolio of Pacifica Funds Trust. In July 1995, the Fund was renamed the
Pacifica Treasury Money Market Fund, and on September 6, 1996, the Fund was
reorganized as a series of Stagecoach Funds. The Institutional Class shares of
the Fund commenced operations on August 11, 1995. Financial information prior
to this date is for the Service Class shares of the Pacifica portfolio. Prior
to April 1, 1996, First Interstate Capital Management, Inc. ("FICM") served as
the Fund's adviser. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo
Investment Management, Inc.
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
$5,000,000 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.
Share Class - This Prospectus contains information about Institutional Class
shares. The Funds 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.
Statements - The Institutions mail statements after any account activity,
including dividends or capital gains, and at year-end. The Institutions will
also send any necessary tax reporting documents in January, and will send
Annual and Semi-Annual Reports each year.
Stagecoach Money Market Funds Prospectus 27
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. The
Statement of Additional Information should be read along with this Prospectus
and may be obtained free of charge by calling Investor Services at 1-800-260-
5969.
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.
28 Stagecoach Money Market Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different companies provide services to the Funds. This section
shows how the Funds are organized, the companies that perform different
services, and how they are compensated. Further information is available in
the Statement of Additional Information for the Funds.
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, or amending fundamental investment strategies or policies.
================================================================================
Shareholders
================================================================================
Institutions and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agent Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various
111 Center St. 525 Market St. 525 Market St. Institutions
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Manages the Funds' Maintains records Provide services
Funds, distributes business activities of shares and to customers
shares, and manages supervises the
the Funds' paying of dividends
business activities
- --------------------------------------------------------------------------------
|
================================================================================
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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 29
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of Institutional Class shares 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 fiscal period ended March 31, 1997:
- --------------------------------------------------------------------------------
National Tax-Free Money Market Mutual Fund ???
- --------------------------------------------------------------------------------
Prime Money Market Mutual Fund ???
- --------------------------------------------------------------------------------
Treasury Money Market Mutual Fund ???
- --------------------------------------------------------------------------------
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.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator.
30 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Institutional Class shares. We
have agreements with various Institutions as shareholder servicing agents to
process purchase and redemption requests, to service shareholder accounts, and
to provide other related services.
For these services, the Institutional Class of each Fund pays as follows:
- --------------------------------------------------------------------------------
National Tax-Free Money Market Mutual Fund ????
- --------------------------------------------------------------------------------
Prime Money Market Mutual Fund ?????
- --------------------------------------------------------------------------------
Treasury Money Market Mutual Fund ?????
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 31
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of each Fund there is a chart showing important
financial information about the Fund. The chart is called the "Financial
Highlights" and is designed to help you understand the past performance of the
Fund. The financial statements from which the 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 1-800-260-5969.
Other auditors audited the financial statements for the Arizona Tax-Free,
National Tax-Free and Oregon Tax-Free Funds for periods prior to October 1,
1995.
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.
32 Stagecoach Money Market Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Annual and Semi-Annual Report
Documents that provide certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the Funds are open. The Funds are generally open Monday through Friday
and are closed weekends and federal bank holidays.
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.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth.
Debt Securities
Generally, a promise to pay interest and repay principal by a single debtor or
group of single debtors sold as a security. The owner of the security is
entitled to receive any such payments. Examples include bonds and mortgage-
backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
of index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
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.
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 Money Market Funds Prospectus 33
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and
other institutions.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
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.
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 per share of the Prime Money Market Mutual
and Treasury Money Market Mutual Funds is determined each business day at
12:00 noon and 1:00 PM (Pacific Time). The NAV per share of the National Tax-
Free Money Market Mutual Funds is determined each business day at 9:00 AM and
1:00 PM (Pacific Time).
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.
Shareholder Servicing Agent
An entity appointed by a Fund to maintain shareholder accounts and record,
assist and provide information to shareholders or perform similar functions.
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 U.S. economy.
34 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted Average Maturity
The average maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
Stagecoach Money Market Funds Prospectus 35
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- --------------------------------------------------------------------------------
<PAGE>
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- --------------------------------------------------------------------------------
<PAGE>
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- --------------------------------------------------------------------------------
<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
1-800-260-5969, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
------------------------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
------------------------------------------------------------------------
* are not insured by the FDIC
* are not obligations or deposits of Wells Fargo Bank, nor guaranteed
by Wells Fargo Bank
* involve investment risk, including possible loss of principal.
* seek to maintain a stable net asset value of $1.00 per share,
however, there can be no assurance that a fund will meet this goal.
Yields will vary with market conditions.
------------------------------------------------------------------------
[LOGO OF RECYCLING] SC MMI P (2/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL FUND
CLASS S SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one class of shares of a
fund in the Stagecoach Family of Funds -- Class S shares of the MONEY MARKET
MUTUAL FUND (the "Fund"). The MONEY MARKET MUTUAL FUND seeks to provide
investors with a high level of income, while preserving capital and liquidity,
by investing in high-quality, short-term instruments.
Currently, Class S shares are available only to qualified business investors
who purchase such shares through a Managed Sweep Account (sometimes, an
"Account") offered by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). A Managed
Sweep Account combines a non-interest bearing Wells Fargo Bank deposit account
with a daily sweep of balances to or from the Fund's Class S shares. Persons
investing in Class S shares through a Managed Sweep Account also receive a
Business Account Disclosure (the "Disclosure Statement") describing the
various features and operations of the Account. The Disclosure Statement
should be reviewed in conjunction with this Prospectus.
AN INVESTMENT IN THE FUND, THROUGH A MANAGED SWEEP ACCOUNT OR OTHERWISE, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to
help you decide if the Fund's Class S shares' goals meet your own. A Statement
of Additional Information (the "SAI") for the Fund dated February 1, 1998, has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus. The SAI for the Fund is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling the Company at 1-800-222-8222.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUND FOR WHICH IT IS COMPENSATED.
STEPHENS INC. ("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS
FARGO BANK, IS THE CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE
FUND.
PROSPECTUS DATED
FEBRUARY 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-----
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Account Fees and Charges 4
Explanation of Tables 5
Financial Highlights 6
How the Fund Works 7
The Fund and Management 9
Investing in the Fund 10
Dividend and Capital Gain Distributions 11
How to Redeem Shares 12
Management, Distribution and Servicing Fees 12
Taxes 15
Prospectus Appendix - Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides investors with a convenient way to invest in a portfolio
of securities selected and supervised by professional management. The
following provides you with summary information about the Fund. For more
information, please refer specifically to the identified Prospectus sections
and generally to the Prospectus and SAI for the Fund.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in high-
quality, short-term instruments. In pursuing this objective, the Fund
invests in securities with remaining maturities not exceeding 397 days, as
determined in accordance with Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). These securities include obligations of
the U.S. Government, its agencies and instrumentalities, high-quality debt
obligations such as corporate debt, certain obligations of U.S. banks and
certain repurchase agreements. See "How the Fund Works -- Investment
Objectives and Policies" and "Prospectus Appendix -- Additional Investment
Policies."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC nor are they insured against loss of
principal. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Deposits to the Accounts are eligible for federal deposit insurance only
for the brief period they are in the Transaction Account prior to being
swept into the Fund. You should be prepared to accept some risk with the
money you invest in the Fund. As with all mutual funds, there can be no
assurance that the Fund will achieve its investment objective. See "How The
Fund Works -- Risk Factors" and "Prospectus Appendix -- Additional
Investment Policies."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling
agent (each as defined below) of the Fund. See "The Fund and Management"
and "Management, Distribution and Servicing Fees."
Q. HOW DO I INVEST?
A. This Prospectus is designed only for businesses that invest in Class S
shares of the Fund through a Managed Sweep Account with Wells Fargo Bank. A
Managed Sweep Account combines a non-interest bearing Wells Fargo Bank
deposit account (the "Transaction Account")
1 PROSPECTUS
<PAGE>
with a daily sweep of Transaction Account balances to or from the Fund.
Wells Fargo Bank computes the net amount of deposits to and withdrawals
from your Transaction Account (the "Net Sweep Amount") each day Wells Fargo
Bank is open for business. If deposits exceed withdrawals from your
Transaction Account, Wells Fargo Bank transmits a purchase order on your
behalf to the Fund in an amount equal to the dollar value of the Net Sweep
Amount. The information in this Prospectus should be read in conjunction
with the Disclosure Statement related to your Account. See "Investing in
the Fund."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Fund are declared daily and distributed monthly to your
Account through automatic reinvestment in Class S shares of the Fund. Any
capital gains will be distributed at least annually. Various dividend and
distribution options, such as the option to direct the payment of proceeds
from dividends and distributions to another account, which may be available
to holders of the Fund's Class A shares, are not available to persons
investing in Class S shares through a Managed Sweep Account. See "Dividend
and Capital Gain Distributions" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. If, on any day Wells Fargo Bank is open for business, withdrawals from your
Managed Sweep Account exceed deposits, Wells Fargo Bank transmits a
redemption order on your behalf to the Fund in the dollar amount of that
day's Net Sweep Amount. If your Managed Sweep Account with Wells Fargo Bank
is closed as described in the applicable Disclosure Statement, Wells Fargo
Bank will transmit a redemption request on your behalf to the Fund for the
balance of your Fund shares held through such Account. See "How To Redeem
Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
----------------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)......................... None
Maximum Sales Charge on Reinvested Distributions............. None
Maximum Sales Charge on Redemptions.......................... None
Exchange Fees................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES/1/
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
----------------
<S> <C>
Management Fee............................................. 0.40%
Rule 12b-1 Fee............................................. 0.75%
Other Expenses (after waivers or reimbursements)/2/........ 0.27%
----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/2/........................................ 1.42%
====
</TABLE>
-----------------------
/1/ Additional fees charged by Wells Fargo Bank related to an Account are
not included in this table. See "Account Fees and Charges."
/2/ Absent waivers and reimbursements, the percentages shown above under
"Other Expenses" and "Total Fund Operating Expenses" would be 0.41% and
1.56%, respectively.
Note: The tables do not reflect any charges that may be imposed by Wells
Fargo Bank directly on its customer accounts in connection with an
investment in Class S Shares of the Fund.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in the Fund, assuming (A)
a 5% annual return and (B) redemption at the
end of each time period indicated:
Money Market Mutual Fund (Class S)......... $14 $45 $78 $170
</TABLE>
3 PROSPECTUS
<PAGE>
Account Fees and Charges
Set forth below is a summary of fees which may be charged by Wells Fargo
Bank for various banking services available through a Managed Sweep Account.
For additional information on Account fees and charges please refer to the
Disclosure Statement accompanying this Prospectus.
<TABLE>
<CAPTION>
MANAGED
SWEEP
ACCOUNT/1/
-----------
<S> <C>
Monthly Account Fees
Managed Sweep Account Fee........................................ $25.00
Checking Maintenance Fee......................................... $15.00
Transaction Fees/2/
Per Check Written................................................ $0.14
Per Deposit Slip Processed....................................... $1.40
Per Check Deposited.............................................. $0.095
Per $1,000 Cash Deposited........................................ $1.20
Miscellaneous Fees................................................ Variable/3/
Minimum Opening Balance........................................... $10,000
</TABLE>
-----------------------
/1/ Currently, Class S shares of the Fund may be purchased only through a
Managed Sweep Account. Class A or Institutional Class shares of the Fund
may be purchased without opening an Account and without incurring the
fees for, or deriving the benefits of, the Account Services described
above. Information regarding Class A and Institutional Class shares may
be obtained by calling 1-800-222-8222.
/2/ A Transaction Fee is charged whenever one of the listed transactions
occurs.
/3/ Various miscellaneous fees may be charged on a per transaction, per
statement or other basis as described in "Miscellaneous Fees and
Charges" and elsewhere in the Disclosure Statement.
PROSPECTUS 4
<PAGE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when you buy or sell
Fund shares. There are no Shareholder Transaction Expenses for the Fund,
except that the Company reserves the right to impose a charge for wiring
redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts and
amounts incurred during the most recent fiscal year. These amounts have been
restated to reflect voluntary fee waivers and expense reimbursements expected
to continue to reduce expenses during the current fiscal year. Wells Fargo
Bank and Stephens, at their sole discretion, may waive or reimburse all or a
portion of their respective fees charged to, or expenses paid by, the Fund.
Any waivers or reimbursements would reduce the Fund's total expenses. There
can be no assurance that waivers or reimbursements will continue. The
percentages shown above under "Other Expenses" and "Total Fund Operating
Expenses" reflect voluntary fee waivers and expense reimbursements that are
expected to reduce expenses during the current fiscal year. Long-term
shareholders in the Fund could pay more in sales charges than the economic
equivalent of the maximum front-end sales charges applicable to mutual funds
sold by members of the National Association of Securities Dealers ("NASD").
For more complete descriptions of the various costs and expenses you can
expect to incur as an investor in Class S shares of the Fund, please see the
Prospectus section captioned "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses
associated with a $1,000 investment over stated periods, based on the expenses
in the table above and an assumed annual rate of return of 5%. This rate of
return should not be considered an indication of actual or expected
performance of the Fund. In addition, the example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or lesser than those shown.
ACCOUNT FEES AND CHARGES are charges you pay to Wells Fargo Bank for banking
services offered to you as a Managed Sweep Account holder. Wells Fargo Bank
currently charges monthly account fees for the Managed Sweep Account. In
addition, your Account is subject to various other fees and charges which may
be assessed on a monthly or other periodic basis, or on a per transaction, per
statement or other basis. For additional information with respect to Account
fees and charges, including a description of the services available to Account
holders, you should refer to the Disclosure Statement.
5 PROSPECTUS
<PAGE>
Financial Highlights
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the six-month periods ended March 31, 1997
and September 30, 1997. The financial statements for the six-month period
ended March 31, 1997 have been audited by KPMG Peat Marwick LLP. The audited
financial statements and the report thereon are incorporated by reference into
the SAI. The unaudited financial statements for the six-month period ended
September 30, 1997 also are incorporated by reference into the SAI. This
information should be read in conjunction with the Fund's 1997 financial
statements and notes thereto. The SAI for the Fund has been incorporated by
reference into this Prospectus.
MONEY MARKET MUTUAL FUND
FOR A CLASS S SHARE OUTSTANDING
<TABLE>
<CAPTION>
(UNAUDITED)
SIX-MONTH SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30, MAR. 31, SEPT. 30, DEC. 31,
1997 1997/1/ 1996/2/ 1995/3/
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $1.00 $1.00 $1.00 $1.00
Income from Investment
Operations:
Net Investment Income.. 0.02 0.02 0.03 0.03
Net Realized and
Unrealized Gain (Loss)
on Investments........ 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total from Investment
Operations............ 0.02 0.02 0.03 0.03
Less Distributions:
Dividends from Net
Investment Income..... (0.02) (0.02) (0.03) (0.03)
Distributions from Net
Realized Gain......... 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total From
Distributions......... (0.02) (0.02) (0.03) (0.03)
-------- -------- -------- --------
Net Asset Value, End of
Period................ $1.00 $1.00 $1.00 $1.00
======== ======== ======== ========
Total Return (not
annualized)........... 2.15% 2.02% 3.03% 2.73%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)........ $888,314 $707,781 $699,231 $618,899
Ratios to Average Net
Assets (annualized):
Ratio of Expenses to
Average Net Assets.... 1.42% 1.43% 1.42% 1.43%
Ratio of Net Investment
Income to Average Net
Assets................ 4.26% 4.02% 3.98% 4.40%
Ratio of Expenses to
Average Net Assets
Prior To Waived Fees
and Reimbursed
Expenses.............. 1.54% 1.56% 1.55% 1.53%
Ratio of Net Investment
Income to Average Net
Assets Prior To Waived
Fees and Reimbursed
Expenses.............. 4.14% 3.89% 3.85% 4.30%
</TABLE>
-----------------------
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its fiscal year-end from December 31 to September 30.
/3/ The Class S shares commenced operations on May 25, 1995.
PROSPECTUS 6
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVES AND POLICIES
THE MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Fund invests its assets only in U.S. dollar-
denominated, high-quality money market instruments, and may engage in certain
other investment activities as described in this Prospectus. Permitted
investments include short-term U.S. Government obligations, obligations of
domestic and foreign banks, commercial paper, and repurchase agreements. In
pursuing its objective, the Fund invests in instruments with remaining
maturities not exceeding 397 days, as determined in accordance with Rule 2a-7
under the 1940 Act. A more complete description of the Fund's investments and
investment objectives is contained in "Prospectus Appendix -- Additional
Investment Policies" and the SAI.
RISK FACTORS
Investments in Fund shares are not bank deposits or obligations of Wells
Fargo Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Although the Fund seeks to maintain a stable NAV of
$1.00 per share, there is no assurance that it will be able to do so. The Fund
may not achieve as high a level of current income as other mutual funds that
do not limit their investments to the high credit quality instruments in which
the Fund invests. As with all mutual funds, there can be no assurance that the
Fund, which is a diversified portfolio, will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable NAV of $1.00 per share. The dollar-weighted average portfolio maturity
of the Fund must not exceed 90 days. Any security that the Fund purchases must
have a remaining maturity of not more than 397 days (13 months). In addition,
any security that the Fund purchases must present minimal credit risks and be
of high quality (i.e., be rated in the top two rating categories by the
required number of nationally recognized statistical rating organizations
("NRSROs") or, if unrated, determined to be of comparable quality to such
rated securities by Wells Fargo Bank, as the Fund's investment adviser, under
guidelines adopted by the Board of Directors).
The portfolio debt instruments of the Fund are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Fund invests may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Fund invests and hence the value of your investment in the Fund.
The Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Fund is considered to be diversified for
purposes of the 1940 Act. In addition, the Fund, since its inception, has
emphasized safety of principal and high credit quality. In particular, the
internal
7 PROSPECTUS
<PAGE>
investment policies of the Fund's investment adviser, Wells Fargo Bank,
prohibit the purchase for the Fund of many types of floating-rate instruments
commonly referred to as "derivatives" that are considered potentially
volatile. The following types of derivative instruments ARE NOT permitted
investments for the Fund:
. capped floaters (on which interest is not paid when market rates move
above a certain level);
. leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
. dual index floaters (whose interest-rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
. inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may only invest in
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently, and which resets based on changes in standard money market
rate indices such as U.S. Treasury bills, London Interbank Offered Rate, the
prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or J.J. Kenney index floaters.
PERFORMANCE
The performance of the Class S shares may be advertised from time to time in
terms of current yield, effective yield and average annual total return.
Performance figures are based on historical results calculated under uniform
SEC formulas and are not intended to indicate future performance. Performance
figures are calculated separately for each class of shares of the Fund.
Yield refers to the income generated by an investment in Class S shares of
the Fund over a specified period (usually seven days), expressed as an annual
percentage rate. Effective yields are calculated similarly, but assume that
the income earned from the Fund is reinvested in the Fund. Because of the
effects of compounding, effective yields are slightly higher than yields.
Average annual total return of a class of shares is based on the overall
dollar or percentage change of an investment in the Fund's class and assumes
the investment is at NAV and all dividends and distributions attributable to a
class are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund also may present non-standard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates. Because of the differences in the fees and/or expenses
borne by shares of each class of the Fund, the performance figures on such
shares can be expected, at any given time, to vary from the performance
figures for other classes of the Fund.
Additional information about the Fund's performance is contained in the SAI
under "Performance Calculations" and in the Fund's Annual Report, which are
available upon request by
PROSPECTUS 8
<PAGE>
calling the Company at 1-800-222-8222 or by writing the Company at the address
shown on the inside front cover of the Prospectus.
The Fund and Management
The MONEY MARKET MUTUAL FUND is a fund of the Company. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of thirty-one other funds. Most of the Company's funds are authorized
to issue multiple classes of shares, one class generally subject to a front-
end sales charge and, in some cases, a class subject to a contingent-deferred
sales charge, that are offered to retail investors. Certain of the Company's
funds also are authorized to issue other classes of shares, which are sold
primarily to institutional investors at NAV. The Company's Board of Directors
supervises the funds' activities and monitors their contractual arrangements
with various service-providers. Although the Company is not required to hold
annual shareholder meetings, special meetings may be required for purposes
such as electing or removing Directors, approving advisory contracts and
distribution plans, and changing the funds' investment objectives or
fundamental investment policies. All shares of the Company have equal voting
rights and will be voted in the aggregate, rather than by series or class,
unless otherwise required by law (such as when the voting matter affects only
one series or class). As a shareholder of the Fund, you are entitled to one
vote for each share you own and fractional votes for fractional shares owned.
The Money Market Mutual Fund also offers Class A and Institutional Class
shares which are subject to different levels of fees and expenses than Class S
shares and the performance of such shares may vary accordingly. A more
detailed description of the voting rights and attributes of the shares is
contained in the "Capital Stock" section of the Fund's SAI.
MANAGEMENT
Wells Fargo Bank is the Fund's investment adviser, administrator, custodian,
transfer agent and dividend disbursing agent. In addition, Wells Fargo Bank is
a shareholder servicing agent and selling agent of the Fund. Wells Fargo Bank,
one of the largest banks in the United States, was founded in 1852 and is the
oldest bank in the western United States. As of December 31, 1997, Wells Fargo
Bank and its affiliates provided investment advisory services for
approximately $62 billion of assets of individuals, trusts, estates and
institutions. Wells Fargo Bank also serves as the investment adviser to the
other separately managed funds of the Company and as adviser or sub-adviser to
funds of other registered, open-end, management investment companies, each of
which consists of several separately managed investment portfolios. Wells
Fargo Bank, a wholly owned subsidiary of Wells Fargo & Company, is located at
420 Montgomery Street, San Francisco, California 94104.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Investment
Advisory Contract and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no
9 PROSPECTUS
<PAGE>
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating
to, present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such
services, it is expected that new agreements would be proposed or entered into
with another entity or entities qualified to perform such services.
Investing in the Fund
OPENING AN ACCOUNT
Class S shares of the Fund are offered by this Prospectus to businesses that
establish a Managed Sweep Account with Wells Fargo Bank. Each Account combines
a Transaction Account (a non-interest bearing deposit account) with a periodic
sweep of balances to or from the Fund. Investors may open an Account by
completing and signing an Account Application and appropriate Disclosure
Statement. The Disclosure Statement contains important information about the
various features and operations of the Accounts and should be reviewed in
conjunction with this Prospectus. Wells Fargo Bank may, in the future, permit
investors to acquire shares of the Fund through additional accounts not
described in this Prospectus.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from an investor or the investor's
representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic
Prospectus.
SHARE VALUE
The value of a share of each class of the Fund is its net asset value
("NAV"). The NAV of Fund shares is calculated as of 12:00 noon and 1:00 p.m.
(Pacific time) on each day the Fund is open. The Fund is open Monday through
Friday and is closed on weekends and federal bank holidays. The NAV per share
of each class of the Money Market Mutual Fund is the value of total net assets
attributable to each class divided by the total number of outstanding shares
of that class. The value of the net assets per class is determined daily by
adjusting the net assets per class at the beginning of the day by the value of
each class' shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each Class by attributing to each Class a pro rata share of daily
income and common expenses, and by assigning class-specific expenses to each
Class as appropriate. As noted above, the Fund seeks to maintain a constant
$1.00 per share NAV, although there is no assurance that it will be able to do
so.
PROSPECTUS 10
<PAGE>
Shares of the Fund may be purchased on any day the Fund is open (a "Business
Day"). On any day the trading markets for both U.S. government securities and
money market instruments close early, the Fund will close early. On these
days, the NAV calculation time may be earlier than 12:00 noon.
The Funds' portfolio investments are valued on the basis of the amortized
cost method. This valuation method is based on the receipt of a steady rate of
payment on portfolio instruments from the date of purchase until maturity
rather than actual changes in market value. The Company's Board of Directors
believes that this valuation method accurately reflects fair value.
HOW TO BUY SHARES
Class S shares may be purchased on any day the Fund and Wells Fargo Bank are
open by making a deposit into your Account. On each day Wells Fargo Bank and
the Fund are open Wells Fargo Bank computes the Net Sweep Amount, which is the
net amount of all deposits, withdrawals, charges and credits made to and from
a Transaction Account. If deposits and credits exceed withdrawals and charges,
you authorize Wells Fargo Bank, on your behalf, to transmit a purchase order
to the Fund designated in your Account in the amount of that day's Net Sweep
Amount. For example, if you make a $500 deposit and withdraw $100 on the same
day, and there are no other transactions on that day, the Net Sweep Amount for
that day would be $400. Wells Fargo Bank, on your behalf, would transmit a
purchase order to the designated Fund on the next Business Day in the amount
of $400. Your purchase order will be made effective and full and fractional
shares will be purchased at the next determined NAV, which is expected to
remain a constant $1.00 per share. Deposits and other transactions to your
Account are sometimes not immediately included in the Net Sweep Amount. Cash
and items drawn on Wells Fargo Bank are generally credited to the Net Sweep
Amount on the same Business Day as the day of deposit. Local and non-local
checks are usually credited to your Net Sweep Amount on the first or second
Business Day, respectively, after the day of your deposit. In addition,
adjustments may sometimes be made to your Account to reflect dishonored or
returned items. For additional information refer to the applicable Disclosure
Statement and, specifically therein, "Holds and Funds Availability."
Dividend and Capital Gain Distributions
The Fund intends to distribute dividends on a daily basis to shareholders of
record as of 12:00 Noon (Pacific time). You begin earning dividends on your
Class S shares of the Fund on the day your purchase order for such shares is
effective and continue to earn dividends through the day prior to the date you
redeem such shares. Dividends for a Saturday, Sunday or Holiday are credited
on the preceding Business Day. If you redeem shares before the dividend
payment date, any dividends credited to you will be paid on the following
dividend payment date. The Fund distributes any capital gains at least
annually. Dividends declared in a month are reinvested in Class S shares of
the Fund early in the following month.
11 PROSPECTUS
<PAGE>
How to Redeem Shares
If, on any day Wells Fargo Bank and the Fund are open for business,
withdrawals from your Managed Sweep Account, including check transactions,
exceed deposits and credits, Wells Fargo Bank will transmit a redemption order
on your behalf to the Fund in the dollar amount of that day's Net Sweep
Amount. If your Managed Sweep Account with Wells Fargo Bank is closed as
described in the applicable Disclosure Statement, Wells Fargo Bank transmits a
redemption request on your behalf to the Fund for the balance of the Class S
shares of the Fund held through your Account. Your shares are normally
redeemed at the next NAV, expected to be a constant $1.00 per share,
calculated after the Fund has received the redemption order transmitted on
your behalf. The Fund ordinarily will remit your redemption proceeds within
seven days after your redemption order is received from Wells Fargo Bank
unless the SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of which (a) disposal by the Fund of securities owned by it
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund to determine fairly the value of its net assets, or a period during which
the SEC by order permits deferral of redemptions for the protection of
security holders of the Fund. In addition, Wells Fargo Bank may withhold
redemption proceeds pending check collection or processing or for other
reasons all as set forth more fully in "Holds and Funds Availability" and
elsewhere in the applicable Disclosure Statement.
Management, Distribution and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors,
Wells Fargo Bank, as the investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
investment strategies and performance of the Fund. For its services as
investment adviser, Wells Fargo Bank is entitled to receive monthly investment
advisory fee at the annual rate of 0.40% of the average daily net assets of
the Fund. From time to time, the Fund, consistent with its investment
objectives, policies and restrictions, may invest in securities of companies
with which Wells Fargo Bank has a lending relationship. For the year ended
December 31, 1995 and the nine-month period ended September 30, 1996, the Fund
paid advisory fees to Wells Fargo Bank at an annual rate equal to 0.40% of its
average daily net assets. For the six-month period ended March 31, 1997, the
Fund paid advisory fees to Wells Fargo Bank at an annual rate equal to 0.36%
of its average daily net assets.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian, transfer agent and
dividend disbursing agent. Under its Custody Agreement with Wells Fargo Bank,
the Fund may, at times, borrow money
PROSPECTUS 12
<PAGE>
from Wells Fargo Bank as needed to satisfy temporary liquidity needs. Wells
Fargo Bank charges interest on such overdrafts at a rate determined pursuant
to the Fund's Custody Agreement. The custodial, transfer and dividend
disbursing agency services are performed at 525 Market Street, San Francisco,
California 94105.
SHAREHOLDER SERVICING AGENT
The Company has entered into a Shareholder Servicing Agreement with Wells
Fargo Bank on behalf of the Class S shares of the Fund and may enter into
similar agreements with other entities ("Shareholder Servicing Agents"). Under
such agreements, Shareholder Servicing Agents agree, as agent for their
customers, to provide various administrative and liaison services with respect
to Fund shares, such as maintaining shareholder accounts and records;
assisting shareholders with purchases, exchanges and redemptions; and
providing such other related services as the Company or a shareholder may
reasonably request. For these services, a Shareholder Servicing Agent receives
a fee, as calculated on an annualized basis for the Fund's then-current fiscal
year, up to (1) 0.25% of the average daily net assets attributable to the
Class S shares of the Fund, as represented by shares owned during the period
for which payment is being made by investors with whom the Shareholder
Servicing Agent maintains a servicing relationship, or (2) an amount which
equals the maximum amount payable to the Shareholder Servicing Agent under
applicable laws, regulations or rules, including the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD Rules").
A Shareholder Servicing Agent may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or
different from those imposed by the Fund, such as requiring a minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of the Fund and to notify them in
writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors,
Wells Fargo Bank as administrator and Stephens as co-administrator, provide
the Fund with administration services, including general supervision of the
Fund's operation, coordination of the other services provided to the Fund,
compilation of information for reports to the SEC and the state securities
commissions, preparation of proxy statements and shareholder reports, and
general supervision of data compilation in connection with preparing periodic
reports to the Company's Directors and officers. Wells Fargo Bank and Stephens
also furnish office space and certain facilities to conduct the Fund's
business, and Stephens compensates the Company's Directors and officers who
are affiliated with Stephens. For these administration services, Wells Fargo
Bank and Stephens are entitled to receive a monthly fee at the annual rate of
0.03% and 0.04% respectively, of the Fund's average daily net assets. Wells
Fargo Bank and Stephens may delegate certain of their respective
administration duties to sub-administrators.
Prior to February 1, 1998, Wells Fargo Bank and Stephens were entitled to
receive a monthly fee at the annual rate of 0.04% and 0.02%, respectively, of
the Fund's average daily net assets for administration services.
13 PROSPECTUS
<PAGE>
Prior to February 1, 1997, Stephens provided substantially the same services
as sole administrator to the Fund at the annual rate of 0.03% of the Fund's
average daily net assets.
DISTRIBUTOR
Stephens is the Company's co-administrator and distributes the Fund's
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more
than 60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment
portfolios for pension and profit-sharing plans, individual investors,
foundations, insurance companies and university endowments.
Stephens also has entered into a Distribution Agreement pursuant to which it
distributes the Fund's shares. The Company has adopted a Distribution Plan on
behalf of the Class S shares of the Fund under the SEC's Rule 12b-1 (the
"Plan"). Under the Plan and pursuant to the Distribution Agreement, the Fund
pays Stephens, as compensation for distribution-related services, a monthly
fee at the annual rate of up to 0.75% of the average daily net assets
attributable to the Class S shares of the Fund or the maximum amount payable
under applicable laws, regulations and rules, whichever is less. The actual
fee payable to Stephens is determined, within the applicable limit, from time
to time by mutual agreement between the Company and Stephens. Stephens may
retain any portion of the total distribution fee payable under the
Distribution Agreement to compensate it for distribution-related services
provided by it or to reimburse it for other distribution-related expenses.
Since the fee payable to Stephens under the Distribution Agreement is not
based upon the actual expenditures of Stephens, the expenses of Stephens
(which may include overhead expenses) may be more or less than the fees
received by it under the Distribution Agreement. The Plan contemplates further
that, to the extent any fees payable pursuant to a Shareholder Servicing
Agreement (discussed above) are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to the Plan.
In addition, Stephens has established a non-cash compensation program,
pursuant to which broker/dealers or financial institutions that sell shares of
the Fund may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or
other entertainment, opportunities to participate in golf or other outings and
gift certificates for meals or merchandise.
Financial institutions acting as Selling Agents, Shareholder Servicing
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will
PROSPECTUS 14
<PAGE>
reduce the Fund's expenses and, accordingly, have a favorable impact on the
Fund's performance. Except for the expenses borne by Wells Fargo Bank and
Stephens, the Company bears all costs of its operations, including advisory,
shareholder servicing, transfer agency, custody and administration fees;
payments pursuant to the Plan; interest, fees and expenses of independent
auditors and legal counsel; and any extraordinary expenses. Expenses
attributable to a class are charged against the assets of the class. Certain
expenses attributable only to a class are charged to such shares. General
expenses of the Company are allocated among all of the Company's funds, in a
manner proportionate to the net assets of each fund, on a transactional basis
or on such other basis as the Company's Board of Directors deems equitable.
Taxes
Distributions from the Fund's net investment income and net short-term
capital gains, if any, are designated as dividend distributions and taxable to
the Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, if any, are designated as capital gain distributions
and taxable to the Fund's shareholders as long-term capital gains. Under the
Tax Payer Relief Act of 1997, noncorporate shareholders may be taxed on such
distributions at preferential rates. See "Federal Income Taxes -- Capital Gain
Distributions" in your SAI. In general, your distributions will be taxable
when paid, even though they are automatically reinvested in additional Class S
shares. However, distributions declared in October, November, and December and
distributed by the following January will be taxable as if they were paid by
December 31.
Your redemptions and exchanges of fund shares will ordinarily result in a
taxable gain or loss, depending on the amount you receive for your shares and
the cost of your shares. See "Federal Income Taxes -- Disposition of Fund
Shares" in your SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in your
SAI. In certain circumstances, U.S. residents may also be subject to backup
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in your
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Fund and
its shareholders. It is not intended as a substitute for careful tax planning;
you should consult your tax advisor with respect to your specific tax
consequences of purchasing, holding and redeeming Class S shares. Further
federal income tax considerations are discussed in your SAI.
15 PROSPECTUS
<PAGE>
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
The Money Market Mutual Fund may invest in the following:
(i) U.S. Government obligations (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") ("bank
instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's Investors
Service, Inc. ("Moody's") or "A-1-" or "A-1" by Standard & Poor's
Rating Group ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a
letter of credit from a U.S. bank that meets the above criteria for
investment;
(v) certain floating and variable rate instruments (discussed below);
(vi) certain repurchase agreements (discussed below);
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below);
(viii) certain municipal obligations (discussed below); and
(ix) certain securities issued by other investment companies (discussed
below).
Floating- and Variable-Rate Obligations
The Fund may purchase floating- and variable-rate obligations. The Fund may
purchase floating- and variable-rate demand notes and bonds. These obligations
may have stated maturities in excess of thirteen months, but they permit the
holder to demand payment of principal at any time, or at specified intervals
not exceeding thirteen months. Variable-rate demand notes include master
demand notes that are obligations that permit the Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in
its
A-1 PROSPECTUS
<PAGE>
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based
on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Fund may invest. Wells Fargo Bank, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. The Fund will not
invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable
within seven days. Such obligations may be treated as liquid, provided that an
active secondary market exists.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term
(thirteen months or less) debt obligations of foreign branches of U.S. banks
or U.S. branches of foreign banks that are denominated in and pay interest in
U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not subject to
the same uniform accounting, auditing and financial reporting standards or
governmental supervision as domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws and there is a possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments that
could affect adversely investments in, the liquidity of, and the ability to
enforce contractual obligations with respect to, securities of issuers located
in those countries.
Illiquid Securities
The Fund may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because
such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund. The Fund may
invest up to 10% of its assets in net illiquid securities.
Letters of Credit
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed
PROSPECTUS A-2
<PAGE>
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.
Municipal Obligations
Municipal bonds generally have a maturity at the time of issuance of up to
40 years. Medium-term municipal notes are generally issued in anticipation of
the receipt of tax funds, of the proceeds of bond placements, or of other
revenues. The ability of an issuer to make payments on notes is therefore
especially dependent on such tax receipts, proceeds from bond sales or other
revenues, as the case may be. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-
term debt.
Other Investment Companies
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund 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.
Repurchase Agreements
The Fund may enter into repurchase agreements, wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. The Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased
by the Fund. All repurchase agreements will be fully collateralized at 102%
based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater
than twelve months, although the maximum term of a repurchase agreement will
always be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
security, the Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% 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
A-3 PROSPECTUS
<PAGE>
affiliated with the investment advisor. The Fund may participate in pooled
repurchase agreement transactions with other funds advised by Wells Fargo
Bank.
U.S. Government and U.S. Treasury Obligations
The Fund may invest in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). Payment of principal and
interest on U.S. Government obligations (i) may be backed by the full faith
and credit of the United States (as with U.S. Treasury bills and GNMA
certificates) or (ii) may be backed solely by the issuing or guaranteeing
agency or instrumentality itself (as with FNMA notes). In the latter case
investors must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the
U.S. Government will provide financial support to its agencies or
instrumentalities where it is not obligated to do so. In addition, U.S.
Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
INVESTMENT POLICIES
The Fund's investment objective, as set forth in "How the Fund Works --
Investment Objective and Policies," is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the
Fund's outstanding voting securities, as described under "Capital Stock" in
the Fund's SAI. If the Company's Board of Directors determines, however, that
the investment objective of the Fund can best be achieved by a substantive
change in a nonfundamental investment policy or strategy, the Company's Board
may make such change without shareholder approval and will disclose any such
material changes in the then-current prospectus.
Fundamental Investment Policies
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in
order to meet redemptions, and these borrowings may be secured by the pledge
of up to 10% of the current value of the Fund's net assets (but investments
may not be purchased by the Fund while any such outstanding borrowing in
excess of 5% of its net assets exists); (ii) not make loans of portfolio
securities or other assets, except that loans for purposes of this restriction
will not include the purchase of fixed time deposits, repurchase agreements,
commercial paper and other short-term obligations, and other types of debt
instruments commonly sold in a public or private offering; and (iii) not
invest more than 25% of its assets (i.e., concentrate) in any particular
industry, excluding U.S. Government
PROSPECTUS A-4
<PAGE>
obligations and obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks).
Non-Fundamental Investment Policies
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any
time and without approval of such Fund's shareholders.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Fund's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's
net assets with respect to any one investment company, and (iii) 10% of
the Fund's net assets in the aggregate. Other investment companies in
which the Fund invest can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would
be in addition to those charged by the Fund.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days, and (c) repurchase agreements
not terminable within seven days.
(3) The Fund may invest up to 25% of its net assets in securities of foreign
branches of U.S. Banks and U.S. Branches of foreign banks that are
denominated in and pay interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios 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 following securities are excluded from the 10% limitation on investment
in illiquid securities: (a) securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the Fund's Board of Directors, and (b) commercial
paper that is sold under Section 4(2) of the 1933 Act that (i) is not traded
flat or in default as to interest or principal and (ii) is rated in one of the
two highest categories by at least two NRSROs and the Fund's Board of
Directors has determined the commercial paper to be liquid; or (iii) is rated
in one of the two highest categories by one NRSRO and the Fund's Board of
Directors has determined that the commercial paper is of equivalent quality
and is liquid.
A-5 PROSPECTUS
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
------------------------------------
. are NOT FDIC insured
. are NOT guaranteed by Wells Fargo Bank
. are NOT deposits or obligations of the Bank
. involve investment risk, including possible loss of principal
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Printed on Recycled Paper SC 228 P (2/98)
[LOGO OF STAGECOACH FUND]
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PROSPECTUS
-----------------
Money Market Mutual Fund
Class S
-----------------
February 1, 1998
-----------------
<PAGE>
STAGECOACH FUNDS(R) BULK RATE
P.O. Box 7066 U.S. POSTAGE PAID
San Francisco, CA 94120-7066 PERMIT #30835
LOS ANGELES, CA
STAGECOACH FUNDS:
--------------------
. are NOT FDIC insured
. are NOT guaranteed by Wells Fargo Bank
. are NOT deposits or obligations of the Bank
. involve investment risk, including possible loss of principal
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC 228 P (2/98)
[LOGO OF STAGECOACH FUNDS]
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PROSPECTUS
--------------
Money Market Mutual Fund
Class S
--------------
February 1, 1998
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<PAGE>
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PROSPECTUS
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MONEY MARKET TRUST
February 1, 1998
<PAGE>
STAGECOACH FUNDS(R)
MONEY MARKET TRUST
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one fund of the Stagecoach
Family of Funds -- the Money Market Trust (the "Fund"). The Money Market Trust
seeks to provide investors with current income and stability of principal.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
constant $1.00 net asset value per share.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated February 1, 1998, containing additional information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling 1-800-260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE FUND'S INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S
CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED FEBRUARY 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-------
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
Financial Highlights 5
How the Fund Works 7
The Fund and Management 10
Investing in the Fund 11
Dividend and Capital Gain Distributions 13
How to Redeem Shares 14
Management and Servicing Fees 15
Taxes 18
Prospectus Appendix--Additional Investment Policies A-1
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides investors with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides summary information about the Fund. For more information, please refer
specifically to the identified Prospectus sections and generally to the Fund's
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The MONEY MARKET TRUST seeks to provide investors with current income and
stability of principal. The Fund pursues its objective by investing its
assets in high quality U.S. dollar-denominated money market instruments with
remaining maturities not exceeding 397 days (13 months). See "How the Fund
Works -- Investment Objective and Policies" and "Prospectus Appendix --
Additional Investment Policies" for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to
maintain a stable net asset value of $1.00 per share, there is no assurance
that it will be able to do so. The Fund may not achieve as high a level of
current income as other mutual funds that do not limit their investment to
the high credit quality instruments in which the Fund invests. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective. See "How the Fund Works -- Risk Factors" and
"Additional Investment Activities" in the SAI for further information on
investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency, and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling
agent for the Fund. See "The Fund and Management" and "Management and
Servicing Fees" for further information.
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Fund shares at the net asset
value per share without a sales charge ("NAV"). Qualified investors include
customers ("Customers") who maintain qualified accounts with the trust
division of Wells Fargo Bank or an affiliate of Wells Fargo Bank (a "Bank").
Customers may include individuals, trusts, partnerships and corporations.
Purchases are effected through
1 PROSPECTUS
<PAGE>
the Customer's account with a Bank under the terms of the Customer's account
agreement with the Bank. Investors wishing to purchase Fund shares should
contact their account representatives. See "Investing in the Fund" for
additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly, and any capital gains
are distributed at least annually. All distributions are automatically
reinvested in additional shares of the Fund at NAV. Shareholders also may
elect to receive distributions in cash. See "Dividend and Capital Gain
Distributions" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares at NAV, without charge by the Company. Fund
shares held by a Bank on behalf of its Customers must be redeemed under the
terms of the Customer's account agreement with the Bank. Banks are
responsible for transmitting redemption requests to the Company and
crediting their Customers' accounts. The Company reserves the right to
impose charges for wiring redemption proceeds. See "Investing in the Fund --
Redemption of Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY
MARKET TRUST
------------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of offering
price)....................................................... None
Maximum Sales Charge on Reinvested Distributions.............. None
Maximum Sales Charge on Redemptions........................... None
Exchange Fees................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY
MARKET
TRUST
------
<S> <C>
Management Fee (after waivers or reimbursements)/1/................... 0.00%
Rule 12b-1 Fee........................................................ 0.00%
Other Expenses (after waivers or reimbursements)/2/................... 0.20%
----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)/3/.... 0.20%
====
</TABLE>
--------------------------------
/1/ Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
/2/ Other Expenses (before waivers or reimbursements) would be 0.36%.
/3/ Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.61%.
Note: The tables do not reflect any charges that may be imposed by Wells
Fargo Bank or any other Bank directly on certain customer accounts in
connection with an investment in the Fund.
3 PROSPECTUS
<PAGE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (A) a 5% annual return and (B) redemption at the end of each time
period indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Trust......................... $2 $6 $11 $26
</TABLE>
Explanation of Tables
The purpose of the above tables is to help a shareholder understand the
various costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when an investor buys or
sells Fund shares. Fund shares are sold with no shareholder transaction
expenses imposed by the Company. However, the Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the prior
fiscal period. The amounts have been adjusted to reflect voluntary fee waivers
and expense reimbursements expected to be in effect during the current year.
Any waivers or reimbursements will reduce the Fund's total expenses. There can
be no assurance that waivers or reimbursements will continue. For more complete
descriptions of the various costs and expenses you can expect to incur as an
investor in the Fund, please see "Management and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of the
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown.
PROSPECTUS 4
<PAGE>
Financial Highlights
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the six-month periods ended March 31, 1997
and September 30, 1997. This information is provided to assist you in
evaluating the Fund's historical performance. Except as set forth below, the
Fund's financial statements were audited by KPMG Peat Marwick LLP. The
financial information for all periods prior to October 1, 1995, was audited by
other auditors to the predecessor fund. On September 6, 1996, shares of a
portfolio of Pacifica Funds Trust were reorganized as shares of the Money
Market Trust. The audited financial statements and report thereon for the six-
month period ended March 31, 1997 are incorporated by reference into the SAI.
The unaudited financial statements for the six-month period ended September 30,
1997 also are incorporated by reference into the SAI. This information should
be read in conjunction with the Fund's 1997 financial statements and the notes
thereto. The Fund's SAI has been incorporated by reference into this
prospectus.
5 PROSPECTUS
<PAGE>
MONEY MARKET TRUST
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS SIX MONTHS FOUR MONTHS PERIOD
ENDED ENDED YEAR ENDED ENDED FOR THE YEAR ENDED MAY 31, ENDED
SEPT. 30, MAR. 31, SEPT. 30, SEPT. 30, -------------------------------------- MAY 31,
1997 1997/1/ 1996 1995/2/ 1995 1994 1993 1992 1991/3/
----------- ---------- ---------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income... 0.03 0.03 0.05 0.02 0.05 0.03 0.03 0.05 0.05
Net realized and
unrealized gain (loss)
on investment........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- ---------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations.............. 0.03 0.03 0.05 0.02 0.05 0.03 0.03 0.05 0.05
Less Distributions:
Dividends from net
investment income....... (0.03) (0.03) (0.05) (0.02) (0.05) (0.03) (0.03) (0.05) (0.05)
Distributions from net
realized gain........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- ---------- -------- -------- -------- -------- -------- --------
Total From
Distributions........... (0.03) (0.03) (0.05) (0.02) (0.05) (0.03) (0.03) (0.05) (0.05)
-------- -------- ---------- -------- -------- -------- -------- -------- --------
Net Asset Value, end of
period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ======== ======== ======== ======== ======== ========
Total Return (not
annualized)............. 2.76% 2.66% 5.43% 5.70%/4/ 5.05% 3.21% 2.94% 4.56% 6.48%/4/
Ratios/Supplemental
Data:
Net Assets, end of
period (000s)........... $710,547 $807,003 $1,143,767 $286,863 $290,483 $300,894 $ 74,375 $ 87,039 $113,141
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets...... 0.20% 0.20% 0.18% 0.19% 0.17% 0.18% 0.46% 0.48% 0.69%
Ratio of net investment
income to average net
assets.................. 5.41% 5.28% 5.33% 5.70% 5.06% 3.21% 2.94% 4.56% 6.48%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses..... 0.61% 0.61% 0.55% 1.11% 1.07% 1.02% 1.08% 1.04% 1.08%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses................ 5.00% 4.87% 4.96% 4.78% 4.16% 2.37% 2.32% 4.00% 6.09%
</TABLE>
- -----
/1/ The Money Market Trust changed its fiscal year-end from September 30 to
March 31.
/2/ The Money Market Trust changed its fiscal year-end from May 31 to September
30.
/3/ The Fund operated as the Prime Money Market Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A., from its commencement of
operations on September 17, 1990 until it was reorganized as the Money
Market Trust of Pacifica Funds Trust on October 1, 1995, when First
Interstate Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust
until it was reorganized as a series of the Company on September 6, 1996.
In connection with the merger of First Interstate Bancorp into Wells Fargo
& Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
/4/ Annualized.
PROSPECTUS 6
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
The Money Market Trust seeks to provide investors with current income and
stability of principal. The Fund pursues its objective by investing in high-
quality U.S. dollar-denominated money market instruments with remaining
maturities not exceeding 397 days (13 months), as determined in accordance with
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940
Act"). Permitted investments include U.S. Government short-term obligations,
obligations of domestic and foreign banks, commercial paper, repurchase
agreements and variable- and floating-rate instruments. As with all mutual
funds, there can be no assurance that the Fund, which is a diversified
portfolio, will achieve its investment objective. In seeking to achieve its
investment objective, the Fund invests in "money market" instruments such as
those described below. During normal market conditions, the Fund invests at
least 80% of its assets in money market instruments. A more complete
description of the Fund's investments and investment objectives is contained in
"Prospectus Appendix -- Additional Investment Policies" and in the SAI.
The Fund may invest in bankers' acceptances guaranteed by U.S. commercial
banks having total assets at the time of purchase in excess of $1.5 billion,
and in certificates of deposit of domestic branches of U.S. banks, savings
banks and savings and loan associations that are members of the Federal Reserve
System or the Federal Deposit Insurance Corporation and have total assets at
the time of purchase in excess of $1.5 billion. The Fund may also make
interest-bearing savings deposits in commercial and savings banks in amounts
not in excess of 5% of its total assets.
In addition, the Fund may invest in U.S. dollar-denominated time deposits and
certificates of deposit issued by foreign branches of such U.S. banks and
savings and loan associations. Investments by the Fund in the obligations of
foreign branches of domestic banks will not exceed 25% of the value of the
Fund's total assets at the time of investment. Although time deposits made by
the Fund will normally mature within several days, the Fund may make time
deposits with longer maturities.
The Fund may invest in commercial paper (including variable- and floating-rate
instruments) and corporate bonds with remaining maturities of 397 days or less.
All securities acquired by the Fund will be U.S. Government obligations or
other "First Tier Securities" as defined under Rule 2a-7. First Tier Securities
generally consist of instruments that are either rated at the time of purchase
in the top rating category by one or more unaffiliated nationally recognized
statistical rating organizations ("NRSRO") or issued by issuers with such
ratings. The Appendix to the SAI includes a description of the applicable
ratings. Unrated instruments purchased by the Fund will be of comparable
quality as determined by the investment adviser pursuant to guidelines
7 PROSPECTUS
<PAGE>
approved by the Company's Board of Directors. Certain types of commercial paper
are issued only in private placements and may be subject to restrictions on
resale and are therefore less liquid.
The Fund may purchase asset-backed securities, which are securities backed by
mortgages, installment sales contracts, credit card receivables or other
assets. The average life of asset-backed securities varies with the maturities
of the underlying instruments, and the average life of a mortgage-backed
instrument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments. For this and other reasons, an asset-backed security's
stated maturity may be shortened, and the securities' total return may be
difficult to predict precisely. Such difficulties are not, however, expected to
have a significant effect on the Fund since the remaining maturity of any
asset-backed security acquired will be 397 days or less. Asset-backed
securities purchased by the Fund may include collateralized mortgage
obligations ("CMOs") issued by private companies. For additional descriptions
of the types of securities and investment practices used by the Fund, see "Risk
Factors" and "Prospectus Appendix -- Additional Investment Policies" in this
Prospectus and "Investment Restrictions" and "Additional Permitted Investment
Activities" in the SAI.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invests. As with all mutual funds, there
can be no assurance that the Fund will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days. In
addition, any security that the Fund purchases must present minimal credit
risks and be of high quality (i.e., be rated in the top rating category by the
required number of NRSROs or, if unrated, determined to be of comparable
quality to such rated securities). These determinations are made by Wells Fargo
Bank, as the Fund's investment adviser, under guidelines adopted by the
Company's Board of Directors.
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests may
PROSPECTUS 8
<PAGE>
default on the payment of principal and/or interest. Interest-rate risk is the
risk that increases in market interest rates may adversely affect the value of
the debt instruments in which the Fund invests and hence the value of your
investment in the Fund.
The Fund seeks to reduce risk by investing its assets in securities of various
issuers. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser, Wells Fargo Bank, prohibit the purchase for the Fund of
many types of floating-rate derivative securities that are considered
potentially volatile. The following types of derivative securities ARE NOT
permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates move above
a certain level);
. leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
. dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
. inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Fund may only invest in floating-rate
securities that bear interest at a rate that resets quarterly or more
frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates or federal funds rates. See "Prospectus
Appendix -- Additional Investment Policies" and the SAI for further information
about the investment policies and risks.
PERFORMANCE
Fund performance may be advertised from time to time in terms of current
yield, effective yield or average annual total return. Performance figures are
based on historical results and are not intended to indicate future
performance.
Yield refers to the income generated by an investment in the Fund's shares
over a specified period (usually 7 days), expressed as an annual percentage
rate. Effective yield is calculated similarly but assumes that the income
earned from the shares is reinvested at NAV in shares of the Fund. Because of
the effects of compounding, effective yields are slightly higher than yields.
9 PROSPECTUS
<PAGE>
Average annual total return is based on the overall dollar or percentage
change of an investment in the Fund's shares and assumes the investment is at
NAV and all dividends and distributions attributable to the shares are
reinvested at NAV in shares of the Fund.
In addition to presenting these standardized performance calculations, at
times, the Fund may also present non-standard performance figures, such as 30-
day yields or, in sales literature, distribution rates.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request
without charge by calling 1-800-260-5969 or by writing the Company at the
address shown on the inside front cover of the Prospectus.
The Fund and Management
THE FUND
The Fund is one fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of 31 other funds. The Company's Board of Directors supervises the
Fund's activities and monitors its contractual arrangements with various
service providers. Although the Company is not required to hold annual
shareholder meetings, special meetings may be required for purposes such as
electing or removing Directors, approving advisory contracts and changing a
Fund's investment objective or fundamental investment policies. All shares of
the Company have equal voting rights and are voted in the aggregate, rather
than by series or class, unless otherwise required by law (such as when the
voting matter affects only one series or class). A shareholder of record of the
Fund is entitled to one vote for each share owned and fractional votes for
fractional shares owned. A more detailed description of the voting rights and
attributes of the shares is contained in the "Capital Stock" section of the
SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment adviser, administrator,
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank serves as a shareholder servicing agent and as a selling agent for the
Fund. Wells Fargo Bank, one of the largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of
December 31, 1997, Wells Fargo Bank provided investment advisory services for
approximately $62 billion of assets of individuals, trusts, estates and
institutions. Wells Fargo Bank also serves as the investment adviser or sub-
adviser to the other separately managed series of the Company, and to three
other registered, open-end, management investment companies which consist of
several separately managed investment portfolios. Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company, is located at 525 Market Street, San
Francisco, California 94105.
PROSPECTUS 10
<PAGE>
From October 1, 1995 until its acquisition by Wells Fargo & Company on April
1, 1996, Wells Fargo Investment Management Inc. ("WFIM") (formerly, First
Interstate Capital Management, Inc.) served as investment adviser to the
predecessor portfolio. WFIM, a wholly owned subsidiary of Wells Fargo Bank, has
changed its name to Wells Capital Management Incorporated and is located at 525
Market Street, San Francisco, California 94105. Prior to October 1, 1995, First
Interstate Bank of Oregon, N.A. served as the investment adviser to the
Fund.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Investment
Advisory Contract and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future
judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
Investing in the Fund
SHARE VALUE
The price of a Fund share is its "net asset value" or NAV. The NAV of shares
of the Money Market Trust is computed by adding the value of its portfolio
investments plus cash and other assets, deducting liabilities and then dividing
the result by the number of Fund shares outstanding. As noted above, the Fund
seeks to maintain a constant $1.00 NAV share price, although there is no
assurance that it will be able to do so.
Fund shares may be purchased on any day the Fund is open (a "Business Day").
The Fund is open Monday through Friday and is closed on weekends and federal
bank holidays. On any day the trading markets for both U.S. government
securities and money market instruments close early, the Fund will close early.
On these days, the NAV calculation time and the dividend, purchase and
redemption cut-off times discussed below may be earlier than 12:00 Noon.
Wells Fargo Bank calculates the Fund's NAV as of 12:00 Noon (Pacific time)
each Business Day. All transaction orders are processed at the NAV next
determined after the order is received.
11 PROSPECTUS
<PAGE>
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment from
the date of purchase until maturity rather than actual changes in market value.
The Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
Shares of the Fund are sold without a sales load on a continuous basis to
Customers who maintain qualified accounts with the trust division of a Bank.
Customers may include individuals, trusts, partnerships and corporations. All
share purchases are effected through a Customer's account at a Bank through
procedures established in connection with the requirements of the account, and
confirmations of share purchases and redemptions are sent to the Bank involved.
A Bank (or its nominee) is normally the holder of record of Fund shares acting
on behalf of its Customers and reflects its Customers beneficial ownership of
shares in the account statements provided to its Customers. The exercise of
voting rights and the delivery to Customers of shareholder communications from
the Fund is governed by a Customer's account agreement with a Bank. Investors
wishing to purchase shares of the Fund should contact their account
representatives.
Purchase orders for shares in the Fund must be received by the Fund by 12:00
Noon (Pacific time) on a Business Day. Payment for such shares must also be
made in federal funds or other funds immediately available to the Custodian no
later than 12:00 Noon (Pacific time) on the same Business Day that the purchase
order is received. Orders for the purchase of shares are executed at the NAV
per share (the "public offering price") next determined after receipt of both
an order and payment in proper order. The Fund has no minimum initial or
subsequent investment requirement, although a Bank may impose certain minimum
Customer account requirements.
The Bank is responsible for transmitting orders for purchases by the Customers
and delivering required funds on a timely basis. If funds are not received
within the period described above, the order will be canceled, notice thereof
will be given, and the Bank will be responsible for any loss to the Fund or its
shareholders. A Bank may charge certain account fees depending on the type of
account the investor has established. Payment for shares of the Fund may, in
the discretion of the investment adviser, be made in the form of securities
that are permissible investments for the Fund. For further information see
"Additional Purchase and Redemption Information" in the SAI.
The Company reserves the right to reject any purchase order or to suspend
sales at any time. Payment for orders that are not received will be returned
after prompt inquiry. The issuance of shares is recorded on the books of the
Fund, and share certificates are not issued.
PROSPECTUS 12
<PAGE>
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a monthly account statement after the end of each month in which there
has been a transaction that affects the share balance or Fund account
registration. Every January, you will be provided a statement with tax
information for the previous year to assist you in tax return preparation. At
least twice a year, investors receive financial statements from the Fund.
Dividend and Capital Gain Distributions
Dividends from net investment income are declared daily payable to
shareholders of record as of 12:00 Noon (Pacific time). If your purchase order
is received before 12:00 Noon on any Business Day, you begin earning dividends
on the day your purchase order is effective and continue to earn dividends
through the day prior to the date you redeem such shares. Dividends for a
Saturday, Sunday or Holiday are credited on the preceding Business Day. If you
redeem shares before a dividend payment date, any dividends credited to you are
paid on the following dividend payment date unless you have redeemed all of the
shares in your account, in which case you receive your accrued dividends
together with your redemption proceeds. The Fund distributes any capital gains
at least annually.
Dividends declared in a month generally are distributed on the last Business
Day of that month. All distributions are reinvested automatically in additional
shares of the Fund at NAV or, at the option of the investor, paid in cash.
Distributions from net realized securities gains are declared and distributed
once a year, but the Fund may make distributions on a more frequent basis. In
all cases, distributions will be made in a manner that is consistent with the
provisions of the 1940 Act.
13 PROSPECTUS
<PAGE>
How to Redeem Shares
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Shares held by a
Bank on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the Customer's accounts at the Bank.
The Bank is responsible for transmitting redemption requests to the Company and
crediting its Customers' accounts with the redemption proceeds on a timely
basis. The redemption proceeds for Fund shares normally are wired to the
redeeming Bank the following Business Day after receipt of the request by the
Company. The Company reserves the right to delay the wiring of redemption
proceeds for up to ten days after it receives a redemption order if, in the
judgment of the investment adviser, an earlier payment could adversely affect
the Fund or unless the SEC permits a longer period under extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by the Fund of
securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of security holders of a Fund.
With respect to shareholders who do not have a relationship with a Bank, Fund
shares may be redeemed by writing or calling the Company directly at the
address or phone number shown on the inside cover page of the Prospectus. When
shares are redeemed directly from the Fund, the Company ordinarily sends the
proceeds by check to the investor at the address of record on the next Business
Day unless payment by wire is requested. The Company may take up to seven days
to make payment, although this will not be the customary practice. Also, if the
New York Stock Exchange is closed (or when trading is restricted) for any
reason other than the customary weekend or holiday closing or if an emergency
condition as determined by the SEC merits such action, the Company may suspend
redemptions or postpone payment dates.
To be accepted by the Company, a letter requesting redemption must include:
(i) the Fund's name and account registration from which the shares are being
redeemed; (ii) the account number; (iii) the amount to be redeemed; (iv) the
signatures of all registered owners; and (v) a signature guarantee by any
eligible guarantor institution. An "eligible guarantor institution" includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may be
requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
All redemptions of Fund shares are made in cash, except that the commitment to
redeem shares in cash extends only to redemption requests made by an investor
during
PROSPECTUS 14
<PAGE>
any 90-day period of up to the lesser of $250,000 or 1% of the NAV of the Fund
at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC. In the case of redemption requests by investors in
excess of such amounts, the Board of Directors reserves the right to have the
Fund make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the Fund's securities are
valued. If the recipient were to sell such securities, the investor might incur
brokerage charges.
Management and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, Wells Fargo
Bank is entitled to a monthly investment advisory fee at the annual rate of
0.25% of the average daily net assets of the Money Market Trust. From time to
time, the Fund, consistent with its investment objective, policies and
restrictions, may invest in securities of companies with which Wells Fargo Bank
has a lending relationship. For the six-month period ended March 31, 1997 and
the fiscal year ended September 30, 1996, the Fund paid advisory fees at the
annual rate of 0.00% and 0.02%, respectively, of its average daily net assets.
For the period prior to September 6, 1996, this includes amounts paid to Wells
Fargo Investment Management, Inc. by the predecessor portfolio to the Money
Market Trust.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, the Fund may, at times, borrow
money from Wells Fargo Bank as needed to satisfy temporary liquidity needs.
Wells Fargo Bank charges interest on such overdrafts at a rate determined
pursuant to the Fund's Custody Agreement. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENTS
The Fund has entered into a shareholder servicing agreement with Wells Fargo
Bank and may enter into similar agreements with other Banks ("Shareholder
Servicing Agents"). Under such agreements, Shareholder Servicing Agents
(including Wells Fargo
15 PROSPECTUS
<PAGE>
Bank) agree, as agents for their customers, to provide shareholder
administrative and liaison servicing with respect to Fund shares, which
include, without limitation, aggregating and transmitting shareholder orders
for purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For these services, a Shareholder Servicing
Agent is entitled to receive a fee at the annual rate of up to 0.20% of the
average daily net assets attributable to the shares owned of record or
beneficially by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship. In no case shall payments exceed any maximum amount
that may be deemed applicable under applicable laws, regulations or rules,
including the Conduct Rules of the NASD ("NASD Rules").
A Shareholder Servicing Agent also may impose certain conditions and/or fees
on its customers, subject to the terms of this Prospectus, in addition to or
different from those imposed by the Fund, such as requiring a higher minimum
initial investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of the Fund and to notify them in
writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator, provide the Fund
with administration services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund, compilation
of information for reports to the SEC and the state securities commissions,
preparation of proxy statements and shareholder reports, and general
supervision of data compilation in connection with preparing periodic reports
to the Company's Directors and officers. Wells Fargo Bank and Stephens also
furnish office space and certain facilities to conduct the Fund's business, and
Stephens compensates the Company's Directors and officers who are affiliated
with Stephens. For these administration services, Wells Fargo Bank and Stephens
are entitled to receive a monthly fee at the annual rate of 0.03% and 0.04%,
respectively, of the Fund's average daily net assets. Wells Fargo Bank and
Stephens may delegate certain of their respective administration duties to sub-
administrators.
Prior to February 1, 1998, Wells Fargo Bank and Stephens were entitled to
receive a monthly fee at the annual rate of 0.04% and 0.02%, respectively, of
the Fund's average daily net assets for administration services.
Prior to February 1, 1997, Stephens provided substantially the same services
as sole administrator to the Fund. Under the previous agreement, Stephens was
entitled to receive a monthly fee at the annual rate of 0.05% of the average
daily net assets of the Fund.
PROSPECTUS 16
<PAGE>
For the period from October 1, 1995 to September 5, 1996, Furman Selz provided
administrative services for the operation of the predecessor portfolio to the
Fund. As compensation for such services, the predecessor portfolio paid Furman
Selz an annual fee, payable monthly, of up to 0.15% of the average daily net
assets of the Fund.
DISTRIBUTOR
Stephens is the Company's co-administrator and distributes the Fund's shares.
Stephens is a full service broker/dealer and investment advisory firm located
at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit-sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under
which Stephens acts as agent for the Fund for the sale of its shares and may
enter into selling agreements with other agents ("Selling Agents") that wish to
make available shares of the Fund to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's
funds may earn additional compensation in the form of trips to sales seminars
or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
Financial institutions acting as Shareholder Servicing Agents or Selling
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, each fund of the Company bears all
costs of its operations, including its pro rata portion of Company expenses
such as fees and expenses of its independent auditors, legal counsel, and
compensation of the Company's directors who are not affiliated with the
adviser, administrator or any of their affiliates; advisory, transfer agency,
custody and administration fees; and any extraordinary expenses. Expenses
attributable to each fund or class are charged against the assets of the fund
or class. General expenses of the Company are allocated among all of the funds
of the Company in a manner proportionate to the net assets of each fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable.
17 PROSPECTUS
<PAGE>
Taxes
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net long-
term capital gains, if any, are designated as capital gain distributions and
taxable to the Fund's shareholders as long-term capital gains. Under the
Taxpayer Relief Act of 1997, noncorporate Shareholders may be taxed on such
distributions at preferential rates. See "Federal Income Taxes -- Capital Gain
Distributions" in your SAI. In general, your distributions will be taxable when
paid, whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will
be taxable as if they were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in your
SAI. In certain circumstances, U.S. residents may also be subject to backup
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in your
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Fund and
its shareholders. It is not intended as a substitute for careful tax planning;
you should consult your own tax advisor with respect to your specific tax
consequences of purchasing, holding and redeeming Fund shares. Further federal
income tax considerations are discussed in your SAI.
PROSPECTUS
18
<PAGE>
Prospectus Appendix --
Additional Investment Policies
FUND INVESTMENTS
MONEY MARKET TRUST
The Money Market Trust may invest in the following:
(i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including government-sponsored
enterprises ("U.S. Government obligations") (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits
are insured by the FDIC ("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's
Investors Service, Inc. ("Moody's") or "A-1--" or "A-1" by Standard
& Poor's Corporation ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but deemed
comparable to rated commercial paper in which the Fund may invest
and/or secured by a letter of credit from a U.S. bank that meets the
above criteria for investment;
(v) certain floating and variable rate instruments ("variable rate
instruments") (discussed below);
(vi) certain repurchase agreements ("repurchase agreements") (discussed
below);
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below); and
(viii) certain securities issued by other investment companies (discussed
below).
A-1 PROSPECTUS
<PAGE>
Floating and Variable-Rate Obligations
The Fund may purchase floating- and variable-rate obligations as described in
the prospectuses. The Fund may purchase floating- and variable-rate demand
notes and bonds, which are obligations ordinarily having stated maturities in
excess of thirteen months, but which permit the holder to demand payment of
principal at any time, or at specified intervals not exceeding thirteen months.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to
time. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of
days' notice to the holders of such obligations. The interest rate on a
floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender
and borrower, it is not contemplated that such instruments generally will be
traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and the fund may invest in obligations
which are not so rated only if Wells Fargo Bank determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Fund may invest. Wells Fargo Bank, on behalf of the Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Fund's portfolio. The
Fund will not invest more than 10% of the value of its total net assets in
floating- or variable-rate demand obligations whose demand feature is not
exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Repurchase Agreements
The Fund may engage in a repurchase agreement with respect to any security in
which the Fund is authorized to invest, including U.S. Treasury STRIPS,
although the underlying security may mature in more than thirteen months. The
Fund may enter into repurchase agreements wherein the seller of a security to
the Fund agrees to repurchase that security from the Fund at a mutually agreed-
upon time and price which involve the acquisition by the Fund of an underlying
debt instrument, subject to the seller's obligation to repurchase, and the
Fund's obligation to resell, the instrument at a fixed price usually not more
than one week after its purchase. The Fund's custodian
PROSPECTUS A-2
<PAGE>
has custody of, and holds in a segregated account, securities acquired as
collateral by the Fund under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be loans
by the Fund. The Fund may enter into repurchase agreements only with respect to
securities of the type in which the Fund may invest, including government
securities and mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be deposited with the
custodian if the value of the securities purchased should decrease below resale
price. Wells Fargo Bank monitors on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Fund in connection with the sale of the
underlying securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, disposition of the securities by
the Fund may be delayed or limited. While it does not presently appear possible
to eliminate all risks from these transactions (particularly the possibility of
a decline in the market value of the underlying securities, as well as delay
and costs to the Fund in connection with insolvency proceedings), it is the
policy of the Fund to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial
institutions. The Fund considers on an ongoing basis the creditworthiness of
the institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by the Fund under the Investment Company
Act of 1940 (the "1940 Act").
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Payment of principal and
interest on U.S. Government Obligations (i) may be backed by the full faith and
credit of the United States (as with U.S. Treasury bills and GNMA certificates)
or (ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government Obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
A-3 PROSPECTUS
<PAGE>
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies provided that any such investments will be limited to temporary
investments in shares of unaffiliated investment companies. Wells Fargo Bank
will waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Fund also may purchase shares of exchange-
listed, closed-end funds.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Fund is permitted to purchase
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company which assumes the obligation
for payment of principal and interest in the event of default by the issuer.
Letter of credit-backed investments must, in the opinion of Wells Fargo Bank,
be of investment quality comparable to other permitted investments of the
Fund.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term debt
obligations of foreign branches of U.S. banks or U.S. branches of foreign banks
that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations involve certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
Short-Term Trading
The Fund may attempt to increase yields by trading to take advantage of short-
term market variations. This policy could result in high portfolio turnover but
should not adversely affect the Fund since it does not ordinarily pay brokerage
commissions on the purchase of short-term debt obligations.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth under "How the Fund Works --
Investment Objective and Policies", is fundamental; that is, it may not be
changed
PROSPECTUS A-4
<PAGE>
without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI.
In addition, any fundamental investment policy may not be changed without such
shareholder approval. If the Company's Board of Directors determines, however,
that the Fund's investment objective could best be achieved by a substantive
change in a nonfundamental investment policy or strategy, the Company's Board
may make such change without shareholder approval and will disclose any such
material changes in the then-current prospectus.
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased by the Fund while any such outstanding borrowing in excess of 5% of
its net assets exists); (ii) not make loans of portfolio securities or other
assets, except that loans for purposes of this restriction will not include the
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in a public or private offering; and (iii) not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding, (a) U.S.
Government obligations, and (b) obligations of domestic banks (for purposes of
this restriction, domestic bank obligations do not include obligations of
foreign branches of U.S. banks and obligations of U.S. branches of foreign
banks).
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of
the 1940 Act. Under the 1940 Act, the Fund's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's
net assets with respect to any one investment company, and (iii) 10% of
the Fund's net assets in the aggregate. 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.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
A-5 PROSPECTUS
<PAGE>
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in
and pay interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate)
one-third of its 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.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the 1933 Act that have been determined to be liquid by the
adviser, pursuant to guidelines established by the Company's Board of
Directors, and commercial paper that is sold under Section 4(2) of the 1933 Act
that (i) is not traded flat or in default as to interest or principal and (ii)
is rated in one of the two highest categories by at least two NRSROs and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined the commercial paper to be liquid; or (iii) is rated
in one of the two highest categories by one NRSRO and the adviser, pursuant to
guidelines established by the Company's Board of Directors, has determined that
the commercial paper is of equivalent quality and is liquid, if by any reason
thereof the value of its aggregate investment in such classes of securities
will exceed 10% of its total assets. The Fund may invest in securities not
registered under the 1933 Act and other securities subject to legal or other
restrictions on resale. Illiquid securities may be difficult to sell promptly
at an acceptable price. Delay or difficulty in selling securities may result in
a loss or be costly to a Fund.
PROSPECTUS A-6
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
--------------------------------------------------------------------------
. are NOT FDIC insured
. are NOT deposits or obligations of Wells Fargo Bank
. are NOT guaranteed by Wells Fargo Bank
. involves investment risk, including possible loss of principal
. seek to maintain a stable net asset value of $1.00 per share, however,
there can be no assurance that either fund will meet this goal. Yields will
vary with marketconditions.
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC 645 P (2/98)
<PAGE>
February 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Overland Express
Sweep Fund Prospectus
Investment Advisor Please read this Prospectus and keep it
and Administrator: for future reference. It is designed
to provide you with important information
Wells Fargo Bank and to help you decide if the Fund's
goals match your own.
Distributor and
Co-Administrator: These securities have not been
approved or disapproved by the U.S.
Stephens Inc. Securities and Exchange Commission,
any state securities commission or any
other regulatory authority, nor have any
of these authorities passed upon the
accuracy or adequacy of this Prospectus.
Any representation to the contrary is
a criminal offense.
Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), or any of its affiliates. Fund
shares are NOT insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. WE
CANNOT ASSURE YOU THAT THE FUND WILL MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<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 the Fund operates and invests
its assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "Plain English" and grouped some of the
most important Fund information together to make it easier to read and
understand.
How is the Fund information organized?
After important summary information and the expense fee table, the Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about the Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
What is the Fund trying to achieve? How do we intend to invest
your money? Look for the arrow icon to find out.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and
practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for this Fund? This will include the
factors described in "General Investment Risks" together with
any special risk factors for this 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.
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 5
- -------------------------------------------------------------------------------
The Fund Overland Express Sweep Fund 6
This section contains General Investment Risks 10
important information
about the Fund.
- -------------------------------------------------------------------------------
Your Account Your Fund Account 14
Turn to this section How to Buy Shares 14
for information on
how to open and maintain How to Sell Shares 16
your account, including
how to buy and sell her Other Information 17
Fund shares.
- -------------------------------------------------------------------------------
Reference Organization and Management
of the Fund 20
Look here for details
on the organization of How to Read the Financial Highlights 22
the Fund and term
definitions. Glossary 23
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Overland Express Sweep Fund
The Fund described in this Prospectus invest in money market instruments,
seeks to maintain a $1.00 per share net asset value in order to preserve
principal, and distributes dividends once a month. You should consider the
objective, investment practices, permitted investments and risks carefully
before investing in the Fund. The investment objective of the Fund is
fundamental and may not be changed without the approval of a majority of
shareholders.
Should you consider investing in this Fund? Yes, if:
* you are a current or potential customer of a Shareholder Servicing Agent
that has an agreement with us to periodically "sweep" the balance of your
account with the Shareholder Servicing Agent into shares of the Fund;
* you are looking for a fund in which to invest short-term cash;
* you are looking to preserve principal; and
* you are looking for monthly income.
You should not invest in this Fund if:
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you are unwilling to accept that you may lose money on your investment;
* you are unwilling to accept the risk that we may be unable to maintain a
$1.00 per share net asset value and that your investment principal may
fluctuate; or
* you are seeking long-term total return.
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 Overland Express Sweep
Fund. The "Fund" also may refer to other mutual funds offered by Stagecoach
Funds, Inc.
Key Terms
The term "money market instruments" is used in this Prospectus to refer to a
broad variety of short-term debt securities, commercial paper, certificates of
deposit, repurchase agreements and other investment activities described in
the Glossary and the Investment Practice/Risk table on page 13.
Dividends
We declare dividends, if any, daily and pay them monthly. You earn dividends
from the day your purchase of shares is effected and you continue to earn them
until the day before your shares are redeemed.
4 Stagecoach Overland Express Sweep Fund Prospectus
<PAGE>
Overland Express Sweep Fund Summary of Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
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.
- --------------------------------------------------------------------------------
Overland
Express
Sweep
- --------------------------------------------------------------------------------
<S> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
redemptions None
- --------------------------------------------------------------------------------
Exchange fees None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Annual Fund Operating Expenses (as a percentage of average net assets)
================================================================================
Annual Fund Operating Expenses shown reflect amounts paid by the Fund during
the prior fiscal year. They have been restated to reflect current expenses and
fee waivers. Fee waivers and expense 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.
- --------------------------------------------------------------------------------
Overland
Express
Sweep
- --------------------------------------------------------------------------------
Rule 12b-1 Fee 0.30%
- --------------------------------------------------------------------------------
Management fee
(after waivers) 0.45%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.49%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.24%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.45%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.81%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.26%
- --------------------------------------------------------------------------------
<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 $1,000 Overland
investment assuming a 5% annual return and that Express
you redeem your shares at the end of each period. Sweep
- --------------------------------------------------------------------------------
1 Year $13
- --------------------------------------------------------------------------------
3 Years $39
- --------------------------------------------------------------------------------
5 Years $68
- --------------------------------------------------------------------------------
10 Years $150
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Overland Express Sweep Fund Prospectus 5
<PAGE>
Overland Express Sweep Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Overland Express Sweep Fund seeks to provide
investors with a high level of current income, while
preserving capital and liquidity.
Investment Policies
We pursue this objective by actively managing a
portfolio consisting of a broad range of U.S. dollar-
denominated, high-quality money market instruments,
including debt obligations with remaining maturities
of 397 days or less. We maintain an overall weighted
average maturity of 90 days or less. We may also make
certain other investment including, for example,
repurchase agreements.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
Under normal market conditions, we invest in:
* commercial paper rated at the date of purchase as
P-1 by Moody's or A-1+ or A-1 by S&P;
* negotiable certificates of deposit and banker's
acceptances;
* repurchase agreements;
* U.S. Government obligations;
* short-term, U.S. dollar-denominated debt
obligations of U.S. branches of foreign banks and
foreign branches of U.S. banks; and
* shares of other money market funds.
6 Stagecoach Overland Express Sweep Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION POINT]
You should consider both the General Investment Risks
beginning on page 10 and the specific risks listed
below. They are both important to your investment
choice.
There is no guarantee that we will be able to maintain
a $1.00 per share net asset value. Fluctuations in
share value may cause a loss or gain in principal.
Generally, short-term funds do not earn as high a
level of income as funds that invest in longer-term
instruments. No government agency either directly or
indirectly insures or guarantees the performance of
the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION SIGN]
For information on Fund fees and expenses, see
"Summary of Expenses" on page 5.
Stagecoach Overland Express Sweep Fund Prospectus 7
<PAGE>
Overland Express Sweep Fund Financial Highlights
See "How to Read the Financial Highlights" on page 22.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================================
For a Share Outstanding
=====================================================================================================
For the period ended: Commenced on October 1, 1991
---------------------------------------------------------------------
6 Months Ended Year Ended Year Ended Year Ended
June 30, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.02 0.04 0.05 0.03
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.02) (0.04) (0.05) (0.03)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) 2.15% 4.29% 4.80% 3.11%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $2,076,137 $2,002,725 $1,209,183 $812,559
Number of shares
outstanding, end of
period (000s) 2,076,710 2,003,292 1,209,183 812,559
- ----------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/2/:
Ratio of expenses to average
net assets 1.25% 1.24% 1.25% 1.25%
Ratio of net investment
income to average net assets 4.31% 4.20% 4.70% 2.92%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior/2/ to
waived fees and reimbursed
expenses 1.26% 1.26% 1.28% 1.33%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average/2/ net assets
prior to waived fees and
reimbursed expenses 4.30% 4.18% 4.67% 2.84%
- ----------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================
Calendar-Year Returns 1996 1995 1994
====================================================================================================
These returns reflect fee waivers and reimbursements, 4.29% 4.80% 3.11%
and are not a guarantee of future performance.
- ----------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ These ratios include expenses charged to the Master Portfolio.
8 Stagecoach Overland Express Sweep Fund Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 23.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================
=====================================================================================
-----------------------------------------------------
Year Ended Year Ended Year Ended
Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.02 0.03 0.01
- -------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.02) (0.03) (0.01)
- -------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------
Total return (not annualized) 1.97% 2.31% 0.93%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $ 528,072 $ 253,617 $ 14,010
Number of shares
outstanding, end of
period (000s) 528,072 253,628 14,010
- -------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/2/:
Ratio of expenses to average
net assets 1.25% 1.24% 1.23%
Ratio of net investment
income to average net assets 1.67% 2.20% 3.46%
- -------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior/2/ to
waived fees and reimbursed
expenses 1.31% 1.51% 6.92%
- -------------------------------------------------------------------------------------
Ratio of net investment income
to average/2/ net assets
prior to waived fees and
reimbursed expenses 1.61% 1.93% (2.23)%
- -------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================
Calendar-Year Returns 1993 1992 1991
=====================================================================================
1.97% 2.31% 0.93%
- -------------------------------------------------------------------------------------
</TABLE>
Stagecoach Overland Express Sweep Fund Prospectus 9
<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 we will meet our investment objectives. In particular,
we cannot guarantee that we will be able to maintain a $1.00 per share net
asset value.
* You cannot recover through insurance any loss due to investment practices,
nor can the Fund, the shareholder servicing agents or investment advisors
"make good" any losses you might have.
* 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 debt securities, 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 the Fund's portfolio. Debt
securities with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Interest rate risk does
not affect the interest paid by a debt security unless it is specifically
designed to pay an adjustable rate.
* The Fund's advisor may also use certain derivative instruments such as
options or futures contracts. The term "derivatives" covers a wide range 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 following types of floating-rate derivative securities are NOT permitted
investments in the Fund:
* Capped floaters on which interest is not paid when market rates move above
a certain level;
10 Stagecoach Overland Express Sweep Prospectus
<PAGE>
- --------------------------------------------------------------------------------
* Leveraged floaters whose interest rates reset based on a formula that
magnifies changes in market interest rates;
* Range floaters on which interest is not paid if market interest rates move
outside a specified range;
* Dual index floaters whose interest rate reset provisions are tied to more
than one index; and
* Inverse floaters which have interest rates that reset in an opposite
direction of their index.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
What follows is a general list of the types of risks (some of which are
described above) that apply to the Fund and a table showing some of the
additional investment practices that the Fund may use. Additional information
about these practices is available in the Statement of Additional
Information.
Counter-Party Risk- The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk- The risk that the issuer of a debt security will be unable to
make interest payments or repay principal on schedule. If an issuer does
default, the affected security could lose all of its value, or be renegotiated
at a lower interest rate or principal amount. Affected securities might also
lose liquidity. Credit risk also includes the risk that a party in a
transaction may not be able to complete the transaction as agreed.
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.
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 its fair price.
Stagecoach Overland Express Sweep Prospectus 11
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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.
------------------------------------------------------------------------
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 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 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. 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.
----------------------------------------------------------------------
12 Stagecoach Overland Express Sweep Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
Investment Practice: Risk:
================================================================================
<S> <C> <C>
Floating and Variable Rate Debt
Instruments with interest rates Interest Rate and *
that are adjusted either on a Credit Risk
schedule or when an index or
benchmark changes.
- --------------------------------------------------------------------------------
Repurchase Agreements
A transaction in which the seller Credit and
of a security agrees to buy back Counter-Party Risk *
a security at an agreed upon time
and price, usually with interest.
- --------------------------------------------------------------------------------
Other Mutual Funds
The temporary investment in shares Market Risk *
of another money market 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 Obligations
Dollar-denominated debt obligations Information, Liquidity, *
of foreign branches of U.S. banks or Political, Regulatory, and
U.S. branches of foreign banks. Diplomatic Risk
- --------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an Leverage Risk *
equivalent of 10% of assets from
banks for temporary purposes to
meet shareholder redemptions.
- --------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be readily Liquidity Risk *
sold, or cannot be readily sold
without negatively affecting its fair
price. Illiquid securities are
limited to 10% of assets.
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Overland Express Sweep Prospectus 13
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy and sell Fund
shares once your Fund account is open.
How to Buy Shares
You can buy Fund shares exclusively through a Shareholder Servicing Agent who
has entered into an agreement with us to make investments into the Fund on
your behalf. Share purchases are made through your Customer Account with a
Shareholder Servicing Agent and are governed in accordance with the terms of
the Customer Account. Shareholder Servicing Agents automatically invest or
"sweep" balances in your Customer Account into shares of the Fund. There are
no sales loads for purchasing shares of the Fund, and there are no minimum
initial or subsequent purchase amounts applicable to Fund shares. Please
contact your Shareholder Servicing Agent for more information.
14 Stagecoach Overland Express Sweep Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Information
* Your Shareholder Servicing Agent buys and sells shares on your behalf. The
Shareholder Servicing Agent maintains an account with us in its name on
your behalf.
* Your account agreement with your Shareholder Servicing Agent describes the
procedures and regulations governing transactions.
* Read this Prospectus carefully. Discuss any questions you have with your
Shareholder Servicing Agent. You may also ask for copies of the Statement
of Additional Information. Copies are available free of charge from your
Shareholder Servicing Agent or by calling 1-800-222-8222.
* We process requests to buy or sell shares each business day at 9:00 AM,
(Pacific Time). Any request we receive in proper form before 9:00 AM
(Pacific Time) is processed the same day. Any request we receive after 9:00
AM (Pacific Time) are processed the next business day. Occasionally the
markets for US Government securities and money market instruments close
early. On such days, the cut-off time for trades may be earlier.
* It is the nature of a mutual fund investment that 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 9:00 AM (Pacific Time) by subtracting the Fund's
liabilities from its total assets, and then dividing the result by the
total number of outstanding shares. See the Statement of Additional
Information for further disclosure.
Stagecoach Overland Express Sweep Prospectus 15
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
How to Sell Shares:
Shares may be redeemed on any day your Shareholder Servicing Agent is open for
business in accordance with the terms of your Customer Account agreement.
Please read your account agreement with your Shareholder Servicing Agent. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Fund. Proceeds of your redemption order will be
credited to your Customer Account by your Servicing Agent. The Fund does not
charge redemption fees.
=======================================================================
General Notes for Selling Shares
=======================================================================
We process requests to sell shares each business day. Requests we
receive in proper form before 9:00 AM (Pacific Time) generally are
processed at 12:00 Noon on the same day.
-----------------------------------------------------------------------
Requests we receive in proper form before 1:00 PM (Pacific Time) in
connection with certain automated investment programs are processed at
1:00 PM on the same day.
-----------------------------------------------------------------------
Requests we receive after the above-specified times are processed the
next business day at the applicable NAV.
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
16 Stagecoach Overland Express Sweep Prospectus
<PAGE>
Other Information
- -------------------------------------------------------------------------------
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new
shares of the Fund. The new shares are purchased at NAV, generally on the day
the distributions are paid.
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 affects the Fund and you as a shareholder.
It is not intended as substitute for careful tax planning. You should consult
your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
We will pass on to you net investment income and net short-term capital gains
earned by the Fund as dividend distributions. These are taxable to you as
ordinary income. Corporate shareholders may be able to exclude a portion of
dividend income from their taxable 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.
Historical Fund Information
Overland Express Sweep Fund-Commenced operations on October 1, 1991 as the
Overland Sweep Fund of Overland Express Funds, Inc., another investment
company advised by Wells Fargo Bank. On December 12, 1997, the Overland Sweep
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.
Prior to December 15, 1997, the Overland Fund invested in a Master Portfolio
with a corresponding investment objective. The Fund currently invests directly
in a portfolio of securities and does not invest in a Master Portfolio.
Stagecoach Overland Express Sweep Prospectus 17
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Minimum Account Value Statements - Your Shareholder Servicing Agent mails
statements after any account activity, including dividends or capital gains,
and at year-end. Your Shareholder Servicing Agent will also send any necessary
tax reporting documents in January, and will send Annual and Semi-Annual
Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
the Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor
Services at 1-800-222-8222.
Glass-Steagall Act - Morrison & Foerster LLP, counsel to the 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.
18 Stagecoach Overland Express Sweep Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different companies provide services to the Fund. This section
shows how the Fund is organized, the entities that perform different services,
and how they are compensated. Further information is available in the
Statement of Additional Information for the Fund.
About Stagecoach
The Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach was organized on September 9, 1991,
as a Maryland Corporation.
The Board of Directors of Stagecoach supervises the Fund's activities and
approves the selection of various companies hired to manage the Fund's
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing
board members or amending fundamental investment strategies or policies.
================================================================================
Shareholders
================================================================================
|
================================================================================
Financial Firms and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agents Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA Provide services
Markets the Funds, Manages the Funds' Maintains records to customers
distributes shares, business activities of shares and
and manages the Funds' supervises the
business activities 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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Overland Express Sweep Prospectus 19
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Fund paid on an annual basis for the services
described. The Statement of Additional Information for the Fund has more
detailed information about the Investment Advisor and the other service
providers and plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for the Fund. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the
largest banks in the United States. Wells Fargo Bank is a wholly owned
subsidiary of Wells Fargo & Company, a national bank holding company. As of
December 31, 1997, Wells Fargo Bank and its affiliates managed over $62
billion in assets. The Fund paid Wells Fargo Bank the following for advisory
services (after fee waivers) for the fiscal period ended Dec. 31, 1997:
-----------------------------------------------------------------------
Overland Express Sweep Fund .25%
-----------------------------------------------------------------------
The Administrator
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid
.03% of the Fund's assets for these services.
The Distributor and Co-Administrator
Stephens Inc. is the Fund's distributor and co-administrator. Stephens Inc.
receives .04% of the Fund's assets for its role as co-administrator. Stephens
Inc. also receives all distribution plan fees.
Distribution Plan
We have adopted a distribution plan for the Fund. This plan is used to pay for
distribution-related services, including on-going compensation to selling
agents. The Fund may participate in joint distribution activities with other
Stagecoach Funds. The cost of these activities is generally allocated among
the Funds. Funds with higher asset levels pay a higher proportion of these
costs. The fees paid under this plan is as follows:
-----------------------------------------------------------------------
Overland Express Sweep Fund .30%
-----------------------------------------------------------------------
20 Stagecoach Overland Express Sweep Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Fund. We have agreements with
various Shareholder Servicing Agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services the Fund pays as follows:
----------------------------------------------------------------------
Overland Express Sweep Fund .30%
----------------------------------------------------------------------
Stagecoach Overland Express Sweep Prospectus 21
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of the Fund, there is a chart showing important
financial information about the Fund. The chart is called "Financial
Highlights" and is designed to help you understand the past performance of the
Fund. The financial statements from which these Financial Highlights were
derived were audited by KPMG Peat Marwick LLP, except as indicated. The
financial statements are included in the Fund's most recent Annual or Semi-
Annual Report and are available free of charge by calling 1-800-222-8222.
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.
22 Stagecoach Overland Express Sweep Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Annual Report
A document that provides certain financial and other important information for
the most recent reporting period, including each Fund's portfolio of
investments.
Business Day
Any day the Fund is open. The Fund is generally open Monday through Friday and
is closed weekends and New York Stock Exchange holidays.
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.
Current Income
Earnings in the form of dividends or interest as opposed to capital
growth.
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.
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.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
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 Overland Express Sweep Prospectus 23
<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 per share of the Fund is determined each
business day at 9:00 AM and 1:00 PM (Pacific Time).
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.
Selling Agent
A person who has an agreement with the Funds' distributor that allows them to
sell Fund shares.
Shareholder Servicing Agent
An entity appointed by a Fund to maintain shareholder accounts and record,
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 U.S. economy.
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.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
24 Stagecoach Overland Express Sweep Prospectus
<PAGE>
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Stagecoach Overland Express Sweep Prospectus 25
<PAGE>
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26 Stagecoach Overland Express Sweep 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 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 MONEY MARKET MUTUAL FUNDS:
----------------------------------------------------------------------
* are not insured by the FDIC
* are not obligations or deposits of Wells Fargo Bank, nor guaranteed
by Wells Fargo Bank
* involve investment risk, including possible loss of principal.
* seek to maintain a stable net asset value of $1.00 per share,
however, there can be no assurance that a fund will meet this goal.
Yields will vary with market conditions.
-----------------------------------------------------------------------
[LOGO OF RECYCLED PAPER]
Printed on Recycled paper SC OEX P (2/98)
<PAGE>
LOGO
WELLS FARGO LOGO
STAGECOACH FUNDS
-----------------------------
PROSPECTUS
-----------------------------
PRIME MONEY MARKET MUTUAL FUND
Class A
February 1, 1998
<PAGE>
STAGECOACH FUNDS(R)
PRIME MONEY MARKET MUTUAL FUND
CLASS A SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one class offered by one
fund of the Stagecoach Family of Funds -- Class A shares of the PRIME MONEY
MARKET MUTUAL FUND (the "Fund").
The PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with maximized
current income to the extent consistent with preservation of capital and
maintenance of liquidity. The Fund pursues its objective by investing its
assets in a broad range of short-term, high quality U.S. dollar-denominated
money market instruments, which have remaining maturities not exceeding 397
days (13 months), and in certain repurchase agreements.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated February 1, 1998, containing additional information
about the Fund, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling 1-800-222-8222. If you hold shares in an IRA, please
call 1-800-BEST-IRA for information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE FUND'S INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S
CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED FEBRUARY 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-------
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
Financial Highlights 5
How the Fund Works 7
The Fund and Management 12
Investing in the Fund 13
Dividend and Capital Gain Distributions 19
How to Redeem Shares 19
Additional Shareholder Services 24
Management, Distribution and Servicing Fees 26
Taxes 29
Prospectus Appendix--Additional Investment Policies A-1
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides you with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides you with summary information about the Fund. For more information,
please refer to the identified Prospectus sections and generally to the
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with maximized
current income to the extent consistent with preservation of capital and
maintenance of liquidity. The Fund pursues its objective by investing its
assets in a broad range of short-term, high quality U.S. dollar-denominated
money market instruments, which have remaining maturities not exceeding 397
days (13 months), and in certain repurchase agreements.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, you should be willing to accept some
risk with money invested in the Fund. Although the Fund seeks to maintain a
stable net asset value of $1.00 per share, there is no assurance that it
will be able to do so. The Fund may not achieve as high a level of current
income as other mutual funds that do not limit their investment to the high
credit quality instruments in which the Fund invests. As with all mutual
funds, there can be no assurance that the Fund will achieve its investment
objective. See "How the Fund Works -- Investment Objective and Policies--
Risk Factors" below and "Additional Permitted Investment Activities" in the
SAI for further information about the Fund's investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency, and custodial services. In
addition, Wells Fargo Bank isa shareholder servicing agent and a selling
agent for the Fund. See "The Fund and Management" and "Management,
Distribution and Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing Fund shares at net asset value ("NAV"). You may
open an account by investing at least $1,000, and you may add to your
account by making additional investments of at least $100, with certain
exceptions. Shares may be purchased on any day the Fund is open by wire, by
mail, or by an automatic
1 PROSPECTUS
<PAGE>
investment feature called the AutoSaver Plan. See "Investing in the Fund"
for more details, or contact Stephens (the Fund's distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily, distributed monthly and automatically
reinvested in additional shares of the same class of the Fund at net asset
value unless you elect to receive dividends credited to your Wells Fargo
Bank account or distributed in cash. Any capital gains are distributed at
least annually. Investment income available for distribution to holders of
a class of shares is reduced by the class expenses payable on behalf of
those shares. See "Dividend and Capital Gain Distributions" and "Additional
Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem Fund shares at NAV, without charge, on any day the Fund is
open by telephone (unless you have declined this feature on your account
application), by letter, or on a regular monthly basis, by an automatic
feature called the Systematic Withdrawal Plan. See "How to Redeem Shares"
for more details, or contact Stephens (the Fund's distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME MONEY
MARKET MUTUAL FUND
CLASS A
------------------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)........................................ None
Maximum Sales Charge on Reinvested Distributions........ None
Maximum Sales Charge on Redemptions..................... None
Exchange Fees........................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
PRIME MONEY
MARKET MUTUAL FUND
CLASS A
------------------
<S> <C>
Management Fee (after waivers or reimbursements)/1/...... 0.12%
Rule 12b-1 Fee........................................... 0.05%
Other Expenses........................................... 0.48%
----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/2/...................................... 0.65%
====
</TABLE>
--------------------------------
/1/Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
/2/Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.78%.
3 PROSPECTUS
<PAGE>
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in the Fund's Class A
shares, assuming (A) a 5% annual return and
(B) redemption at the end of each time period
indicated:
Prime Money Market Mutual Fund............. $7 $21 $36 $81
</TABLE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in the Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares may be purchased, and for which customers
may be charged a fee. The tables do not reflect any charges that may be imposed
by Wells Fargo Bank or another institution directly on certain customer
accounts in connection with an investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. There are no Shareholder Transaction Expenses for the Fund. However,
the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal period. These amounts have been restated to reflect voluntary fee
waivers and expense reimbursements expected to be in effect during the current
year. Any waivers or reimbursements will reduce the Fund's total expenses.
There can be no assurance that such waivers or reimbursements will continue.
The Fund understands that a shareholder servicing agent also may impose certain
conditions on its customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Fund, such as requiring a
higher minimum initial investment or payment of a separate fee for additional
expenses. For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in the Fund, please see "Investing in the
Fund -- How to Buy Shares" and "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an
PROSPECTUS 4
<PAGE>
assumed annual rate of return of 5%. The rate of return should not be
considered an indication of actual or expected performance of the Fund nor a
representation of past or future expenses; actual expenses and returns may be
greater or lesser than those shown.
Financial Highlights
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the six-month periods ended March 31, 1997
and September 30, 1997. This information is provided to assist you in
evaluating the Fund's historical performance. Except as set forth below, the
Fund's financial statements were audited by KPMG Peat Marwick LLP. The
financial information for all periods prior to October 1, 1995, was audited by
other auditors. On September 6, 1996, the Investor Class shares of a portfolio
of Pacifica Funds Trust were reorganized as the Class A shares of the Fund. The
predecessor portfolio commenced offering the Investor Class shares in October
of 1995. Prior to this time it offered a single class -- the Service Class
shares. The information for periods prior to September 6, 1996, reflects the
performance of the Investor and Service Class shares. The audited financial
statements and the report thereon for the six-month period ended March 31,
1997, and the unaudited financial statements for the six-month period ended
September 30, 1997, are incorporated by reference into the SAI. This
information should be read in conjunction with the Fund's 1997 financial
statements and the notes thereto. The SAI has been incorporated by reference
into this prospectus.
5 PROSPECTUS
<PAGE>
PRIME MONEY MARKET MUTUAL FUND/1/
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A
SHARES/3/
--------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
SEPT. 30, MARCH 31, SEPT. 30,
1997 1997/2/ 1996
----------- ---------- ---------
<S> <C> <C> <C>
Net Asset Value,
beginning of
period........... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from
Investment
Operations:
Net Investment
Income........... 0.03 0.02 0.05
Net realized and
unrealized gain
on investment.... 0.00 0.00 0.00
-------- -------- --------
Total from
Investment
Operations...... 0.03 0.02 0.05
Less
Distributions:
Dividends from
net investment
income........... (0.03) (0.02) (0.05)
Distributions
from net realized
gain............. 0.00 0.00 0.00
-------- -------- --------
Total From
Distributions.... (0.03) (0.02) (0.05)
-------- -------- --------
Net Asset Value,
end of period.... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return (not
annualized)...... 2.59% 2.49% 5.09%
Ratios/Supplemental
Data:
Net Assets, end
of period
(000s)........... $189,162 $277,044 $264,900
Ratios to average
net assets
(annualized):
Ratio of expenses
to average net
assets........... 0.55% 0.55% 0.55%
Ratio of net
investment income
to average net
assets........... 5.12% 4.95% 5.06%
Ratio of expenses
to average net
assets prior to
waived fees and
reimbursed
expenses......... 0.83% 0.75% 0.68%
Ratio of net
investment income
to average net
assets prior to
waived fees and
reimbursed
expenses......... 4.84% 4.75% 4.93%
<CAPTION>
SERVICE SHARES
----------------------------------------------------------------------------------------------
SIX
YEAR MONTHS
ENDED ENDED YEAR ENDED MARCH 31,
SEPT. 30, SEPT. 30, ---------------------------------------------------------------------
1995 1994/4/ 1994 1993 1992 1991 1990 1989 1988
---------- ------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of
period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------------- --------- --------- --------- --------- --------- --------- ---------
Income from
Investment
Operations:
Net Investment
Income........... 0.05 0.02 0.03 0.03 0.05 0.07 0.08 0.08 0.06
Net realized and
unrealized gain
on investment.... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ------------- --------- --------- --------- --------- --------- --------- ---------
Total from
Investment
Operations...... 0.05 0.02 0.03 0.03 0.05 0.07 0.08 0.08 0.06
Less
Distributions:
Dividends from
net investment
income........... (0.05) (0.02) (0.03) (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
Distributions
from net realized
gain............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ------------- --------- --------- --------- --------- --------- --------- ---------
Total From
Distributions.... (0.05) (0.02) (0.03) (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
---------- ------------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ============= ========= ========= ========= ========= ========= ========= =========
Total Return (not
annualized)...... 5.60% 3.71%/5/ 3.00% 3.32% 5.22% 7.72% 8.82% 7.88% 6.50%
Ratios/Supplemental
Data:
Net Assets, end
of period
(000s)........... $614,101 $565,305 $527,599 $468,479 $528,397 $543,834 $493,641 $496,675 $628,987
Ratios to average
net assets
(annualized):
Ratio of expenses
to average net
assets........... 0.41% 0.41% 0.41% 0.41% 0.43% 0.47% 0.54% 0.56% 0.58%
Ratio of net
investment income
to average net
assets........... 5.47% 3.67% 2.96% 3.27% 5.09% 7.38% 7.95% 7.58% 6.38%
Ratio of expenses
to average net
assets prior to
waived fees and
reimbursed
expenses......... 0.68% 0.89% 0.89% 0.89% 0.91% 0.94% 0.90% 0.90% 0.93%
Ratio of net
investment income
to average net
assets prior to
waived fees and
reimbursed
expenses......... 5.20% 3.19% 2.48% 2.79% 4.61% 6.91% 7.59% 7.24% 6.03%
</TABLE>
- -----
/1/The Fund operated as Pacific American Liquid Assets, Inc. from commencement
of operations on April 30, 1981 until it was reorganized as a portfolio of
Pacific American Fund on October 1, 1985. On October 1, 1994, the Fund was
reorganized as the Pacific American Money Market Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Prime
Money Market Fund, and on September 6, 1996, the Fund was reorganized as the
Prime Money Market Mutual Fund of the Company. Prior to April 1, 1996, First
Interstate Capital Management, Inc. ("FICM"') served as the Fund's adviser.
In connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
/2/The Fund changed its fiscal year-end from September 30 to March 31.
/3/Financial data for the year ended September 30, 1996 includes the
performance of the Investor shares of the predecessor portfolio, which
commenced operations October 1, 1995.
/4/The Fund changed its fiscal year-end from March 31 to September 30.
/5/Annualized.
PROSPECTUS 6
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objective and related
policies of the Fund. The Fund seeks to maintain a net asset value of $1.00 per
share. The Fund's assets consist only of obligations with remaining maturities
(as defined by the SEC) of 397 days (13 months) or less at the date of
acquisition, and the dollar-weighted average maturity of the Fund's investments
is 90 days or less. There can be no assurance that the Fund's investment
objective will be achieved or that the Fund will be able to maintain a net
asset value of $1.00 per share. A more complete description of the Fund's
investments and investment activities is contained in "Prospectus Appendix --
Additional Investment Policies" and in the SAI.
The PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with maximized
current income to the extent consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues its investment objective by
investing in a broad range of short-term, high quality U.S. dollar-denominated
money market instruments, which have remaining maturities not exceeding 397
days (13 months), and in certain repurchase agreements.
All securities acquired by the Fund will be U.S. Government obligations (see
below) or "First Tier Eligible Securities" as defined under Rule 2a-7 of the
Investment Company Act of 1940 (the "1940 Act"). First Tier Eligible Securities
generally consist of instruments that are either rated at the time of purchase
in the highest rating category by one or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") or issued by issuers
with such ratings. The Appendix to the SAI includes a description of the
applicable ratings. Unrated instruments purchased by the Fund will be of
comparable quality as determined by the adviser pursuant to guidelines approved
by the Board of Directors.
U.S. Treasury and U.S. Government Obligations. The Prime Money Market Mutual
Fund may invest in U.S. Treasury obligations, such as bills, notes, bonds and
certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such obligations, as well as in obligations of
agencies and instrumentalities of the U.S. Government ("U.S. Government
obligations"). U.S. Government obligations in which the Fund may invest include
securities issued or guaranteed as to principal and interest by the U.S.
Government and supported by the full faith and credit of the U.S. Treasury.
U.S. Treasury obligations differ mainly in the length of their maturity.
Treasury bills, the most frequently issued marketable government securities,
have a maturity of up to one year and are issued on a discount basis. U.S.
Government obligations also include securities issued or guaranteed by federal
agencies or instrumentalities, including government-sponsored enterprises. Some
obligations of agencies or instrumentalities of
7 PROSPECTUS
<PAGE>
the U.S. Government are supported by the full faith and credit of the United
States or U.S. Treasury guarantees; others, by the right of the issuer or
guarantor to borrow from the U.S. Treasury; still others, by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
The Fund may also purchase "stripped securities" such as TIGRs or CATs, which
are interests in U.S. Treasury obligations offered by broker-dealers and other
financial institutions that represent ownership in either the future interest
payments or the future principal payments on the U.S. Treasury obligations.
Stripped securities are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are paid to investors.
In addition to the types of instruments described above, the Fund may purchase
U.S. dollar-denominated bank obligations such as time deposits, certificates of
deposit, bankers' acceptances, bank notes and deposit notes issued by domestic
and foreign banks. Time deposits are non-negotiable deposits maintained at a
banking institution fora specified period of time normally at a stated interest
rate. Certificates of deposit are certificates evidencing the obligation of a
bank to repay funds deposited with it for a specified period of time. Bankers
acceptances are negotiable deposits or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank (meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument at maturity). Bank notes usually represent senior debt
of the bank.
The Fund may also purchase commercial paper, short-term notes, medium-term
notes and bonds issued by domestic and foreign corporations that meet the
Fund's maturity limitations.
The Fund may also invest in U.S. dollar denominated obligations issued or
guaranteed by foreign governments or any of their political subdivisions, agen-
cies or instrumentali-ties. Such obligations include debt obligations of supra-
national entities. Supranational entities include international organizations
designated or supported by governmental entities to promote economic recon-
struction or development and international bank-
PROSPECTUS 8
<PAGE>
ing institutions and related government agencies. Examples of these include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the InterAmerican Development Bank.
The Fund may purchase asset-backed securities, which are securities backed by
mortgages, installment sales contracts, credit-card receivables or other
assets. The average life of asset-backed securities varies with the maturities
of the underlying instruments, and the average life of a mortgage-backed
instrument, in particular, is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments. For this and other reasons, an asset-backed security's
stated maturity may be shortened, and the securities' total return may be
difficult to predict precisely. Such difficulties are not, however, expected to
have a significant effect on the Fund since the remaining maturity of any
asset-backed security acquired will be thirteen months or less.
The Fund may attempt to increase yields by trading to take advantage of short-
term market variations. This policy could result in high portfolio turnover,
which should not adversely affect the Fund since it does not ordinarily pay
brokerage commissions on the purchase of short-term debt obligations.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invest. As with all mutual funds, there
can be no assurance that the Fund will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days. In
addition, Fund purchases must present minimal credit risks and be of the
highest quality (i.e., be rated in the top rating category by the requisite
NRSROs or, if unrated, determined to be of comparable quality to such rated
securities by the Fund's adviser under guidelines adopted by the Company's
Board of Directors).
The Fund seeks to reduce risk by investing its assets in securities of various
issuers. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular,
9 PROSPECTUS
<PAGE>
the internal investment policies of the Fund's investment adviser prohibits the
purchase for the Fund of many types of floating-rate derivative securities that
are considered potentially volatile. The following types of derivative
securities ARE NOT permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates move above
a certain level);
. leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
. dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
. inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Coast of Funds Index floaters. The Fund may invest only in variable or
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate or LIBOR,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
Since the Prime Money Market Mutual Fund may purchase securities issued by
foreign issuers, it may be subject to investment risks which are different in
some respects from those incurred by a fund that invests exclusively in debt
obligations of domestic issuers. Such potential risks include future political
and economic developments, the possible imposition of withholding and other
taxes by foreign countries on income received from sources within such foreign
countries, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions that might adversely affect the payment of principal
and interest on these securities. In addition, foreign banks and other issuers
are not necessarily subject to the same regulatory requirements that apply to
domestic issuers (such as reserve requirements, loan limitations, examinations,
accounting, auditing and recordkeeping requirements, and public availability of
information), and the Fund may experience difficulties in obtaining or
enforcing a judgment against a foreign issuer. Absent any unusual market
conditions, the Fund will not invest more than 25% of its total assets in
securities issued by foreign issuers.
PROSPECTUS 10
<PAGE>
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests may default on the payment of principal and/or interest.
Interest-rate risk is the risk that increases in market interest rates may
adversely affect the value of the debt instruments in which the Fund invests
and hence the value of your investment in the Fund.
Generally, securities in which the Fund invests will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. The Fund attempts to maintain the value of its shares at
a constant $1.00 per share, although there can be no assurance that it will
always be able to do so. See "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information about investment policies and
risks.
PERFORMANCE
The performance of each class of shares of the Fund may be advertised from
time to time in terms of current yield, effective yield and average annual
total return. Performance figures are based on historical results and are not
intended to indicate future performance. Performance figures are calculated
separately for each class of shares of the Fund.
Yield refers to the income generated by an investment in the Fund's class over
a specified period (usually 7 days), expressed as an annual percentage rate.
Effective yield is calculated similarly but assumes reinvestment of the income
earned from the Fund. Because of the effects of compounding, effective yields
are slightly higher than yields.
Average annual total return of a class of shares is based on the overall
dollar or percentage change of an investment in the Fund's class and assumes
the investment is at NAV and all dividends and distributions attributable to a
class are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund also may present nonstandard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates. Because of the differences in the fees and/or expenses
borne by shares of each class of the Fund, the performance figures on such
shares can be expected, at any given time, to vary from the performance figures
for other classes of the Fund.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request
without charge by calling the Company at 1-800-222-8222 or by writing the
Company at the address shown on the inside front cover of the Prospectus.
11 PROSPECTUS
<PAGE>
The Fund and Management
THE FUND
The Fund is one of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991 and currently
offers shares of twenty-four other Funds. Most of the Company's funds are
authorized to issue multiple classes of shares, one class generally subject to
a front end-end sales charge and, in some cases, a class subject to a
contingent-deferred sales charge, that are offered to retail investors. Certain
of the Company's funds also are authorized to issue other classes of shares,
which are sold primarily to institutional investors at NAV.
Each class of shares represents an equal, proportionate interest in the Fund
with other shares of the same class. Shareholders of each class bear their pro
rata portion of the Fund's operating expenses except for certain class-specific
expenses that are allocated to a particular class and, accordingly, may affect
performance. For information on another fund or a class of shares, please call
Stagecoach Shareholder Services at 1-800-222-8222 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote
for each share you own and fractional votes for fractional shares you own. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of
the shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment adviser, administrator,
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank serves as a shareholder servicing agent and as a selling agent of the
Fund. Wells Fargo Bank, one of the largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of
December 31, 1997, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $62 billion of assets of individuals,
trusts, estates and institutions. Wells Fargo Bank also serves as investment
adviser to other separately managed funds of the Company, and as investment
adviser or sub-adviser to separately managed funds of five other registered,
open-end,
PROSPECTUS 12
<PAGE>
management investment companies. Wells Fargo Bank, a wholly owned subsidiary of
Wells Fargo & Company, is located at 525 Market Street, San Francisco,
California 94105. Wells Fargo Investment Management, Inc. ("WFIM"), a wholly-
owned subsidiary of Wells Fargo Bank, has changed its name to Wells Capital
Management Incorporated and is located at 444 Market Street, San Francisco,
California 94105.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
adviser to the predecessor portfolio. Prior to March 18, 1994, the predecessor
portfolio's investment adviser was San Diego Financial Capital Management,
Inc., which was acquired by First Interstate Bancorp through its merger with
San Diego Financial Corporation.
Morrison & Foerster LLP counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contract and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Investing in the Fund
OPENING AN ACCOUNT
You can buy Class A shares of the Fund in one of the several ways described
below. You must complete and sign an Account Application to open an account.
Additional documentation may be required from corporations, associations, and
certain fiduciaries. Do not mail cash. If you have any questions or need extra
forms, please call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same). Call the number on your confirmation
statement to obtain information about what is required to change registration.
13 PROSPECTUS
<PAGE>
To invest in the Fund through tax-deferred retirement plans through which the
Fund is available, please contact a shareholder servicing agent or a selling
agent to receive information and the required separate application. See "Tax-
Deferred Retirement Plans" below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge,
a paper copy of the electronic Prospectus.
SHARE VALUE
The value of a Fund share is its net asset value or NAV. Wells Fargo Bank
calculates the NAV of each class of the Fund's shares as of 12:00 p.m. (Pacific
time) and 1:00 p.m. (Pacific time) on each day the Fund is open (a "Business
Day"). The Fund is open Monday through Friday and is closed on weekends and
federal bank holidays. The NAV per share of each class of a Fund is computed by
dividing the value of the Fund's assets allocable to a particular class, less
the liabilities charged to that class by the total number of the outstanding
shares of that class. All expenses are accrued daily and taken into account for
the purposes of determining the NAV of a share. As noted above, the Fund seeks
to maintain a constant $1.00 NAV share price, although there can be no
assurance that it will be able to do so.
Fund shares may be purchased on any Business Day. Purchase orders received
before 12:00 Noon (Pacific time) are processed at 12:00 Noon on that Business
Day. Purchase orders received after 12:00 Noon are processed at 12:00 Noon the
next Business Day, except that transaction orders that are received prior to
1:00 p.m. through shareholder servicing agents in connection with automated
investment programs are processed at 1:00 p.m. On any day the trading markets
for both U.S. government securities and money market instruments close early,
the Fund will close early. On these days, the NAV calculation time and the
dividend, purchase and redemption cut-off times for the Fund may be earlier
than 12:00 Noon. All transaction orders are processed at the NAV next
determined after the order is received.
The Fund's NAV is calculated on the basis of the amortized-cost method. This
valuation method is based on the receipt of a steady rate of payment from the
date of purchase until maturity rather than actual changes in market value. The
Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
You may buy Fund shares on any Business Day by any of the methods described
below. After a properly completed Account Application is received and your wire
order or check is received, or an account with a bank that is designated in the
Account
PROSPECTUS 14
<PAGE>
Application and that is approved by the transfer agent (an "Approved Bank
Account") is debited, your purchase order is effected, and full and fractional
shares are purchased at the next determined NAV, which is expected to remain a
constant $1.00 per share. If shares are purchased by a check that does not
clear, the Company reserves the right to cancel the purchase and hold the
investor responsible for any losses or fees incurred. In addition, the Fund may
hold payment on any redemption until reasonably satisfied that your investments
made by check have been collected (which may take up to 10 days).
Generally, the minimum initial investment is $1,000. The minimum initial
investment amounts, however, are $100 for investments made through the
AutoSaver Plan (described below) and $250 for investments made through any tax-
deferred retirement account for which Wells Fargo Bank serves as trustee or
custodian under a prototype trust approved by the Internal Revenue Service
("IRS") (a "Plan Account"). Generally, subsequent investments must be made in
amounts of $100 or more. Where Fund shares are acquired in exchange for shares
of another fund in the Stagecoach Family of Funds, the minimum initial
investment amount applicable to the shares being exchanged generally carries
over. This means, for example, that you can make an initial investment in the
Fund that is less than the minimum balance required, in an exchange from a fund
that has a $1,000 minimum investment requirement, except that if the value of
your investment in shares of the fund from which you are exchanging has been
reduced below the minimum initial investment amount by changes in market
conditions or sales charges (and not by redemptions), you may carry over the
lesser amount into the Fund. Plan Accounts that invest in the Fund through
Wells Fargo ExpressInvest(TM) -- (available to certain Wells Fargo tax-deferred
retirement plans) are not subject to the minimum initial or subsequent
investment amount requirements. In addition, the minimum initial or subsequent
purchase amount requirements may be waived or lowered for investments effected
on a group basis by certain entities and their employees, such as pursuant to a
payroll deduction or other accumulation plan. If you have questions regarding
purchases of shares or ExpressInvest(TM), please call 1-800-222-8222 or contact
a shareholder servicing agent or selling agent (as defined below). For
additional information on tax-deferred accounts, please refer to "Investing in
the Fund -- Tax-Deferred Retirement Plans" or contact a shareholder servicing
agent or selling agent.
The Company reserves the right to reject any purchase order or suspend sales
at any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the books of the Company and
share certificates are not issued.
15 PROSPECTUS
<PAGE>
INITIAL PURCHASES BY WIRE
1. Complete an Account Application. Indicate the services to be used.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class A)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-546-0280
4. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class A)," to the address set
forth under "Initial Purchases by Wire" above.
3. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate
in the AutoSaver Plan, you must specify an amount ($100 or more) to be
withdrawn automatically by the transfer agent on a monthly basis from your
Approved Bank Account. You may open an Approved Bank Account with Wells Fargo
Bank. The transfer agent withdraws and uses this amount to purchase Fund shares
on your behalf each month on or about the day that you have selected, or, if
you have not selected a day, on or about
PROSPECTUS 16
<PAGE>
the 20th day of each month. If you hold shares through a brokerage account, the
AutoSaver Plan will comply with the terms of your brokerage agreement. The
transfer agent requires a minimum of ten (10) Business Days to implement your
AutoSaver Plan purchases. If you hold shares through a brokerage account, your
AutoSaver Plan will comply with the terms of your brokerage agreement. There
are no separate fees charged to you by the Company for participating in the
AutoSaver Plan.
You may change your investment amount, the date on which your AutoSaver
purchase is effected, suspend purchases or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction.
TAX-DEFERRED RETIREMENT PLANS
You may be entitled to invest in the Fund through a Plan Account or other tax-
deferred retirement plan. Contact a shareholder servicing agent or a selling
agent (such as Wells Fargo Bank) for materials describing Plan Accounts
available through it, and the benefits, provisions, and fees of such Plan
Accounts. The minimum initial investment amount for Fund shares acquired
through a Plan Account is $250 (the minimum initial investment amount is not
applicable if you participate in ExpressInvest through a Plan Account).
Application materials for opening a tax-deferred retirement plan can be
obtained from a shareholder servicing agent or a selling agent. Return your
completed tax-deferred retirement plan application to your shareholder
servicing agent or selling agent for approval and processing. If your tax-
deferred retirement plan application is incomplete or improperly filled out,
there may be a delay before a Fund account is opened. You should ask your
shareholder servicing agent or selling agent about the investment options
available to your tax-deferred retirement plan, since some of the funds in the
Stagecoach Family of Funds may be unavailable as options. Moreover, certain
features described herein, such as the AutoSaver Plan and the Systematic
Withdrawal Plan, may not be available to individuals or entities who invest
through a tax-deferred retirement plan.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing the Fund's
transfer agent to debit your Approved Bank Account by wire with an instruction
to the wiring bank to transmit the specified amount as directed above for
initial purchases or by mail with a check payable to "Stagecoach Funds (Name of
Fund) (designate Class A)" to the address set forth above under "Initial
Purchases by Wire." Write your Fund account number on the check and include the
detachable stub from your Account Statement or a letter providing your Fund
account number.
17 PROSPECTUS
<PAGE>
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the Fund through a broker/dealer
or financial institution that has entered into a selling agreement with
Stephens, the Fund's distributor (a "Selling Agent") by 12:00 p.m. (Pacific
time) on any Business Day, including orders for which payment is to be made
from your free cash credit balance maintained with a Selling Agent. These
purchase orders are executed on the same day the order is placed if notice is
provided to the transfer agent by 12:00 p.m. (Pacific time) and if federal
funds are received by the transfer agent before the close of business that day.
If your purchase order is received by a Selling Agent after 12:00 p.m. (Pacific
time) on any Business Day or if federal funds are not received by the transfer
agent before the close of business that day, then your purchase order generally
is executed on the next Business Day. The Selling Agent is responsible for the
prompt transmission of your purchase order to the Fund. A financial institution
that acts as a selling agent, shareholder servicing agent or in certain other
capacities may be required to register as a dealer pursuant to applicable state
securities laws, which may differ from federal law and any interpretations
expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the Fund (a "Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent"
for more information. A Shareholder Servicing Agent may transmit your purchase
order to the transfer agent, including an order for which payment is to be
transferred from your Approved Bank Account or wired from a financial
institution. If the Shareholder Servicing Agent transmits your order to the
transfer agent before 12:00 p.m. (Pacific time) and if federal funds are
received by the transfer agent before the close of business that day, the
purchase order is executed on the same day. If your Shareholder Servicing Agent
transmits your purchase order to the transfer agent after 12:00 p.m. or if
federal funds are not received by the transfer agent before the close of
business that day, then your order generally is executed on the next Business
Day, except that automated investment program purchase orders transmitted
through Shareholder Servicing Agents are executed as of 1:00 p.m. on each
Business Day. The Shareholder Servicing Agent is responsible for the prompt
transmission of your purchase order to the transfer agent.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a monthly statement of your Fund account after every month in which there
has been a transaction that affects your share balance or your Fund account
registration. Every January, you will be provided a statement with tax
information for the previous year to
PROSPECTUS 18
<PAGE>
assist you in tax return preparation. At least twice a year, the Company's
financial statements are mailed to shareholders of record.
Dividend and Capital Gain
Distributions
The Fund intends to distribute dividends of its net investment income on a
daily basis payable to shareholders of record as of 12:00 noon (Pacific time).
If your purchase order is received before 12:00 noon on any Business Day, you
begin earning dividends on that Business Day and continue to earn dividends
through the day before you redeem such shares. If your purchase order is
received at or after 12:00 noon on any Business Day, you begin earning
dividends on the next Business Day and continue to earn dividends through the
day on which you redeem your shares. Dividends for a Saturday, Sunday or
Holiday are declared payable to shareholders of record as of the preceding
Business Day. If you redeem shares before a dividend payment date, any
dividends credited to you are paid on the following dividend payment date
unless you have redeemed all of the shares in your account, in which case you
will receive any accrued dividends together with your redemption proceeds. The
Fund will distribute any capital gains at least annually.
Dividends declared in a month generally are distributed on the last Business
Day of the month. You have three options for receiving dividend and any
capital-gain distributions. They are discussed under "Additional Shareholder
Services -- Dividend and Capital Gain Distribution Options" below.
How to Redeem Shares
You may redeem Fund shares on any Business Day without a charge by the
Company. Your shares are redeemed at the NAV next calculated after the Company
has received your redemption order. Redemption orders that are received by the
transfer agent before 12:00 noon (Pacific time) on any Business Day are
executed on that day. Redemption orders that are received after 12:00 noon on
any Business Day are executed on the next Business Day. The Company ordinarily
remits your redemption proceeds within seven days after your redemption order
is received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by
the Fund of securities owned by it is not reasonably practicable or (b) it is
not reasonably practicable for the Fund fairly to determine the value of its
net assets, or (c) a period during which the SEC by order permits deferral of
redemptions for the protection of the Fund's security holders. In addition, the
Fund may hold payment on
19 PROSPECTUS
<PAGE>
your redemption until reasonably satisfied that your investments made by check
have been collected (which can take up to 10 days from the purchase date). To
ensure acceptance of your redemption order, please follow the procedures
described below. In addition, the Company reserves the right to impose charges
for wiring redemption proceeds.
All redemptions of shares generally are made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
Fund shareholders during any 90-day period of up to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is a
fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Directors reserves the right to have the Fund make
payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. The securities would be
valued in the same manner as the securities of the Fund are valued. If the
recipient were to sell such securities, he or she would incur brokerage costs
in converting such securities to cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves the right to close your account and send you the proceeds if
the balance falls below the applicable minimum balance because of a redemption
(including a redemption of Fund shares after you have made only the applicable
minimum initial investment). You will be given 30 days' notice to make an
additional investment to increase your account balance to at least the
applicable minimum balance. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How to Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company requires the transfer agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the
transfer agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the transfer agent will be liable for
following telephone instructions reasonably believed to be genuine.
PROSPECTUS 20
<PAGE>
REDEMPTIONS BY LETTER
1. Write a letter of instruction. Indicate the dollar amount or number of Fund
shares you want to redeem. Refer to your Fund account number and give your
taxpayer identification number ("TIN"), which is generally your social
security or employer identification number.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or your Approved Bank Account, or other
unusual circumstances exist that cause the transfer agent to determine that
a signature guarantee is necessary or prudent to protect against
unauthorized redemption requests. If required, a signature must be
guaranteed by an "eligible guarantor institution," which includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may
be requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
4. Mail your letter to the transfer agent at the address set forth under
"Investing in the Fund -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY LETTER OR TELEPHONE
You may request an expedited redemption of Fund shares by letter, in which
case your receipt of redemption proceeds (but not the Fund's receipt of your
redemption request) would be expedited. Telephone redemption or exchange
privileges are made available to you automatically upon the opening of an
account unless you specifically decline the privilege. You also may request an
expedited redemption of Fund shares by telephone on any Business Day, in which
case both your receipt of redemption proceeds and the Fund's receipt of your
redemption request would be expedited. You may request expedited redemption by
telephone only if the total value of the shares redeemed is $100 or more.
You may request expedited redemption by telephone by calling the transfer
agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
21 PROSPECTUS
<PAGE>
You may mail your expedited redemption request to the transfer agent at the
address set forth under "Investing in the Fund -- Initial Purchases by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more are wired or
credited to your Approved Bank Account or wired to the Selling Agent designated
in your Account Application. The Company reserves the right to impose a charge
for wiring redemption proceeds. When proceeds of your expedited redemption are
to be paid to someone else, to an address other than that of record, or to an
account at an Approved Bank or a Selling Agent that you have not predesignated
in your Account Application, your expedited redemption request must be made by
letter and the signature(s) on the letter may be required to be guaranteed,
regardless of the amount of the redemption. If your expedited redemption
request for Fund shares is received by the transfer agent before 12:00 p.m.
(Pacific time) on a Business Day, your redemption proceeds are transmitted to
your Approved Bank Account or Selling Agent on the same Business Day (assuming
your investment check has cleared as described above), absent extraordinary
circumstances. Extraordinary circumstances could include those described above
as potentially delaying redemptions and also could include situations involving
an unusually heavy volume of wire transfer orders on a national or regional
basis or communication or transmittal delays that could cause a brief delay in
the wiring or crediting of funds. A check for net redemption proceeds of less
than $5,000 is mailed to your address of record or, at your election, credited
to your Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the transfer agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Company
reserves the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan provides you with a convenient way to have Fund
shares redeemed from your account and the proceeds distributed to you on a
monthly basis. You may participate in this Plan only if you have a Fund account
valued at $10,000 or more as of the date of your election to participate, your
dividends and capital gain distributions are being reinvested automatically,
and you are not participating in the AutoSaver Plan at any time while
participating in the Systematic Withdrawal Plan. You specify an amount ($100 or
more) to be distributed by check to your address of record or deposited in your
Approved Bank Account. The transfer agent redeems sufficient shares and mails
or deposits your proceeds as instructed on or about the fifth Business Day
prior to the end of each month. There are no separate fees charged to you by
the Company for participating in the Systematic Withdrawal Plan.
It may take up to ten (10) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
your withdrawal
PROSPECTUS 22
<PAGE>
amount, suspend withdrawals or terminate your participation in the Plan at any
time by notifying the transfer agent at least five (5) Business Days prior to
any scheduled transaction. Your participation in the Systematic Withdrawal Plan
is terminated automatically if your Fund account is closed, or, in some cases,
if your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
You may request a redemption of Fund shares through your Selling Agent.
Redemption orders transmitted by a Selling Agent to the transfer agent before
12:00 p.m. (Pacific time) on any Business Day are executed on that day.
Redemption orders transmitted by a Selling Agent to the transfer agent after
12:00 p.m. on any Business Day generally are executed on the next Business Day.
The Selling Agent is responsible for the prompt transmission of your redemption
order to the Company.
Unless you have made other arrangements with a Selling Agent and the transfer
agent has been informed of such arrangements, proceeds of a redemption order
made by you through a Selling Agent are credited to your Approved Bank Account.
If no such account is designated, a check for the redemption proceeds is mailed
to your address of record or, if such address is no longer valid, the proceeds
are credited to your account with the Selling Agent. You may request a check
from the Selling Agent or may elect to retain the proceeds in such account. The
Selling Agent may charge you a service fee. In addition, the Selling Agent may
benefit from the use of your redemption proceeds until the check it issues to
you has cleared or until such proceeds have been disbursed or reinvested on
your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of Fund shares through your Shareholder Servicing
Agent. Redemption requests made by telephone through your Shareholder Servicing
Agent must redeem shares with a total value equal to $100 or more. Redemption
orders transmitted by the Shareholder Servicing Agent to the transfer agent
before 12:00 p.m. (Pacific time) on any Business Day are executed on that day.
Redemption orders transmitted by a Shareholder Servicing Agent after 12:00 p.m.
on any Business Day generally are executed on the next Business Day. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Company.
Unless you have made other arrangements with your Shareholder Servicing Agent
and the transfer agent has been informed of such arrangements, proceeds of a
redemption order made through your Shareholder Servicing Agent are credited to
your Approved Bank Account. If no such account is designated, a check for the
proceeds is mailed to your address of record or, if such address is no longer
valid, the proceeds are credited to your account with your Shareholder
Servicing Agent or to another account designated in your agreement with your
Shareholder Servicing Agent. The Shareholder Servicing
23 PROSPECTUS
<PAGE>
Agent may charge you a service fee. In addition, the Shareholder Servicing
Agent may benefit from the use of your redemption proceeds until any check it
issues to you has cleared or until such proceeds have been disbursed or
reinvested on your behalf.
Additional Shareholder Services
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, the Systematic Withdrawal Plan, and
Expedited Redemptions by Letter and Telephone. In addition, you have three
dividend and distribution payment options and an exchange privilege, which are
described below.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from three
distribution options listed below. If you have questions about the distribution
options available to you, please call 1-800-222-8222.
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of your
dividend and/or capital gain distributions in additional shares of the
same class of the Fund that paid the dividends or distributions.
Distributions declared in a month are reinvested at NAV on the last
Business day of the month. You are assigned this option automatically if
you make no choice on your Account Application.
B. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In
the event your Approved Bank Account is closed and your distribution is
returned to the dividend disbursing agent, your distribution is
reinvested in your Fund account at the NAV next determined after the
distribution has been received. In addition, your Automatic Clearing
House Option is then converted to the Automatic Reinvestment Option.
C. The CHECK PAYMENT OPTION lets you receive a check for all dividend and
capital gain distributions, which generally is mailed either to your
designated address or your Approved Bank Account early in the month
following declaration. If the U.S. Postal Service cannot deliver your
checks, or if your checks remain uncashed for six months, those checks
are reinvested in your Fund account at the NAV next determined after the
distribution has been received. Your Check Payment Option is then
converted to the Automatic Reinvestment Option.
The Company makes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue you dividend checks under the
Check Payment Option. The
PROSPECTUS 24
<PAGE>
dividend disbursing agent may benefit from the temporary use of such moneys
until these checks clear.
EXCHANGE PRIVILEGE
The exchange privilege is a convenient way to buy shares in Stagecoach Funds
to respond to changes in your investment needs. You can exchange Class A shares
of the Fund for Class A or Class B shares of another fund in the Stagecoach
Family of Funds.
You should consider the following important factors in deciding whether to
exchange shares:
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund.
. You must exchange at least the minimum initial purchase amount of the fund
you are redeeming, unless your balance has fallen below that amount due to
market conditions or you have already met the minimum initial purchase
amount of the fund you are purchasing.
. If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.30% schedule).
. Stagecoach may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions,
Stagecoach will notify you 60 days before discontinuing or modifying the
exchange privilege.
. For purposes of the exchange privilege, shares of the Corporate Stock,
California Tax-Free Money Market Mutual and National Tax-Free Money Market
Mutual Funds are considered Class A shares.
You may exchange shares by writing the transfer agent or, if you have
telephone privileges, you may call the transfer agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
25 PROSPECTUS
<PAGE>
Management, Distribution and
Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. The
adviser also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, the adviser
is entitled to a monthly investment advisory fee at the annual rate of 0.25% of
the average daily net assets of the Fund. From time to time, the Fund,
consistent with its investment objective, policies and restrictions, may invest
in securities of companies with which Wells Fargo Bank has a lending
relationship. For the six-month period ended March 31, 1997 and the fiscal year
ended September 30, 1996, the Fund paid advisory fees at the annual rate of
0.18% and 0.14%, respectively, of its average daily net assets. For periods
prior to September 6, 1996, this includes amounts paid to Wells Fargo
Investment Management, Inc. by the predecessor portfolio to the Fund.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement with Wells Fargo Bank, the Fund
may, at times, borrow money from Wells Fargo Bank as needed to satisfy
temporary liquidity needs. Wells Fargo Bank charges interest on such overdrafts
at a rate determined pursuant to the Fund's Custody Agreement. Wells Fargo Bank
performs its custodial and transfer and dividend disbursing agency services at
525 Market Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
On behalf of the Class A shares, the Fund has entered into a Shareholder
Servicing Agreement with Wells Fargo Bank and may enter into similar agreements
with other entities. Under the agreement, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include aggregating
and transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For these
services, a Shareholder Servicing Agent is entitled to receive fees at the
annual rate of up to 0.30% (0.25% prior to September 1, 1997) of the average
daily net assets of the Class A shares owned by investors with whom the
Shareholder Servicing Agent maintains a servicing relationship. In no case
shall payments exceed any maximum amount under
PROSPECTUS 26
<PAGE>
applicable laws, regulations or rules, including the Conduct Rules of the NASD
("NASD Rules").
Shareholder Servicing Agents may impose certain conditions on their customers,
subject to the terms of this Prospectus, in addition to or different from those
imposed by the Fund, such as requiring a minimum initial investment or payment
of a separate fee for additional services. Each Shareholder Servicing Agent has
agreed to disclose any fees it may directly charge its customers who are
shareholders of the Fund and to notify them in writing at least 30 days before
it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator, provide the Fund
with administration services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund, compilation
of information for reports to the SEC and the state securities commissions,
preparation of proxy statements and shareholder reports, and general
supervision of data compilation in connection with preparing periodic reports
to the Company's Directors and officers. Wells Fargo Bank and Stephens also
furnish office space and certain facilities to conduct the Fund's business, and
Stephens compensates the Company's Directors and officers who are affiliated
with Stephens. For these administration services, Wells Fargo Bank and Stephens
are entitled to receive a monthly fee at the annual rate of 0.03%, and 0.04%,
of the Fund's average daily net assets. Wells Fargo Bank and Stephens may
delegate certain of their respective administration duties to sub-
administrators.
Prior to February 1, 1998, Wells Fargo Bank and Stephens were entitled to
receive a monthly fee at the annual rate of 0.04% and 0.02%, respectively, of
the Fund's average daily net assets for administration services.
Prior to February 1, 1997, Stephens provided substantially the same services
as sole administrator to the Fund. Under the previous agreements, Stephens was
entitled to receive a monthly fee at the annual rate of 0.05% of the average
daily net assets of the Fund.
For the period from October 1, 1995 to April 15, 1996, the Dreyfus Corporation
("Dreyfus") provided administrative services for the operation of the Fund. As
compensation for such services, the fund paid Dreyfus an annual fee, payable
monthly, of up to 0.10% of the average daily net assets of the Fund. From April
15, 1996 to September 5, 1996, Furman Selz provided administrative services for
the operation of the Fund. As compensation for such services, the Fund paid
Furman Selz an annual fee, payable monthly, of up to 0.15% of the average daily
net assets of the Fund.
DISTRIBUTOR
Stephens is the Company's co-administrator and distributes the Fund's shares.
Stephens is a full service broker/ dealer and investment advisory firm located
at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been
27 PROSPECTUS
<PAGE>
providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit-sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant
to which Stephens is responsible for distributing Fund shares. The Company also
has adopted a Distribution Plan on behalf of the Fund's Class A shares under
the SEC's Rule 12b-1 (the "Plan"). Under the Plan, Stephens is entitled, as
compensation for distribution-related services or as reimbursement for
distribution-related expenses a monthly fee at an annual rate of up to 0.05% of
the average daily net assets attributable to the Fund's Class A shares.
Distribution-related services may include, among other services, costs and
expenses for advertisements, sales literature, direct mail or any other form of
advertising; expenses of sales employees or agents of the Distributor,
including salary, commissions, travel and related expenses; payments to broker-
dealers and financial institutions for services in connection with the
distribution of shares, including promotional incentives and fees calculated
with reference to the average daily net asset value of shares held by
shareholders who have a brokerage or other service relationship with the
broker-dealer or other institution receiving such fees; costs of printing
prospectuses and other materials to be given or sent to prospective investors;
and other similar services as the Directors determine to be reasonably
calculated to result in the sale of shares of the Fund.
Under the Distribution Agreement, Stephens may enter into Selling Agreements
with Selling Agents that wish to make available shares of the Fund to their
respective customers. On behalf of the Class A shares, the Fund may participate
in joint distribution activities with any of the other funds of the Company, in
which event, expenses reimbursed out of the assets of the Fund may be
attributable, in part, to the distribution-related activities of another fund
of the Company. Generally, the expenses attributable to joint distribution
activities are allocated among the Fund and the other funds of the Company in
proportion to their relative net asset sizes, although the Company's Board of
Directors may allocate such expenses in any other manner that it deems fair and
equitable.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/ dealers or financial institutions that sell shares of the
Company's fund may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
Financial institutions acting as Shareholder Servicing Agents or Selling
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable
PROSPECTUS 28
<PAGE>
state securities laws which may differ from federal law and any interpretations
expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly,
have a favorable
impact on the Fund's performance. Except for the expenses borne by Wells Fargo
Bank and Stephens, each fund of the Company bears all costs of its operations,
including its pro rata portion of the Company expenses such as fees and
expenses of its independent auditors and legal counsel, and compensation of the
Company's directors who are not affiliated with the adviser, administrator or
any of their affiliates; advisory, transfer agency, custody and administration
fees, and any extraordinary expenses. Expenses attributable to each fund or
class are charged against the assets of the fund or class. General expenses of
the Company are allocated among all of the funds of the Company in a manner
proportionate to the net assets of each fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
Taxes
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net long-
term capital gains, if any, are designated as capital gain distributions and
taxable to the Fund's shareholders as long-term capital gains. Under the
Taxpayer Relief Act of 1997, noncorporate shareholders may be taxed on such
distributions at preferential rates. See "Federal Income Taxes -- Capital Gain
Distributions" in your SAI. In general, your distributions will be taxable when
paid, regardless of the distribution option you choose (see the section
entitled "Additional Shareholder Services -- Dividends and Distribution
Options." However, distributions declared in October, November, and December
and distributed by the following January will be taxable as if they were paid
by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in your
SAI. In certain circumstances, U.S. residents may also be subject to backup
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in your
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Fund and
its shareholders. It is not intended as a substitute for careful tax planning;
you should consult your own tax advisor with respect to your specific tax
consequences of purchasing, holding and redeeming Class A shares. Further
federal income tax considerations are discussed in your SAI.
29 PROSPECTUS
<PAGE>
Prospectus Appendix --
Additional Investment Policies
FUND INVESTMENTS
The Prime Money Market Mutual Fund may invest in the following:
(i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including government-sponsored
enterprises, including U.S. Treasury obligations ("U.S. Government
obligations") (discussed below);
(ii) certain repurchase agreements (discussed below);
(iii) certain floating- and variable-rate instruments;
(iv) securities purchased on a "when-issued" basis and securities
purchased or sold on a "forward commitment" basis or "delayed
settlement" basis (discussed below);
(v) certain securities issued by other investment companies;
(vi) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits
are insured by the FDIC ("bank instruments");
(vii) commercial paper rated at the date of purchase Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard &
Poor's Corporation ("S&P") ("rated commercial paper");
(viii) commercial paper unrated at the date of purchase but secured by a
letter of credit from a U.S. bank that meets the above criteria for
investment;
(ix) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below).
(x) mortgage-backed securities (discussed below); and
(xi) certain other asset-backed securities (discussed below).
A-1 PROSPECTUS
<PAGE>
Asset-Backed Securities
The Fund may purchase asset-backed securities, which are securities backed by
installment contracts, credit-card receivables or other assets. Asset-backed
securities represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in effect
"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other reasons, an asset-
backed security's stated maturity may be shortened, and the security's total
return may be difficult to predict precisely.
Floating- and Variable-Rate Obligations
The Fund may purchase floating- and variable-rate obligations. The Fund may
purchase floating- and variable-rate demand notes and bonds. These obligations
may have stated maturities in excess of thirteen months, but they permit the
holder to demand payment of principal at any time, or at specified intervals
not exceeding thirteen months. Variable-rate demand notes include master demand
notes that are obligations that permit the Fund to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Fund, as lender, and the borrower. The interest rates on these notes may
fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally
will be traded, and there generally is no established secondary market for
these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Fund may invest in
obligations which are not so rated only if Wells Fargo Bank determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Fund may invest. Wells Fargo Bank, on behalf of the
Fund, considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Fund's
PROSPECTUS A-2
<PAGE>
portfolio. The Fund will not invest more than 10% of the value of its total net
assets in floating- or variable-rate demand obligations whose demand feature is
not exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term
(thirteen months or less) debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign income tax laws
and there is a possibility of expropriation or confiscatory taxation, political
or social instability, or diplomatic developments that could affect adversely
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although the Fund
will generally purchase securities with the intention of acquiring them, the
Fund may dispose of securities purchased on a when-issued, delayed-delivery or
a forward commitment basis before settlement when deemed appropriate by the
advisor.
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.
Illiquid Securities
The Fund may invest in securities not registered under the 1933 Act and other
securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to the Fund. The Fund may invest up to 10% of
its net assets in illiquid securities.
A-3 PROSPECTUS
<PAGE>
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgages, such as
certificates of the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases pass-
through instruments, through which the holder receives a share of all interest
and principal payments from the mortgages underlying the certificate, net of
certain fees. The average life of a mortgage-backed security varies with the
underlying mortgage instruments, which generally have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
prepayments, mortgage refinancings or foreclosure. Mortgage prepayment rates
are affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed securities. For
example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these
securities are subject to the risk that prepayment on the underlying mortgages
will occur earlier or later or at a lesser or greater rate than expected. To
the extent that the adviser's assumptions about prepayments are inaccurate,
these securities may expose the Fund, to significantly greater market risks
than expected.
Other Investment Companies
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund 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.
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
PROSPECTUS A-4
<PAGE>
maturities of the underlying securities in a repurchase agreement transaction
may be greater than twelve months, although the maximum term of a repurchase
agreement will always be less than twelve months. If the seller defaults and
the value of the underlying securities has declined, the Fund may incur a loss.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, the Fund's disposition of the security may be delayed or
limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% of the market value of the
Funds 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.
Borrowing and Reverse Repurchase Agreements. The Fund intends to limit its
borrowings (including reverse repurchase agreements) during the current fiscal
year to not more than 10% of its net assets. At the time the Fund enters into a
reverse repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such as U.S.
Government securities or other liquid high-grade debt securities having a value
equal to or greater than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
U.S. Government and U.S. Treasury Obligations
The Fund may invest in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). Payment of principal and
interest on U.S. Government obligations (i) may be backed by the full faith and
credit of the United States (as with U.S. Treasury bills and GNMA certificates)
or (ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates
A-5 PROSPECTUS
<PAGE>
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
The Fund may invest in obligations issued or guaranteed by the U.S. Treasury
such as bills, notes, bonds and certificates of indebtedness, and in notes and
repurchase agreements collateralized or secured by such obligations ("U.S.
Treasury obligations"). U.S. Treasury notes, bills and bonds differ mainly in
the length of their maturity. The U.S. Treasury obligations in which the Fund
invests may also include "U.S. Treasury STRIPS," interests in U.S. Treasury
obligations reflected in the Federal Reserve-Book Entry System that represent
ownership in either the future interest payments or the future principal
payments on the U.S. Treasury obligations. U.S. Treasury STRIPS are "stripped
securities." Stripped securities are issued at a discount to their face value
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are paid to investors.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth under "How the Fund Works --
Investment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI.
In addition, any fundamental investment policy may not be changed without such
shareholder approval. If the Company's Board of Directors determines, however,
that the Fund's investment objective could best be achieved by a substantive
change in a nonfundamental investment policy or strategy, the Company's Board
may make such change without shareholder approval and will disclose any such
material changes in the then-current prospectus.
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
20% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased by the Fund while any such outstanding borrowing in excess of 5% of
its net assets exists); and (ii) not invest more than 25% of its assets (i.e.,
concentrate) in any particular industry, excluding, U.S. Government obligations
and obligations of U.S. banks and certain U.S. branches of foreign banks.
These investment restrictions are applied at the time investment securities
are purchased. As a matter of nonfundamental policy, the Fund may make loans of
portfolio securities or other assets, although the Fund does not intend to do
so during the current fiscal year.
PROSPECTUS A-6
<PAGE>
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of
the 1940 Act. Under the 1940 Act, the Fund's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's
net assets with respect to any one investment company, and (iii) 10% of
the Fund's net assets in the aggregate. 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.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in
and pay interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios 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.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the adviser, pursuant to guidelines established by
the Company's Board of Directors, and commercial paper that is sold under
Section 4(2) of the 1933 Act that (i) is not traded flat or in default as to
interest or principal and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined the commercial paper to be liquid; or (iii) is rated
in one of the two highest categories by one nationally recognized statistical
rating organization and the adviser, pursuant to guidelines established by the
Company's Board of Directors has determined that the commercial paper is of
equivalent quality and is liquid, if by any reason thereof the value of its
aggregate investment in such classes of securities will exceed 10% of its total
assets.
A-7 PROSPECTUS
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
--------------------------------------------------------------------------
. are NOT FDIC insured
. are NOT deposits or obligations of Wells Fargo Bank
. are NOT guaranteed by Wells Fargo Bank
. involve investment risk, including possible loss of principal
. seek to maintain a stable net asset value of $1.00 per share, however,
there can be no assurance that either fund will meet this goal. Yields and
returns will vary with marketconditions.
LOGO
RECYCLED LOGO
Printed on Recycled Paper SC 48 P (2/98)
<PAGE>
February 1, 1998
STAGECOACH FUNDS(R)
STAGECOACH
MONEY MARKET FUNDS
PROSPECTUS
Prime Money Market
Mutual Fund
Treasury Money Market Mutual Fund
Administrative Class
Investment Advisor
and Administrator:
Wells Fargo Bank
Distributor and
Co-Administrator:
Stephens Inc.
Please read this Prospectus and keep it for future reference. It is designed to
provide you with important information and to help you decide if a Fund's goals
match your own.
These securities have not been approved or disapproved by the U.S. Securities
and Exchange Commission, any state securities commission or any other regulatory
authority, nor have any of these authorities passed upon the accuracy or
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
Fund shares are NOT deposits or other obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells Fargo Bank"), or any of its
affiliates. Fund shares are NOT insured or guaranteed by the U.S. Government,
the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board or
any other governmental agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. WE CANNOT ASSURE YOU THAT A FUND WILL
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<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:
- --------------------------------------------------------------------------------
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 Fund offered in this
Prospectus? Look for the arrow icon to find out.
- --------------------------------------------------------------------------------
Permitted Investments
A summary of the Fund's key permitted investments and practices.
- --------------------------------------------------------------------------------
Important Risk Factors
What are key risk factors for this Fund? This will include the factors
described in "General Investment Risks" together with any special risk
factors for this Fund.
- --------------------------------------------------------------------------------
Additional Fund Facts
Provides additional information about the Fund.
- --------------------------------------------------------------------------------
Why is italicized print used throughout this Prospectus?
Words appearing in italicized print and highlighted in color are defined in the
Glossary.
What else do I need to understand these Funds?
The Funds have 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 1-800-260-5969.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Key Information 4
Summary of Expenses 6
- -----------------------------------------------------------------------------------------
The Funds Prime Money Market Mutual Fund 8
Treasury Money Market Mutual Fund 10
This section contains General Investment Risks 12
important information
about the individual Funds.
- -----------------------------------------------------------------------------------------
Your Account Your Fund Account 16
How to Buy Shares 17
Turn to this section for How to Sell Shares 18
information on how to open Exchanges 19
and maintain your account, Other Information 20
including how to buy, sell
and exchange Fund shares.
- -----------------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 23
Look here for details on the Glossary 25
organization of the Funds and
term definitions.
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
KEY INFORMATION
- --------------------------------------------------------------------------------
Summary of the Stagecoach Money Market Funds
The Funds described in this Prospectus invest in money market instruments, seek
to maintain a $1.00 per share net asset value in order to preserve principal,
and distribute dividends once a month. 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:
. you are looking for a fund in which to invest short-term cash;
. you are looking to preserve principal; and
. you are looking for monthly income.
You should not invest in these Funds if:
. you are looking for FDIC insurance coverage or guaranteed rates of return;
. you are unwilling to accept that you may lose money on your investment;
. you are unwilling to accept the risk that we may be unable to maintain a
$1.00 per share net asset value and that your investment principal may
fluctuate; or
. you are seeking long-term total return.
What are Administrative Shares?
Administrative shares are typically held for your benefit by affiliate,
franchise or correspondent banks of Wells Fargo & Company and other select
institutions. The Funds offered here are available in other share classes. A
prospectus for additional share classes can be obtained by calling 1-800-260-
5969.
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.
4 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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
The term "money market instruments" is used in this Prospectus to refer to a
broad variety of short-term debt securities, commercial paper, certificates of
deposit, repurchase agreements and other investment activities described in the
Glossary and the Investment Practice/Risk table on page 15.
Dividends
We declare dividends, if any, daily and pay them monthly. You earn dividends
from the day your purchase of shares is effected and you continue to earn them
until the day before your shares are redeemed.
5 Stagecoach Money Market Funds Prospectus
<PAGE>
MONEY MARKET 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>
Prime Treasury
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) None None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
redemptions None None
- --------------------------------------------------------------------------------
Exchange fees None None
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Annual Fund operating expenses reflect amounts paid by each Fund during the
prior fiscal period. They have been restated to reflect current expenses and fee
waivers. Fee waivers and expense reimbursements are voluntary and may be
discontinued without prior notice.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Prime Treasury
- --------------------------------------------------------------------------------
<S> <C> <C>
Management fee (after waivers) 0.12% 0.12%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.28% 0.28%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.40% 0.40%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.25% 0.25%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.28% 0.28%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.53% 0.53%
- --------------------------------------------------------------------------------
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.
Prime Treasury
- --------------------------------------------------------------------------------
1 Year $ 4 $ 4
- --------------------------------------------------------------------------------
3 Years $13 $13
- --------------------------------------------------------------------------------
5 Years $22 $22
- --------------------------------------------------------------------------------
10 Years $51 $51
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Money Market Funds Prospectus
<PAGE>
PRIME MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
- --------------------------------------------------------------------------------
Investment Objective
The Prime Money Market Mutual Fund seeks to provide investors with maximized
current income to the extent consistent with preservation of capital and
maintenance of liquidity.
Investment Policies
We pursue this objective by actively managing a portfolio consisting of a broad
range of U.S. dollar-denominated, high quality money market instruments,
including debt obligations with remaining maturities of 397 days or less. We
maintain an overall dollar-weighted average maturity of 90 days or less. We may
also make certain other investment including, for example, repurchase
agreements.
- --------------------------------------------------------------------------------
Permitted Investments
Under normal market conditions, we invest in:
. commercial paper rated at the date of purchase as P-1 by Moody's or A-1+ or
A-1 by S&P;
. negotiable certificates of deposit and banker's acceptances;
. repurchase agreements;
. U.S. Government obligations;
. short-term, U.S. dollar-denominated debt obligations of U.S. branches of
foreign banks and foreign branches of U.S. banks; and
. shares of other money market funds.
8 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Risk Factors
You should consider both the General Investment Risks beginning on page 12 and
the specific risks listed below. They are both important to your investment
choice.
There is no guarantee that we will be able to maintain a $1.00 per share net
asset value. Fluctuations in share value may cause a loss or gain in principal.
Generally, short-term funds do not earn as high a level of income as funds that
invest in longer-term instruments. No government agency either directly or
indirectly insures or guarantees the performance of the Fund.
- --------------------------------------------------------------------------------
Additional Fund Facts
For information on Fund fees and expenses, see "Summary of Expenses" on page
6.
9 Stagecoach Money Market Funds Prospectus
<PAGE>
TREASURY MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
- --------------------------------------------------------------------------------
Investment Objective
The Treasury Money Market Mutual Fund seeks to provide investors with current
income and stability of principal.
Investment Policies
We actively manage a portfolio composed of obligations issued or guaranteed by
the U.S. Treasury. We also invest in notes, repurchase agreements and other
instruments collateralized or secured by Treasury obligations. We buy
obligations with remaining maturities of 397 days or less. We maintain an
overall dollar-weighted average maturity of 90 days or less.
- --------------------------------------------------------------------------------
Permitted Investments
Under normal market conditions, we invest:
. in U.S. Treasury obligations; and
. in repurchase agreements collateralized by U.S. Treasury
obligations.
As a temporary defensive measure, or to maintain liquidity, we may invest in
shares of other money market funds that have similar investment objectives.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Risk Factors
You should consider both the General Investment Risks beginning on page 12 and
the specific risks listed below. They are both important to your investment
choice.
There is no guarantee that we will be able to maintain a $1.00 per share net
asset value. Fluctuations in share value may cause a loss or gain in principal.
Generally, short-term funds do not earn as high a level of income as funds that
invest in longer-term instruments. The U.S. Treasury does not directly or
indirectly insure or guarantee the performance of the Fund.
- --------------------------------------------------------------------------------
Additional Fund Facts
Treasury obligations have historically involved little risk of loss of principal
if held to maturity. However, fluctuations in market interest rates may cause
the market value of Treasury obligations in the Fund's portfolio to fluctuate.
For information on Fund fees and expenses, see "Summary of Expenses" on page
5.
11 Stagecoach Money Market 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:
. Unlike bank deposits, such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
. We cannot guarantee we will meet our investment objectives. In particular,
we cannot guarantee that we will be able to maintain a $1.00 per share net
asset value.
. You cannot recover through insurance any loss due to investment practices,
nor can the Fund, the Institutions or investment advisors "make good" any
losses you might have.
. 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 Funds invest in debt securities, 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
securities with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Interest rate risk does
not affect the interest paid by debt securities unless it is specifically
designed to pay an adjustable rate.
. The Fund's advisor may also use certain derivative instruments such as
options or futures contracts. The term "derivatives" covers a wide range 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 following types of floating-rate derivative securities are NOT permitted
investments in the Funds:
. Capped floaters on which interest is not paid when market rates move above
a certain level;
12 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Leveraged floaters whose interest rates reset based on a formula that
magnifies changes in market interest rates;
. Range floaters on which interest is not paid if market interest rates move
outside a specified range;
. Dual index floaters whose interest rate reset provisions are tied to more
than one index; and
. Inverse floaters which have interest rates that reset in an opposite
direction of their index.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
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.
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.
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 dat es to maturity.
Leverage Risk- The risk that a practice may increase a Fund's exposure to Market
Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
13 Stagecoach Money Market Funds Prospectus
<PAGE>
GENERAL INVESTMENTS 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.
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.
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 has a
different investment objective and investment policies. 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.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
PRIME TREASURY
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE: RISK:
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are adjusted either Interest Rate and . .
on a schedule or when an index or benchmark changes. Credit Risk
REPURCHASE AGREEMENTS
A transaction in which the seller of a security agrees to Credit, Leverage and . .
buy back as security at an agreed upon time and price, Counter-Party Risk
usually with interest.
OTHER MUTUAL FUNDS
The temporary investment in shares of another money Market Risk . .
market 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 OBLIGATIONS
Dollar-denominated debt obligations of foreign Information, Liquidity, . .
branches of U.S. banks or U.S. branches of foreign Political, Regulatory,
banks. and Diplomatic Risk
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to brokers, dealers
and financial institutions to increase return on those Credit, Leverage and .
securities. Loans may be made in accordance with Counter-Party Risk
existing investment policies.
BORROWING POLICIES
The ability to borrow an equivalent of 20% of assets from
banks for temporary purposes to meet shareholder Leverage Risk . .
redemptions.
ILLIQUID SECURITIES
A security that cannot be readily sold, or cannot be
readily sold without negatively affecting its fair price. Liquidity Risk . .
Illiquid securities are limited to 10% of assets
for each Fund.
</TABLE>
Stagecoach Money Market Funds Prospectus 15
<PAGE>
YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Administrative Class shares are bought and held on your behalf by the
Institution through which you are investing. Check with your customer account
representative or your Customer Account agreement for the rules governing your
investment.
Minimum Investments:
. Minimum, Initial and Subsequent investment amounts are determined by your
Customer Account agreement with your Institution, and are generally:
. $150,000 per Fund minimum initial investment, and
. $25,000 per Fund for all investments after your first.
Important Information:
. Read this Prospectus carefully. Discuss any questions you have with your
Institution. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your Institution or by calling 1-800-260-5969.
. We process requests to buy or sell shares each business day.
. Requests we receive from an Institution in proper form before 12:00 Noon
(Pacific time) for the Prime Money Market Mutual Fund and the Treasury
Money Market Mutual Fund generally are processed at 12:00 Noon on the same
day.
. Requests we receive after the above-specified times are processed the next
business day at the applicable Net Asset Value (NAV).
. Payment for shares may be made by Institutions in funds immediately
available to us no later than 1:00 p.m. (Pacific time) on the same business
day as the purchase order is processed. If payment is not received on the
same business day, the order will be cancelled and the Institution will be
responsible for any loss.
. As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is the NAV next determined
after a request has been received in proper form.
. We determine the NAV of each Fund's shares by subtracting the Fund
liabilities from its total assets, and then dividing the result by the
total number of outstanding shares of that Fund. See the Statement of
Additional Information for further information.
. On any day the trading markets for both U.S. government securities and
money market instruments close early, the Funds will close early.
16 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Administrative Class shares of the Funds should contact an account
representative at their Institution and should understand the following:
. Share purchases are made through a Customer Account at an Institution in
accordance with the terms of the Customer Account involved;
. Institutions are usually the holders of record of Administrative shares
held through Customer Accounts and maintain records reflecting their
customers' beneficial ownership of the shares;
. Institutions are responsible for transmitting their customers' purchase and
redemption orders to the Funds and for delivering required payment on a
timely basis;
. The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the Customer
Account involved; and
. Institutions may charge their customers account fees and may receive fees
from us with respect to investments their customers have made with the
Funds. See "Organization and Management of the Funds" for further details
about these fees.
17 Stagecoach Money Market Funds Prospectus
<PAGE>
YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------
How to Sell Shares
Administrative Class shares must be redeemed in accordance with the account
agreement governing the Customer's Account at the Institution. Please read the
Customer Account agreement with your Institution for rules governing selling
shares.
General Notes for Selling Shares
. We process requests we receive in proper form before 12:00 noon (Pacific
Time) on any business day are processed at the NAV determined as of 12:00
noon (Pacific Time) on the same business day.
. Redemption proceeds are usually wired to the redeeming Institution the
following business day.
. Requests we receive after 12:00 noon (Pacific Time) are processed the next
business day as of 12:00 noon.
. 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 SEC in order to protect remaining
shareholders. Payments of redemptions also may be delayed up to seven days
under normal circumstances, although it is not our policy to delay such
payments.
. Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund by a
single shareholder over any ninety-day period. If a request for a
redemption is over these limits it may be to the detriment of existing
shareholders. Therefore, we may pay the redemption in part or in whole in
securities of equal value.
18 Stagecoach Money Market 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:
. You should carefully read the Prospectus for the Fund into which you wish
to exchange.
. Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
. If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. 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.
. Administrative Class shares may be exchanged for other Administrative Class
shares, for Institutional Class shares of the Company's non-money market
funds or for Class A shares in connection with the distributor of assets
held in certain qualified accounts. Contact your account representative for
further details.
19 Stagecoach Money Market Funds Prospectus
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new shares
of the Fund. The new shares are purchased at NAV, generally on the day the
distributions are paid.
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
Prime Money Market Mutual Fund - The Fund operated as Pacific American Liquid
Assets, Inc. from commencement of operations on April 30, 1981 until it was
reorganized as a portfolio of Pacific American Fund on October 1, 1985. On
October 1, 1994, the Fund was reorganized as the Pacific American Money Market
Portfolio, a portfolio of Pacifica Funds Trust. In July 1995, the Fund was
renamed the Pacifica Prime Money Market Fund, and on September 6, 1996, the Fund
was reorganized as the Prime Money Market Mutual Fund of the Company. Prior to
April 1, 1996, First Interstate Capital Management, Inc. ("FICM") served as the
Fund's adviser. In connection with the merger of First
20 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was renamed
Wells Fargo Investment Management, Inc.
Treasury Money Market Mutual Fund-Prior to August 1, 1990, the Treasury Money
Market Mutual Fund was known as the Short-Term Government Fund, which commenced
operations on October 1, 1985, and invested in obligations issued or guaranteed
by agencies and instrumentalities of the U.S. Government. The Fund operated as a
portfolio of Pacific American Funds through October 1, 1994, when it was
reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury
Money Market Fund, and on September 6, 1996, the Fund was reorganized as a
series of Stagecoach Funds. Prior to April 1, 1996, First Interstate Capital
Management, Inc. ("FICM") served as the Fund's adviser. In connection with the
merger of First Interstate Bancorp into Wells Fargo & Company on April 1, 1996,
FICM was renamed Wells Fargo Investment Management, Inc.
Share Class - This Prospectus contains information about Administrative Class
shares. The Funds 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.
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
$150,000 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 - The Institutions mail statements after any account activity,
including dividends or capital gains, and at year-end. The Institutions will
also send any necessary tax reporting documents in January, and will send Annual
and Semi-Annual Reports Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. The
Statement of Additional Information should be read along with this Prospectus
and may be obtained free of charge by calling Investor Services at 1-800-260-
5969.
21 Stagecoach Money Market Funds Prospectus
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
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 eac h fractional share owned. For a
detailed description of voting rights, see the "Capital Stock" section of the
Statement of Additional Information.
22 Stagecoach Money Market Funds Prospectus
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
A number of different companies 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, or amending fundamental investment strategies or policies.
SHAREHOLDERS
INSTITUTIONS AND THEIR REPRESENTATIVES
Advise current and prospective shareholders on their Fund Investments
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENTS SERVICING AGENTS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Institutions
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds Manages the Funds' Maintains records of Provides services to
distributes shares, and business activities shares and supervises customers
manages the Funds' the paying of dividends
business activities
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
INVESTMENT ADVISOR CUSTODIAN
- --------------------------------------------------------------------------------------------------------
<S> <C>
Wells Fargo Bank, 525 Market St., San Francisco, CA Wells Fargo Bank, 525 Market St., San Francisco, CA
Manages the Funds' investment activities Provides safekeeping for the Funds' assets
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------------------------------
Supervises the Funds' activities
- --------------------------------------------------------------------------------------------------------
</TABLE>
23 Stagecoach Money Market Funds Prospectus
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Administrative Class shares 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 fiscal period ended March 31, 1997:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Prime Money Market Mutual Fund .18%
- --------------------------------------------------------------------------------
Treasury Money Market Mutual Fund .17%
- --------------------------------------------------------------------------------
</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.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator.
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Administrative Class shares. We have
agreements with various Institutions as shareholder servicing agents to process
purchase and redemption requests, to service shareholder accounts, and to
provide other related services.
For these services, the Administrative Class of each Fund pays as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Prime Money Market Mutual Fund .15%
- --------------------------------------------------------------------------------
Treasury Money Market Mutual Fund .15%
- --------------------------------------------------------------------------------
</TABLE>
24 Stagecoach Money Market Funds Prospectus
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------
Annual and Semi-Annual Reports
Documents that provide certain financial and other important information for the
most recent reporting period, including each Fund's portfolio of
investments.
Business Day
Any day the Funds are open. The Funds are generally open Monday through Friday
and are closed weekends and federal bank holidays.
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.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth.
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.
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.
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.
25 Stagecoach Money Market Funds Prospectus
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and other
institutions.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
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.
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 per share of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds is determined each business day at 12:00 noon
and 1:00 PM (Pacific Time).
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.
Shareholder Servicing Agent
An entity appointed by a Fund to maintain shareholder accounts and record,
assist and provide information to shareholders or perform similar
functions.
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 U.S. economy.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
26 Stagecoach Money Market 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
1-800-260-5969, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
- ----------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- ----------------------------------------------------------
. are not insured by the FDIC
. are not obligations or deposits of Wells Fargo Bank,
nor guaranteed by Wells Fargo Bank
. involve investment risk, including possible loss of
principal.
. seek to maintain a stable net asset value of $1.00
per share, however, there can be no assurance that
a fund will meet this goal. Yields will vary with
market conditions.
- ----------------------------------------------------------
[RECYCLE LOGO]
Printed on Recycled Paper SC ADM P (2/98)
<PAGE>
February 1, 1998
STAGECOACH FUNDS
STAGECOACH
MONEY MARKET FUNDS
PROSPECTUS
Prime Money Market Please read this Prospectus and keep it for
Mutual Fund future reference. It is designed to provide you
with important information and to help you decide
Treasury Money Market if a Fund's goals match your own.
Mutual Fund
These securities have not been approved or
disapproved by the U.S. Securities and Exchange
Service Class Commission, any state securities commission or
any other regulatory authority, nor have any of
Investment Advisor these authorities passed upon the accuracy or
and Administrator: adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
Wells Fargo Bank
Fund shares are NOT deposits or other obligations
Distributor and of, or issued, endorsed or guaranteed by, Wells
Co-Administrator: Fargo Bank, N.A. ("Wells Fargo Bank"), or any of
its affiliates. Fund shares are NOT insured or
Stephens Inc. guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation ("FDIC"), the Federal
Reserve Board or any other governmental agency. AN
INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. WE CANNOT
ASSURE YOU THAT A FUND WILL MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
<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:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
What is the Fund trying to achieve? How do we intend to invest
your money? What makes a Fund different from the other Fund
offered in this Prospectus? Look for the arrow icon to find
out.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and
practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for this Fund? This will include the
factors described in "General Investment Risks" together with
any special risk factors for this 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 these Funds?
The Funds have 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 1-800-260-5969.
<PAGE>
TABLE OF CONTENTS
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Prime Money Market Mutual Fund 8
This section contains Treasury Money Market Mutual Fund 12
important information
about the individual General Investment Risks 16
Funds.
- --------------------------------------------------------------------------------
The Fund Your Fund Account 20
Your Account How to Buy Shares 21
Turn to this section
for information on How to Sell Shares 22
maintain how to open
and your account, Exchanges 23
including how to buy,
sell and exchange Other Information 24
Fund shares.
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 27
Look here for details
on the organization How to Read the Financial Highlights 29
of the Funds and term
definitions. Glossary 30
<PAGE>
KEY INFORMATION
- --------------------------------------------------------------------------------
Summary of the Stagecoach Money Market Funds
The Funds described in this Prospectus invest in money market instruments, seek
to maintain a $1.00 per share net asset value in order to preserve principal,
and distribute dividends once a month. 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:
* you are looking for a fund in which to invest short-term cash;
* you are looking to preserve principal; and
* you are looking for monthly income.
You should not invest in these Funds if:
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you are unwilling to accept that you may lose money on your investment;
* you are unwilling to accept the risk that we may be unable to maintain a
$1.00 per share net asset value and that your investment principal may
fluctuate; or
* you are seeking long-term total return.
What are Service shares?
Service shares are typically held for your benefit by affiliate, franchise or
correspondent banks of Wells Fargo & Company and other select institutions. The
Funds offered here are available in other share classes. A prospectus for
additional share classes can be obtained by calling 1-800-260-5969.
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.
4 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Key Terms
The term "money market instruments" is used in this Prospectus to refer to a
broad variety of short-term debt securities, commercial paper, certificates of
deposit, repurchase agreements and other investment activities described in the
Glossary and the Investment Practice/Risk table on page 19.
Dividends
We declare dividends, if any, daily and pay them monthly. You earn dividends
from the day your purchase of shares is effected and you continue to earn them
until the day before your shares are redeemed.
Stagecoach Money Market Funds Prospectus 5
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET 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.
- --------------------------------------------------------------------------------
Prime Treasury
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge on a purchase None None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
redemptions None None
- --------------------------------------------------------------------------------
Exchange fees None None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Annual Fund Operating Expenses (as a percentage of average net assets)
================================================================================
Annual Fund operating expenses reflect amounts paid by each Fund during the
prior fiscal period. In some cases, they have been restated to reflect
expenses and fee waivers expected to be in effect during the current fiscal
year. Fee waivers and expense reimbursements are voluntary and may be
discontinued without prior notice.
- --------------------------------------------------------------------------------
Prime Treasury
- --------------------------------------------------------------------------------
Management fee
(after waivers) 0.12% 0.12%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.33% 0.33%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.45% 0.45%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.25% 0.25%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.35% 0.36%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 0.60% 0.61%
- --------------------------------------------------------------------------------
<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 $1,000 investment assuming a 5%
annual return and that you redeem your
shares at the end of each period. Prime Treasury
- --------------------------------------------------------------------------------
1 Year $5 $5
- --------------------------------------------------------------------------------
3 Years $14 $14
- --------------------------------------------------------------------------------
5 Years $25 $25
- --------------------------------------------------------------------------------
10 Years $57 $57
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Money Market Funds Prospectus
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
- --------------------------------------------------------------------------------
<PAGE>
PRIME MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Prime Money Market Mutual Fund seeks to provide investors
with maximized current income to the extent consistent with
preservation of capital and maintenance of liquidity.
Investment Policies
We pursue this objective by actively managing a portfolio
consisting of a broad range of U.S. dollar-denominated, high
quality money market instruments, including debt obligations
with remaining maturities of 397 days or less. We maintain an
overall dollar-weighted average maturity of 90 days or less.
We may also make certain other investment including, for
example, repurchase agreements.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest in:
* commercial paper rated at the date of purchase as P-1
by Moody's or A-1+ or A-1 by S&P;
* negotiable certificates of deposit and banker's
acceptances;
* repurchase agreements;
* U.S. Government obligations;
* short-term, U.S. dollar-denominated debt obligations
of U.S. branches of foreign banks and foreign branches
of U.S. banks; and
* shares of other money market funds.
8 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 16 and the specific risks listed below. They
are both important to your investment choice.
There is no guarantee that we will be able to maintain a $1.00
per share net asset value. Fluctuations in share value may
cause a loss or gain in principal. Generally, short-term funds
do not earn as high a level of income as funds that invest in
longer-term instruments. No government agency either directly
or indirectly insures or guarantees the performance of the
Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 9
<PAGE>
<TABLE>
<CAPTION>
PRIME MONEY MARKET MUTUAL FUND Financial Highlights
See "Historical Fund Information" on page 24.
- -------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Service Class Shares - Investor Shares
commenced on April 30, 1981
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, Sept. 30,
1997/1/ 1997/2/ 1996/3/ 1995/4/ 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.03 0.05 0.05 0.02
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.05 0.05 0.02
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.13) (0.05) (0.05) (0.02)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.03) (0.05) (0.05) (0.02)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.64% 2.54% 5.19% 5.60% 3.71%/5/
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $599,177 $626,105 $740,760 $614,101 $565,305
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.45% 0.45% 0.45% 0.41% 0.41%
Ratio of net investment income to
average net assets 5.18% 5.04% 5.14% 5.47% 3.67%
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.63% 0.60% 0.62% 0.68% 0.89%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 5.00% 4.89% 4.97% 5.20% 3.19%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Service Share Calendar-Year Returns 1996 1995 1994
========================================================================================================
Returns for other share classes may vary 5.16% 5.76% 3.88%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed its Investment Advisor during this fiscal year.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
PRIME MONEY MARKET MUTUAL FUND Financial Highlights
See "Historical Fund Information" on page 24.
- -------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31, March 31,
1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.03 0.05 0.07 0.08 0.08 0.06
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.03 0.05 0.07 0.08 0.08 0.06
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.03) (0.05) (0.07) (0.08) (0.08) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 3.00% 3.32% 5.22% 7.72% 8.82% 7.88% 6.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $527,599 $468,479 $528,397 $543,834 $493,641 $496,675 $628,987
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.41% 0.41% 0.43% 0.47% 0.54% 0.56% 0.58%
Ratio of net investment income to
average net assets 2.96% 3.27% 5.09% 7.38% 7.95% 7.58% 6.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.89% 0.89% 0.91% 0.94% 0.90% 0.90% 0.93%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.48% 2.79% 4.61% 6.91% 7.59% 7.24% 6.03%
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==================================================================================================================================
Institutional Shares Calendar Returns 1993 1992 1991 1990 1989 1988
==================================================================================================================================
Returns for other share classes may vary 3.00% 3.61% 5.85% 8.03% 9.04% 7.31%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from March 31 to September 30.
/5/ Annualized.
Stagecoach Money Market Funds Prospectus 11
<PAGE>
TREASURY MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Treasury Money Market Mutual Fund seeks to provide
investors with current income and stability of principal.
Investment Policies
We actively manage a portfolio composed of obligations issued
or guaranteed by the U.S. Treasury. We also invest in notes,
repurchase agreements and other instruments collateralized or
secured by Treasury obligations. We buy obligations with
remaining maturities of 397 days or less. We maintain an
overall dollar-weighted average maturity of 90 days or
less.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* in U.S. Treasury obligations; and
* in repurchase agreements collateralized by U.S. Treasury
obligations.
As a temporary defensive measure, or to maintain liquidity, we
may invest in shares of other money market funds that have
similar investment objectives.
12 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 16 and the specific risks listed below. They
are both important to your investment choice.
There is no guarantee that we will be able to maintain a $1.00
per share net asset value. Fluctuations in share value may
cause a loss or gain in principal. Generally, short-term funds
do not earn as high a level of income as funds that invest in
longer-term instruments. The U.S. Treasury does not directly
or indirectly insure or guarantee the performance of the
Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Treasury obligations have historically involved little risk of
loss of principal if held to maturity. However, fluctuations
in market interest rates may cause the market value of
Treasury obligations in the Fund's portfolio to fluctuate.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 13
<PAGE>
<TABLE>
<CAPTION>
TREASURY MONEY MARKET MUTUAL FUND Financial Highlights
See "Historical Fund Information" on page 24.
- --------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Service Class Shares - Commenced
on October 11, 1995
--------------------------------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, Sept. 30, March 31,
1997/1/ 1997/2/ 1996/3/ 1995 1994/4/ 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.02 0.05 0.05 0.02 0.03
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.02 0.05 0.05 0.02 0.03
- -----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.02) (0.05) (0.05) (0.02) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.02) (0.05) (0.05) (0.02) (0.03)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.55% 2.47% 5.03% 5.42% 3.75% 2.81%
- -----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $324,408 $483,401 $1,340,325 $1,001,707 $690,630 $654,950
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.45% 0.45% 0.45% 0.42% 0.43% 0.43%
Ratio of net investment income to
average net assets 5.03% 4.91% 4.98% 5.32% 3.72% 2.77%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.64% 0.61% 0.60% 0.66% 0.90% 0.90%
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 4.84% 4.75% 4.83% 5.08% 3.25% 2.30%
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
===============================================================================================================================
Institutional Share Calendar-Year Returns 1996 1995 1994
===============================================================================================================================
Returns for other share classes may vary 5.00% 5.56% 3.84%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor during this fiscal year.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 29.
- -------------------------------------------------------------------------------
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended:
--------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31,
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.07 0.08 0.07 0.06
Net realized and unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.05 0.07 0.08 0.07 0.064
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 3.13% 5.03% 7.42% 8.58% 7.63% 6.20%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $614,237 $281,343 $118,623 $98,398 $90,672 $101,066
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.43% 0.45% 0.48% 0.56% 0.63% 0.69%
Ratio of net investment income to
average net assets 3.04% 4.73% 7.10% 7.73% 7.36% 6.12%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.91% 0.93% 0.94% 0.97% 0.98% 1.05%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.56% 4.25% 6.64% 7.32% 7.01% 5.76%
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
=======================================================================================================================
Institutional Share Calendar Year Returns 1993 1992 1991 1990 1989 1988
=======================================================================================================================
Returns for other share classes may vary 2.80% 3.32% 5.65% 7.75% 8.78% 7.06%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from March 31 to September 30.
/5/ Annualized.
Stagecoach Money Market Funds Prospectus 15
<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 we will meet our investment objectives. In
particular, we cannot guarantee that we will be able to maintain a
$1.00 per share net asset value.
* You cannot recover through insurance any loss due to investment
practices, nor can the Fund, the Institutions or investment advisors
"make good" any losses you might have.
* 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 Funds invest in debt securities, 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 securities with longer maturities are generally more
sensitive to interest rate changes than those with shorter maturities.
Interest rate risk does not affect the interest paid by a debt security
unless it is specifically designed to pay an adjustable rate.
* The Funds' advisor may also use certain derivative instruments such as
options or futures contracts. The term "derivatives" covers a wide
range 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.
16 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The following types of floating-rate derivative securities are NOT permitted
investments in the Funds:
* Capped floaters on which interest is not paid when market rates move
above a certain level;
* Leveraged floaters whose interest rates reset based on a formula that
magnifies changes in market interest rates;
* Range floaters on which interest is not paid if market interest rates
move outside a specified range;
* Dual index floaters whose interest rate reset provisions are tied to
more than one index; and
* Inverse floaters which have interest rates that reset in an opposite
direction of their index.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
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.
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.
Information Risk-- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Stagecoach Money Market Funds Prospectus 17
<PAGE>
GENERAL INVESTMENT RISKS
- --------------------------------------------------------------------------------
Interest Rate Risk-- The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
Leverage Risk-- The risk that a practice may increase a Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
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.
------------------------------------------------------------------------
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
has a different investment objective and investment policies. 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.
------------------------------------------------------------------------
18 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
Prime Treasury
=========================================================================================
<S> <C> <C> <C>
INVESTMENT PRACTICE: RISK:
=========================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates Interest Rate and * *
that are adjusted either Credit Risk
on a schedule or when an index
or benchmark changes.
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the Credit and * *
seller of a security agrees Counter-Party Risk
to buy back a security at an
agreed upon time and
price, usually with interest.
- -----------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in Market Risk * *
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 OBLIGATIONS
Dollar-denominated debt obligations Information, Liquidity, * *
of foreign branches of U.S. branches Political, Regulatory,
of foreign banks. and Diplomatic Risk
- -----------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Leverage, * *
in brokers, dealers and Counter-Party Risk
and financial institutions to
increase return on those securities.
Loans may be made in accordance with
existing investment policies. Oregon,
Arizona and National Tax-Free Funds,
Limited to 30% of total assets for
the 33 1/3% for the other Funds.
- -----------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk * *
of 10% of assets from banks for
temporary purposes to meet
shareholder redemptions.
- -----------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be Liquidity Risk * *
readily sold or cannot be
readily sold without negatively
affecting its fair value.
The limit is 15% of assets for all
but the California
Tax-Free Bond Fund, which has a
limit of 10%.
- -----------------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 19
<PAGE>
YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Service Class shares are bought and held on your behalf by the
Institution through which you are investing. Check with your customer account
representative or your Customer Account agreement for the rules governing your
investment.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with
your Institution. You may also ask for copies of the Statement of
Additional Information and Annual Report. Copies are available free of
charge from your Institution or by calling 1-800-260-5969.
* We process requests to buy or sell shares each business day.
* Requests we receive from an Institution in proper form before 12:00
Noon (Pacific time) for the Prime Money Market Mutual Fund and the
Treasury Money Market Mutual Fund generally are processed at 12:00 Noon
on the same day.
* Requests we receive after the above-specified times are processed the
next business day at the applicable Net Asset Value (NAV).
* Payment for shares may be made by Institutions in funds immediately
available to us no later than 1:00 p.m. (Pacific time) on the same
business day as the purchase order is processed. If payment is not
received on the same business day, the order will be cancelled and the
Institution will be responsible for any loss.
* As with all mutual fund investments, the price you pay to purchase
shares or the price you receive when you redeem shares is the NAV next
determined after a request has been received in proper form.
* We determine the NAV of each Fund's shares by subtracting the Fund
liabilities from its total assets, and then dividing the result by the
total number of outstanding shares of that Fund. See the Statement of
Additional Information for further information.
* On any day the trading markets for both U.S. government securities and
money market instruments close early, the Funds will close early.
20 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Service Class shares of the Funds should contact an account
representative at their Institution and should understand the following:
* Share purchases are made through a Customer Account at an Institution
in accordance with the terms of the Customer Account involved;
* Institutions are usually the holders of record of Institutional shares
held through Customer Accounts and maintain records reflecting their
customers' beneficial ownership of the shares;
* Institutions are responsible for transmitting their customers' purchase
and redemption orders to the Funds and for delivering required payment
on a timely basis;
* The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the Customer
Account involved; and
* Institutions may charge their customers account fees and may receive
fees from us with respect to investments their customers have made with
the Funds. See "Organization and Management of the Funds" for further
details about these fees.
Stagecoach Money Market Funds Prospectus 21
<PAGE>
YOUR FUND ACCOUNT
- --------------------------------------------------------------------------------
How to Sell Shares
Service Class shares must be redeemed in accordance with the account agreement
governing the Customer's Account at the Institution. Please read the Customer
Account agreement with your Institution for rules governing selling shares.
General Notes for Selling Shares
* We process requests we receive in proper form before 12:00 Noon
(Pacific Time) on any business day are processed at the NAV determined
as of 12:00 Noon on the same business day.
* Redemption proceeds are usually wired to the redeeming Institution the
following business day.
* Requests we receive after 12:00 Noon (Pacific Time) are processed the
next business day as of 12:00 Noon.
* 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 SEC in order
to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not
our policy to delay such payments.
* Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund
by a single shareholder over any ninety-day period. If a request for
a redemption is over these limits it may be to the detriment of
existing shareholders. Therefore, we may pay the redemption in part
or in whole in securities of equal value.
22 Stagecoach Money Market 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:
* You should carefully read the Prospectus for the Fund into which you
wish to exchange.
* Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
* If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount
of the Fund you are redeeming, unless your balance has fallen below
that amount due to market conditions.
* Any exchange between Funds you already own must meet the minimum
redemption and subsequent purchase amounts for the Funds involved.
* In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of
any changes in your exchange privileges.
* You may make exchanges only between like share classes.
Stagecoach Money Market Funds Prospectus 23
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new shares
of the Fund. The new shares are purchased at NAV, generally on the day the
distributions are paid.
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
Prime Money Market Mutual Fund-The Fund operated as Pacific American Liquid
Assets, Inc. from commencement of operations on April 30, 1981 until it was
reorganized as a portfolio of Pacific American Fund on October 1, 1985. On
October 1, 1994, the Fund was reorganized as the Pacific American Money Market
Portfolio, a portfolio of Pacifica Funds Trust. In July 1995, the Fund was
renamed the Pacifica Prime Money Market Fund, and on September 6, 1996, the Fund
was reorganized as the Prime Money Market Mutual Fund of the Company. Prior to
April 1, 1996, First Interstate Capital Management, Inc. ("FICM") served as the
Fund's adviser. In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
24 Stagecoach Money Market Funds Prospectus>>
<PAGE>
- --------------------------------------------------------------------------------
Treasury Money Market Mutual Fund-Prior to August 1, 1990, the Treasury Money
Market Mutual Fund was known as the Short-Term Government Fund, which commenced
operations on October 1, 1985, and invested in obligations issued or guaranteed
by agencies and instrumentalities of the U.S. Government. The Fund operated as a
portfolio of Pacific American Funds through October 1, 1994, when it was
reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury
Money Market Fund, and on September 6, 1996, the Fund was reorganized as a
series of Stagecoach Funds. Prior to April 1, 1996, FICM served as the Fund's
adviser. In connection with the merger of First Interstate Bancorp into Wells
Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
Share Class - This Prospectus contains information about Service Class shares.
The Funds 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.
Statements - The Institutions mail statements after any account activity,
including dividends or capital gains, and at year-end. The Institutions will
also send any necessary tax reporting documents in January, and will send Annual
and Semi-Annual Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. The
Statement of Additional Information should be read along with this Prospectus
and may be obtained free of charge by calling Investor Services at 1-800-260-
5969.
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.
Stagecoach Money Market Funds Prospectus 25
<PAGE>
OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
26 Stagecoach Money Market Funds Prospectus
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
A number of different companies provide services to the Funds. This section
shows how the Funds are organized, the companies that perform different
services, and how they are compensated. Further information is available in the
Statement of Additional Information for the Funds.
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, or amending fundamental investment strategies or policies.
================================================================================
Shareholders
================================================================================
Institutions and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agent Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various
111 Center St. 525 Market St. 525 Market St. Institutions
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Manages the Funds' Maintains records Provide services
Funds, distributes business activities of shares and to customers
shares, and manages supervises the
the Funds' paying of dividends
business activities
- --------------------------------------------------------------------------------
|
================================================================================
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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 27
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Service Class shares 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 fiscal period ended March 31, 1997:
------------------------------------------------
Prime Money Market Mutual Fund .18%
------------------------------------------------
Treasury Money Market Mutual Fund .17%
------------------------------------------------
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.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator.
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Service Class shares. We have
agreements with various Institutions as shareholder servicing agents to process
purchase and redemption requests, to service shareholder accounts, and to
provide other related services.
For these services, the Service Class of each Fund pays as follows:
-------------------------------------------------
Prime Money Market Mutual Fund .20%
-------------------------------------------------
Treasury Money Market Mutual Fund .20%
-------------------------------------------------
28 Stagecoach Money Market Funds Prospectus
<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 1-800-260-5969. Other auditors audited the
financial statements for the Prime Money Market Mutual and Treasury Money Market
Mutual Funds for periods prior to October 1, 1995.
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.
Stagecoach Money Market Funds Prospectus 29
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------
Annual and Semi-Annual Reports
Documents that provide certain financial and other important information for the
most recent reporting period, including each Fund's portfolio of
investments.
Business Day
Any day the Funds are open. The Funds are generally open Monday through Friday
and are closed weekends and federal bank holidays.
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.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth.
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.
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.
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.
30 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and other
institutions.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
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.
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 per share of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds is determined each business day at 12:00 noon
and 1:00 PM (Pacific Time).
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.
Shareholder Servicing Agent
An entity appointed by a Fund to maintain shareholder accounts and record,
assist and provide information to shareholders or perform similar
functions.
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 U.S. economy.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Stagecoach Money Market Funds Prospectus 31
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
32 Stagecoach Money Market Funds Prospectus
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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
1-800-260-5969, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
------------------------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
------------------------------------------------------------------------
* are not insured by the FDIC
* are not obligations or deposits of Wells Fargo Bank, nor guaranteed
by Wells Fargo Bank
* involve investment risk, including possible loss of principal.
* seek to maintain a stable net asset value of $1.00 per share,
however, there can be no assurance that a fund will meet this goal.
Yields will vary with market conditions.
------------------------------------------------------------------------
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC SRV P (2/98)
<PAGE>
February 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Tax-Free Income Funds
Prospectus
Arizona Tax-Free Fund Please read this Prospectus and keep it for
future reference. It is designed to provide
California Tax-Free you with important information and to help
Bond Fund you decide if a Fund's goals match your own.
California Tax-Free These securities have not been approved or
Income Fund disapproved by the U.S. Securities and
Exchange Commission, any state securities
National Tax-Free Fund commission or any other regulatory
authority, nor have any of these authorities
Oregon Tax-Free Fund passed upon the accuracy or adequacy of this
Prospectus. Any representation to the
Institutional Class contrary is a criminal offense. Fund shares
are NOT deposits or other obligations of, or
issued, endorsed or guaranteed by, Wells
Fargo Bank, N.A. ("Wells Fargo Bank"), or
any of its affiliates.
Investment Advisor
and Administrator:
Fund shares are NOT insured or guaranteed by
Wells Fargo Bank the 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:
- --------------------------------------------------------------------------------
[LOGO OF ARROW] 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 to find out.
- --------------------------------------------------------------------------------
[LOGO OF PERCENTAGE Permitted Investments
SIGN]
A summary of the Fund's key permitted investments and
practices.
- --------------------------------------------------------------------------------
[LOGO OF EXCLAMATION Important Risk Factors
POINT]
What are the key risk factors for this Fund? This will
include the factors described in "General Investment
Risks" together with any special risk factors for the
Fund.
- --------------------------------------------------------------------------------
[LOGO OF ADDITION Additional Fund Facts
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 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 1-800-260-5969.
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Arizona Tax-Free Fund 8
This section contains California Tax-Free Bond Fund 12
important information about
the individual Funds. California Tax-Free Income Fund 16
National Tax-Free Fund 20
Oregon Tax-Free Fund 24
General Investment Risks 28
- --------------------------------------------------------------------------------
Your Account Your Fund Account 32
Turn to this section for How to Buy Shares 33
information on how to open
and maintain your account, How to Sell Shares 34
including how to buy, sell
and exchange Fund shares. Exchanges 35
Other Information 36
- --------------------------------------------------------------------------------
Reference Organization and
Management of the Funds 39
Look here for details
on organization How to Read the Financial Highlights 43
of the Funds and
term definitions. Glossary 45
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Tax-Free Income Funds
The Funds described in this Prospectus invest primarily in municipal obligations
and seek monthly income free of federal, and in some cases, state income taxes.
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:
* you are looking for tax-free income or you are in a high-tax bracket
and wish to reduce you tax liability;
* you are looking for monthly income;
* you are looking for more stability of principal than equity funds
typically provide; and
* you are willing to accept the risks of income investing, including the
risk that share prices may rise and fall.
You should not invest in these Funds if:
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you are unwilling to accept that you may lose money on your
investment;
* you are unwilling to accept the risks of investing in the bond markets;
or
* you are seeking aggressive long-term total return.
What are Institutional shares?
Institutional shares are typically held for your benefit by affiliate, franchise
or correspondent banks of Wells Fargo & Company and other select institutions.
The Funds offered here are available in other share classes. A prospectus for
additional shares classes can be obtained by calling 1-800-260-5969.
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.
4 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Tax-Free
Tax-Free Funds take advantage of tax laws that allow the income from certain
investments to be exempted from federal and, in some cases, state personal
income tax. Capital gains, whether declared by a Fund or realized by the
shareholder through the selling of Fund shares, are generally taxable.
Alternative Minimum Tax
You may be subject to the Alternative Minimum Tax (AMT) on your tax-free
distributions. Please check with a tax advisor if you are uncertain as to
whether or not this might apply to you.
Key Terms
The term "municipal obligations" is used in this Prospectus to refer to a broad
variety of fixed-income and variable-rate securities issued by or on behalf of
the states, territories and possessions of the United States. The term
"instruments" is used to describe a negotiable contract or promise to pay money,
such as a Certificate of Deposit or a Banker's Acceptance.
Dividends
We pay dividends, if any, monthly.
Stagecoach Tax-Free Income Funds Prospectus 5
<PAGE>
<TABLE>
<CAPTION>
Tax-Free 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.
- --------------------------------------------------------------------------------
Arizona California California National Oregon
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Bond Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge
on a purchase None None None None None
- --------------------------------------------------------------------------------
Maximum sales charge
on reinvested
dividends None None None None None
- --------------------------------------------------------------------------------
Maximum sales charge
on Redemptions None None None None None
- --------------------------------------------------------------------------------
Exchange fees None None None None None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Annual Fund Operating Expenses (as a percentage of average net assets)
================================================================================
Annual Fund Operating Expenses reflect amounts paid by each Fund during the
prior fiscal period. In some cases they have been estimated or restated to
reflect current expenses and fee waivers. Fee waivers and expense reimbursements
are voluntary and may be discontinued without prior notice.
- --------------------------------------------------------------------------------
Arizona California California National Oregon
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Bond Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee
(after waivers) 0.00% 0.50% 0.16% 0.50% 0.00%
- --------------------------------------------------------------------------------
Other expenses
(after waivers
or reimbursements) 0.67% 0.19% 0.53% 0.25% 0.61%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers
or reimbursements) 0.67% 0.69% 0.69% 0.75% 0.61%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(before waivers
or reimbursements) 1.00% 0.45% 0.55% 1.53% 0.74%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers
or reimbursements) 1.50% 0.95% 1.05% 2.03% 1.24%
- --------------------------------------------------------------------------------
</TABLE>
6 Tax-Free Funds Summary of Expenses
<PAGE>
- --------------------------------------------------------------------------------
<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 $1,000
investment assuming a 5%
annual return and Arizona California California National Oregon
that you redeem your Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
shares at the end of Bond Income
each period.
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $7 $7 $7 $8 $6
-----------------------------------------------------------------------------
3 years $21 $22 $22 $24 $20
-----------------------------------------------------------------------------
5 years $37 $38 $38 $42 $34
-----------------------------------------------------------------------------
10 years $83 $86 $86 $93 $76
-----------------------------------------------------------------------------
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 7
<PAGE>
Arizona Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Mary Gail Walton (since 2/97)
Stephen Galiani (since 12/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Arizona Tax-Free Fund seeks to provide investors with income
exempt from federal income tax and Arizona personal income tax.
Investment Policies
We actively manage a portfolio of municipal obligations. We buy
municipal obligations of any maturity length. The portfolio's
weighted average maturity will vary depending on market
conditions, economic conditions including interest rates, the
differences in yields between obligations of different maturity
lengths and other factors. There is no required range for the
portfolio's average maturity. Generally speaking, we will
attempt to capture greater total return by increasing maturity
when we expect interest rates to decline, and attempt to
preserve capital by shortening maturity when interest rates are
expected to increase.
- --------------------------------------------------------------------------------
[LOGO OF Permmitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* at least 80% of our assets in municipal obligations that pay
interest exempt from federal income tax;
* at least 65% of our assets in municipal obligations that pay
interest exempt from Arizona personal income tax;
* in municipal obligations rated in the four highest credit
categories by a nationally recognized ratings organization.
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, and may invest up to 20% of our assets
in certain taxable 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.
8 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 28 and the specific risks listed below. They are both
important to your investment choice.
The Fund is considered non-diversified according to the
Investment Company Act of 1940 (the "1940 Act"). The majority of
the issuers of the securities in the Fund's portfolio are
located within Arizona. Non-diversified, geographically
concentrated funds are riskier than similar funds that are
diversified or spread their investments over several geographic
areas. Default by a single security in the portfolio may have a
greater negative affect than a similar default in a diversified
portfolio.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION SIGN]
Distribution income earned may be subject to the federal
alternative minimum tax.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Tax-Free Income Funds Prospectus 9
<PAGE>
Arizona Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 36.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Institutional Class Shares - Investor Shares
commenced on october 1, 1995
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, May 31,
1997/1/ 1997/2/ 1996/3/ 1995/4/ 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $10.44 $10.71 $10.68 $10.48
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25 0.25 0.49 0.17 0.51
Net realized and unrealized gain (loss)
on investments 0.42 (0.00) (0.10) 0.06 0.23
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.67 0.25 0.39 0.23 0.74
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.25) (0.25) (0.49) (0.20) (0.53)
Distributions from net realized gain 0.00 0.00 (0.17) 0.00 (0.01)
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.25) (0.25) (0.66) (0.20) (0.54)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.86 $10.44 $10.44 $10.71 $10.68
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.45% 2.38% 3.74% 6.55%/5/ 7.35%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $13,087 $14,349 $15,577 $24,622 $24,581
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.40% 0.40% 0.48% 0.45% 0.40%
Ratio of net investment income to
average net assets 4.62% 4.73% 4.63% 4.73% 4.89%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 72% 77% 42% 62% 14%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.74% 1.50% 1.20% 1.35% 1.13%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 3.28% 3.63% 3.91% 3.83% 4.16%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Shares Calendar Returns 1996 1995
========================================================================================================
Returns for other share classes may vary 3.66% 13.77%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor during this fiscal year.
10 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Arizona Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 43.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
May 31, May 31, May 31,
1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.64 $10.09 $10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.49 0.09
Net realized and unrealized gain (loss)
on investments (0.15) 0.55 0.08
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.35 1.04 0.17
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.50) (0.49) (0.08)
Distributions from net realized gain (0.01) 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.51) (0.49) (0.08)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.48 $10.64 $10.09
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 3.28% 10.50% 7.02%/5/
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $25,153 $22,430 $4,690
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.31% 0.20% 0.68%
Ratio of net investment income to
average net assets 4.72% 4.98% 4.32%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 28% 4% 0%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.00% 1.18% 2.08%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 4.03% 4.00% 2.92%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Shares Calendar Returns 1994 1993
========================================================================================================
Returns for other share classes may vary -3.30% 10.55%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
/5/ Annualized
/6/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class Shares.
Stagecoach Tax-Free Income Funds Prospectus 11
<PAGE>
California Tax-Free Bond Fund
- --------------------------------------------------------------------------------
Portfolio Managers: David Klug (since 1/92)
Laura Milner (since 9/96)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The California Tax-Free Bond Fund seeks to provide investors
with a high level of income exempt from federal income tax and
California personal income tax, while preserving capital, by
investing in medium- to long-term investment-grade municipal
securities.
Investment Policies
We actively manage a portfolio of municipal obligations. We buy
municipal obligations of any maturity length, but we invest
substantially all of our assets in securities with remaining
maturities of 2 to 10 years (medium term) or 10 years or longer
(long term). We have some flexibility in setting the portfolio's
weighted average maturity. Generally speaking, we will attempt
to capture greater total return by increasing weighted average
maturity when we expect interest rates to decline, and attempt
to preserve capital by shortening maturity when interest rates
are expected to increase.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* at least 80% of our assets in municipal obligations that pay
interest exempt from federal income tax;
* at least 65% of our assets in municipal obligations that pay
interest exempt from California personal income tax;
* in municipal obligations rated in the four highest credit
categories by a nationally recognized ratings
organization.
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, and may invest up to 20% of our assets
in certain taxable 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.
12 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 28 and the specific risks listed below. They are both
important to your investment decision.
The Fund is considered non-diversified according to the 1940
Act. The majority of the issuers of the securities in the
portfolio are located within California. Non-diversified,
geographically concentrated funds are riskier than similar funds
that are diversified or spread their investments over several
geographic areas. Default by a single security in the portfolio
may have a greater negative affect than a similar default in a
diversified portfolio.
- -------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Distribution income earned may be subject to the federal
alternative minimum tax.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Tax-Free Income Funds Prospectus 13
<PAGE>
<TABLE>
<CAPTION>
California Tax-Free Bond Fund Financial Highlights
See "Historical Fund Information" on page 36.
See "How to Read the Financial Highlights" on page 43.
- --------------------------------------------------------------------------------
================================================================================
For a Share Outstanding
================================================================================
For the period ended: Institutional Class Shares -
Commenced on September 6, 1996
----------------------------------------
Sept. 30, March 31, Sept. 30,
1997/1/ 1997/2/ 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.75 $10.80 $10.69
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.27 0.28 0.04
Net realized and unrealized gain
(loss) on investments 0.45 (0.05) 0.11
- --------------------------------------------------------------------------------
Total from investment operations 0.72 0.23 0.15
Less distributions:
Dividends from net investment income (0.27) (0.28) (0.04)
Distributions from net realized gain 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.27) (0.28) (0.04)
- --------------------------------------------------------------------------------
Net asset value, end of period $11.20 $10.75 $10.80
- --------------------------------------------------------------------------------
Total return (not annualized) 6.78% 2.10% 1.24%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $84,850 $95,451 $106,896
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.63% 0.63% 0.67%
Ratio of net investment income to
average net assets 4.94% 5.12% 5.20%
- --------------------------------------------------------------------------------
Portfolio turnover 6% 4% 22%
- --------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 0.97% 0.95% 1.20%
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 4.60% 4.80% 4.67%
- --------------------------------------------------------------------------------
================================================================================
Institutional Shares Calendar-Year Returns
================================================================================
Returns for other share classes may 2.43%
vary due to different fees and expenses.
This return reflects fee waivers and
reimbursements, does not reflect sales
loads, is not a guarantee of future
performance and has not been audited.
- --------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ For the period prior to September 6, 1996, this figure reflects the
performance and expenses of the Fund's Class A shares.
14 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
California Tax-Free Income Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Laura Milner (since 11/92)
David Klug (since 12/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The California Tax-Free Income Fund seeks to provide
investors with a high level of income exempt from
federal income tax and California personal income tax,
while preserving capital.
Investment Policies
We actively manage a portfolio of municipal obligations.
We buy municipal obligations of any maturity length, but
we primarily buy securities with remaining maturities of
less than 2 years (short-term) or 2 to 10 years (medium-
term). We have some flexibility in setting the
portfolio's weighted average maturity. Generally
speaking, we will attempt to capture greater total
return by increasing weighted average maturity when we
expect interest rates to decline, and attempt to
preserve capital by shortening maturity when interest
rates are expected to increase. Under normal market
conditions, the average expected duration of the Fund's
portfolio securities will be from 1 to 5 years.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
Under normal market conditions, we invest:
* at least 80% of our assets in municipal obligations
that pay interest exempt from federal income tax;
* at least 65% of our assets in municipal obligations
that pay interest exempt from California personal
income tax;
* in municipal obligations rated in the four highest
credit categories by a nationally recognized ratings
organization.
16 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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, and
may invest up to 20% of our assets in certain taxable
investments, either to maintain liquidity or for short-
term defensive purposes when we believe it is in the
best interest of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF EXCLAMATION Important Risk Factors
POINT]
You should consider both the General Investment Risks
beginning on page 28 and the specific risks listed
below. They are both important to your investment
choice.
The Fund is considered non-diversified according to the
1940 Act. The majority of the issuers of the securities
in the portfolio are located within California. Non-
diversified, geographically concentrated funds are
riskier than similar funds that are diversified or
spread their investments over several geographical
areas. Default by a single security in the portfolio may
have a greater negative affect than a similar default in
a diversified portfolio.
- --------------------------------------------------------------------------------
[LOGO OF ADDITION Additional Fund Facts
SIGN]
Distribution income earned may be subject to the federal
alternative minimum tax.
For information on Fund fees and expenses, see "Summary
of Expenses" on page 6.
Stagecoach Tax-Free Income Funds Prospectus 17
<PAGE>
California Tax-Free Income Fund Financial Highlights
See "Historical Fund Information" on page 36.
See "How to Read the Financial Highlights" on page 43.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
For a Share Outstanding
================================================================================
For the period ended: Institutional Class Shares -
Commenced on September 6, 1996
----------------------------------------
Sept. 30, March 31, Sept. 30,
1997/1/ 1997/2/ 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.11 $10.10 $10.06
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.20 0.19 0.02
Net realized and unrealized gain
(loss) on investments 0.17 0.01 0.04
- --------------------------------------------------------------------------------
Total from investment operations 0.37 0.20 0.06
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.19) (0.02)
Distributions from net realized gain 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.20) (0.19) (0.02)
- --------------------------------------------------------------------------------
Net asset value, end of period $10.28 $10.11 $10.10
- --------------------------------------------------------------------------------
Total return (not annualized) 3.66% 2.00% 0.60%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 6,913 $ 7,061 $ 10,066
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.60% 0.60% 0.55%
Ratio of net investment income to
average net assets 3.86% 3.73% 3.06%
- --------------------------------------------------------------------------------
Portfolio turnover 32% 14% 48%
- --------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A
Ratio of expenses to average
net assets prior to waived
fees and reimbursed expenses 1.15% 1.05% 0.92%
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 3.31% 3.28% 2.69%
- --------------------------------------------------------------------------------
================================================================================
Institutional Shares Calendar-Year Returns 1996
================================================================================
Returns for other share classes may 3.89%
vary due to different fees and expenses.
This return reflects fee waivers and
reimbursements, does not reflect sales
loads, is not a guarantee of future
performance and has not been audited.
- --------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ For the period prior to September 6, 1996, this figure reflects the
performance and expenses of the Fund's Class A shares.
18 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
National Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Stephen Galiani (since 12/97)
Mary Gail Walton (since 2/97)
- --------------------------------------------------------------------------------
[LOGO OF ARROW] Investment Objective
The National Tax-Free Fund seeks to provide investors
with income exempt from federal income tax.
Investment Policies
We actively manage a portfolio of municipal obligations.
We buy municipal obligations of any maturity length. The
portfolio's weighted average maturity will vary
depending on market conditions, economic conditions,
including interest rates, the differences in yields
between obligations of different maturity lengths and
other factors. There is no required range for the
portfolio's weighted average maturity. Generally
speaking, we will attempt to capture greater total
return by increasing maturity when we expect interest
rates to decline, and attempt to preserve capital by
shortening maturity when interest rates are expected to
increase.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
Under normal market conditions, we invest:
* at least 80% of our assets in municipal obligations
that pay interest exempt from federal income tax;
* in municipal obligations rated in the four highest
credit categories by a nationally recognized ratings
organization.
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, and
may invest up to 20% of our assets in certain taxable
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.
20 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION POINT]
You should consider both the General Investment Risks
beginning on page 28 and the specific risks listed
below. The are both important to your investment
choice.
The Fund is considered non-diversified according to the
1940 Act. Default by a single security in the portfolio
may have a greater negative affect than a similar
default in a diversified portfolio.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION SIGN]
Distribution income earned may be subject to the federal
alternative minimum tax.
For information on Fund fees and expenses, see "Summary
of Expenses" on page 6.
Stagecoach Tax-Free Income Funds Prospectus 21
<PAGE>
National Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 36.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Institutional Class Shares - Investor Shares
Commenced on October 1, 1995
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30,
1997/1/ 1997/2/ 1996/3/ 1995/4/
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.17 $15.24 $15.34 $15.28
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37 0.37 0.71 0.24
Net realized and unrealized gain (loss)
on investments 0.59 (0.07) (0.10) 0.08
- ------------------------------------------------------------------------------------------------
Total from investment operations 0.96 0.30 0.61 0.32
- ------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.37) (0.37) (0.71) (0.26)
Distributions from net realized gain 0.00 0.00 (0.17) 0.00
- ------------------------------------------------------------------------------------------------
Total from distributions (0.37) (0.37) (0.71) (0.26)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $15.76 $15.17 $15.24 $15.34
- ------------------------------------------------------------------------------------------------
Total return (not annualized) 6.44% 1.95% 4.04% 6.53%/5/
- ------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 6,740 $ 7,354 $ 7,132 $14,305
- ------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.35% 0.35% 0.36% 0.35%
Ratio of net investment income to
average net assets 4.86% 4.82% 4.66% 4.65%
- ------------------------------------------------------------------------------------------------
Portfolio turnover 34% 86% 73% 86%
- ------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 2.60% 2.03% 1.45% 1.85%
- ------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.61% 3.14% 3.57% 3.15%
- ------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================================
Institutional Shares Calendar Returns 1996 1995
================================================================================================
Returns for other share classes may vary 3.28% 14.53%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- ------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor during this fiscal year.
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
22 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
National Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 43.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
May 31, May 31, May 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.98 $15.17 $15.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.68 0.64 0.17
Net realized and unrealized gain (loss
on investments 0.32 (0.17) 0.15
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 0.47 0.32
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.70) (0.64) (0.15)
Distributions from net realized gain 0.00 (0.02) 0.00
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.70) (0.66) (0.15)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.28 $14.98 $15.17
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.97% 3.07% 5.65%/5/
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $$14,458 $13,600 $7,457
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized
Ratio of expenses to average
net assets 0.35% 0.27% 0.25%
Ratio of net investment income to
average net assets 4.59% 4.29% 3.88%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 23% 19% 18%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.51% 1.58% 1.99%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 3.43% 2.99% 2.14%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Shares Calendar Returns 1994
========================================================================================================
Returns for other share classes may vary -4.33%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- ------------------------------------------------------------------------------------------------
</TABLE>
/5/ Annualized
/6/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class Shares.
Stagecoach Tax-Free Income Funds Prospectus 23
<PAGE>
The Oregon Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Stephen Galiani (since
12/97)
Mary Gail Walton (since
12/97)
- --------------------------------------------------------------------------------
[LOGO OF ARROW] Investment Objective
The Oregon Tax-Free Fund seeks to provide investors with
a high level of income exempt from federal income tax
and Oregon personal income tax.
Investment Policies
We actively manage a portfolio of municipal obligations.
We buy municipal obligations of any maturity length. The
portfolio's weighted average maturity will vary
depending on market conditions, economic conditions
including interest rates, the differences in yields
between obligations of different maturity lengths and
other factors. There is no required range for the
portfolio's dollar-weighted average maturity. Generally
speaking, we will attempt to capture greater total
return by increasing maturity when we expect interest
rates to decline, and attempt to preserve capital by
shortening maturity when interest rates are expected to
increase.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE SIGN]
Under normal market conditions, we invest:
* at least 80% of our assets in municipal obligations
that pay interest exempt from federal income tax;
* at least 65% of our assets in municipal obligations
that pay interest exempt from Oregon personal income
tax;
* in municipal obligations rated in the four highest
credit categories by a nationally recognized ratings
organization.
24 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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, and
may invest up to 20% of our assets in certain taxable
investments, either to maintain liquidity or for short-
term defensive purposes when we believe it is in the
best interest of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION POINT]
You should consider both the General Investment Risks
beginning on page 28 and the specific risks listed
below. They are both important to your investment
choice.
The Fund is considered non-diversified according to the
1940 Act. The majority of the issuers of the securities
in the portfolio are located within Oregon. Non-
diversified, geographically concentrated Funds are
riskier than similar Funds that are diversified or
spread their investments over several geographical
areas. Default by a single security in the portfolio may
have a greater negative affect than a similar default in
a diversified portfolio. Distribution income earned may
be subject to the federal alternative minimum tax.
- --------------------------------------------------------------------------------
[LOGO OF ADDITION Additional Fund Facts
SIGN]
Distribution income earned may be subject to the federal
alternative minimum tax.
For information on Fund fees and expenses, see "Summary
of Expenses" on page 6.
Stagecoach Tax-Free Income Funds Prospectus 25
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 36.
See "How to Read the Financial Highlights" on page 43.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Institutional Class Shares - Investor Shares
commenced on October 1, 1995
----------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Sept. 30, May 31,
1997/1/ 1997/2/ 1996/3/ 1995/4/ 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.28 $16.42 $16.38 $16.47 $16.17
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.39 0.72 0.28 0.82
Net realized and unrealized gain (loss)
on investments 0.65 (0.11) (0.04) 0.08 0.39
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.05 0.28 0.76 0.20 1.21
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.40) (0.39) (0.72) (0.29) (0.87)
Distributions from net realized gain 0.00 0.03 (0.17) 0.00 (0.04)
- --------------------------------------------------------------------------------------------------------
Total from distributions (0.40) (0.42) (0.72) (0.29) (0.91)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.93 $16.28 $16.42 $16.38 $16.47
- --------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.52% 1.69% 5.13% 3.67%/5/ 7.92%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 8,051 $ 8,175 $ 8,512 $50,077 $52,245
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.40% 0.40% 0.63% 0.70% 0.70%
Ratio of net investment income to
average net assets 4.81% 4.72% 4.41% 5.01% 5.19%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 30% 90% 27% 57% 15%
- --------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.34% 1.24% 0.93% 1.01% 0.90%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 3.87% 3.88% 4.11% 4.70% 4.99%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
Institutional Shares Calendar Returns 1996 1995 1994
========================================================================================================
Returns for other share classes may vary 3.45% 15.84% 6.49%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed its fiscal year-end from September 30 to March 31.
/3/ The Fund changed Investment Advisor.
26 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 36.
See "How to Read the Financial Highlights" on page 43.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
For a Share Outstanding
========================================================================================================
For the period ended: Investor Shares
----------------------------------------------------------------
May 31, May 31, May 31, May 31, May 31, May 31,
1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.79 $16.07 $15.74 $15.27 $15.35 $15.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.84 0.86 0.91 0.94 0.93 0.93
Net realized and unrealized gain (loss)
on investments (0.43) 0.76 0.38 (0.47) 0.06 0.31
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.41 1.62 1.29 1.41 0.87 1.24
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.82) (0.86) (0.92) (0.94) (0.93) (0.89)
Distributions from net realized gain (0.21) 0.04 0.04 (0.00) 0.02 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.03) (0.90) (0.96) (0.94) (0.95) (0.89)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.17 $16.79 $16.07 $15.74 $15.27 $15.35
- ------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.33% 10.36% 8.45% 9.58% 5.80% 8.55%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $53,846 $45,435 $25,002 $14,607 $ 7,550 $ 3,175
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets 0.62% 0.60% 0.60% 0.55% 0.50% 0.50%
Ratio of net investment income to
average net assets 4.90% 5.34% 5.81% 6.27% 6.26% 6.64%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 22% 6% 17% 23% 94% 9%
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 0.84% 0.91% 0.98% 1.03% 1.35% 3.29%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 4.69% 5.03% 5.43% 5.79% 5.41% 3.85%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==============================================================================================================================
Institutional Shares Calendar Returns 1993 1992 1991 1990 1989
==============================================================================================================================
Returns for other share classes may vary 12.38% 8.03% 10.57% 6.02% 8.25%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads, are not a guarantee
of future performance, and have not been audited.
- --------------------------------------------------------------------------------------------------------
</TABLE>
/4/ The Fund changed its fiscal year-end from May 31 to September 30.
/5/ Annualized
/6/ For periods prior to September 6, 1996, these figures reflect the
performance and experiences of the Investor Class shares.
Stagecoach Tax-Free Income Funds Prospectus 11
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make
an informed decision that takes into account your tolerance and preferences.
You should carefully consider risks common to all mutual funds, including the
Stagecoach Funds. Chief among these risks are the following:
* Unlike bank deposits such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
* We cannot guarantee that we will meet our investment objectives.
* We do not guarantee the performance of 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 provide certain services, such as an Institution or investment advisors,
offer or promise to make good any such losses.
* Share prices-and therefore the value of your investment-will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as volatility.
* Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
* An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Funds invest in securities that involve particular kinds of risk.
* The Funds invest in debt securities, 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.
* The Funds invest in debt securities, such as notes and bonds, that are
subject to interest rate risk. Interest-rate risk is the possibility that
interest rates may increase and reduce the resale value of securities in a
Fund's portfolio. Debt securities with longer maturities are generally more
sensitive to interest rate changes than those with shorter maturities.
Changes in market interest rates do not affect the rate payable on debt
securities held in a Fund, unless the instrument has adjustable or variable
rate features. Changes in market interest rates may also extend or shorten
the duration of certain types of securities, such as asset-backed
securities, thereby affecting their value and the return on your
investment.
* The 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
28 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
* Each Fund may continue to hold debt securities that cease to be rated by a
nationally recognized ratings organization or whose ratings fall below the
levels generally permitted for such Fund, provided Wells Fargo Bank
continues to believe that holding the security is in the best interests of
the Fund. Unrated or downgraded securities may be more susceptible to
credit and interest rate risks than investment grade securities.
* The Funds may also use certain derivative securities 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.
Experience Risk- The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
Extension Risk- The risk that as interest rates rise, prepayments slow,
thereby lengthening the duration and potentially reducing the value of certain
asset-backed securities.
Stagecoach Tax-Free Income Funds Prospectus 29
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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.
Leverage Risk- The risk that a practice may increase a Fund's exposure to
Market Risk, Interest Rate Risk or other risk by, in effect, increasing assets
available for investment.
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
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.
The Investment Objectives described for the Arizona Tax-Free, National Tax-
Free and Oregon Tax-Free Funds are not fundamental and may be changed
without approval by a vote of a majority of the respective Fund's
shareholders. The Investment Objectives described for the California Tax-
Free Bond and Tax-Free Income Funds are Fundamental and cannot be changed
without approval by a vote of a majority of the respective Fund's
shareholders.
Remember, each Fund is designed to meet different investment needs and has a
different investment objective and investment policies. 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 discussion
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.
-----------------------------------------------------------------------------
30 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
CA CA
Arizona Tax-Free Tax-Free National Oregon
Tax-Free Bond Income Tax-Free Tax-Free
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICE: RISK:
=============================================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates Interest Rate and * * * * *
that are adjusted either Credit Risk
on a schedule or when an index
or benchmark changes.
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the Credit and * * * * *
seller of a security agrees Counter-Party Risk
to buy back a security at an
agreed upon time and
price, usually with interest.
- --------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in Market Risk * * * * *
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.
- --------------------------------------------------------------------------------------------------------------
FORWARD COMMITMENTS
When-Issued Securities and Interest Rate, Credit * * * * *
Delayed Delivery and Experience Risk
Transactions-Securities
bought or sold for delivery
at a later date or bought or
sold for a fixed price at
a fixed date.
- --------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Securities mortgage consisting Interest Rate and * * * * *
of undivided fractional Experience and
interests in pools of mortgages, Extension Risk
consumer loans, such as
car loans or credit card debt or
receivables held in trust.
- --------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be Liquidity Risk * * * * *
readily sold or cannot be
readily sold without negatively
affecting its fair value.
The limit is 15% of assets for all
but the California
Tax-Free Bond Fund, which has a
limit of 10%.
- --------------------------------------------------------------------------------------------------------------
PRIVATE ACTIVITY BONDS
A bond with interest subject to Interest Rate, Credit * * * * *
the alternative minimum tax. and Experience Risk
(Limited to 20% of assets.)
- --------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk * * * * *
of 10% of assets from banks for
temporary purposes to meet
shareholder redemptions.
- --------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Leverage, * * * * *
in brokers, dealers and Counter-Party Risk
and financial institutions to
increase return on those securities.
Loans may be made in accordance with
existing investment policies. Oregon,
Arizona and National Tax-Free Funds,
Limited to 30% of total assets for
the 33 1/3% for the other Funds.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 31
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
This section tells you how to open a Fund account and how to buy, sell or
exchange Fund shares once your Fund account is open.
Typically, Institutional Class shares are bought and held on your behalf by
the Institution through which you are investing. Check with your customer
account representative or your Customer Account agreement for the rules
governing your investment.
Minimum Investments:
* Minimum, initial and subsequent investment amounts are determined by your
Customer Account agreement with your Institution, and are generally:
* $1,000,000 per Fund minimum initial investment, and
* $25,000 per Fund for all investments after your first.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with your
Institution. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your Institution or by calling 1-800-260-5969.
* 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.
* 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.
* Purchase orders and payments must be received in proper form by an
Institution by 1:00 PM (Pacific time) on any business day to be processed
on that day. Payment for a purchase order may be made by the Institution in
funds available to us no later than the next business day. If such payment
is not received, the order will be cancelled and the Institution will be
responsible for any loss.
* 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.
32 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
* Share purchases are made through a Customer Account at an Institution in
accordance with the terms of the Customer Account involved;
* Institutions are usually the holders of record of Institutional shares held
through Customer Accounts and maintain records reflecting their customers'
beneficial ownership of the shares;
* Institutions are responsible for transmitting their customers' purchase and
redemption orders to the Funds and for delivering required payment on a
timely basis;
* The exercise of voting rights and the delivery of shareholder
communications from the Funds is governed by the terms of the Customer
Account involved; and
* Institutions may charge their customers account fees and may receive fees
from us with respect to investments their customers have made with the
Funds. See "Organization and Management of the Funds" for further details
about these fees.
Stagecoach Tax-Free Income Funds Prospectus 33
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
How to Sell Shares
Institutional shares held through a Customer Account with an Institution must
be redeemed in accordance with the account agreement governing the Customer's
Account at the Institution. Please read the Customer Account agreement with
your Institution for rules governing selling shares.
General Notes For Selling Shares
* We process requests we receive in proper form before the close of the New
York Stock Exchange, usually 1:00 P.M. Pacific Time, at the NAV determined
on the same business day. Requests we receive after this time are processed
on the next business day.
* Redemption proceeds are usually wired to the redeeming Institution the
following business day.
* 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 SEC in order to protect remaining
shareholders. Payments of redemptions also may be delayed up to seven days
under normal circumstances, although it is not our policy to delay such
payments.
* Generally, we pay redemption requests in cash, unless the redemption
request is for more than $250,000 or 1% of the net assets of the Fund by a
single shareholder over any ninety-day period. If a request for a
redemption is over these limits it may be to the detriment of existing
shareholders. Therefore, we may pay the redemption in part or in whole in
securities of equal value.
34 Stagecoach Tax-Free Income 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:
* You should carefully read the Prospectus for the Fund into which you wish
to exchange.
* Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
* If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
* Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
* In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes in your exchange privileges.
* You may make exchanges only between like share classes.
Stagecoach Tax-Free Income Funds Prospectus 35
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distributions
Distributions paid by a Fund are automatically reinvested to purchase new
shares of the Fund. The new shares are purchased at NAV, generally on the day
the distributions are paid.
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 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.
Dividends distributed from a Fund's net interest income from tax-exempt
securities will not be subject to federal income tax. A substantial portion of
dividends distributed by the Arizona Tax-Free Fund, the California Tax-Free
Bond Fund, the California Tax-Free Income Fund and the Oregon Tax-Free Fund to
noncorporate shareholders will also be exempt from the respective state's
income tax. Dividends attributable to a Fund's income from other investments
and net short-term capital gain will be 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
Arizona Tax-Free Fund-The Fund operated as the Arizona Intermediate Tax-Free
Fund of Westcore Trust and was advised by First Interstate Bank of Oregon,
N.A. from its commencement of operations on March 2, 1992 until its
reorganization as a portfolio of Pacifica Funds Trust on October 1, 1995 when
First Interstate Capital Management Inc. ("FICM") assumed investment
36 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
advisory responsibilities. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, on September
6, 1996. The Institutional Class shares of the Fund commenced operations on
October 1, 1995. Financial information for periods prior to this date is for
the Investor Class shares of the Pacifica portfolio. In connection with the
merger of First Interstate Bancorp with Wells Fargo & Company on April 1,
1996, FICM was renamed Wells Fargo Investment Management, Inc.
California Tax-Free Bond Fund-On December 12, 1997, the Overland Express
California Tax-Free Bond Fund was reorganized as the California Tax-Free Bond
Fund of Stagecoach Funds. For accounting purposes, the Overland Express Fund
is considered the surviving entity. The Overland Fund did not offer
Institutional Class shares. The Financial Highlights for Institutional Class
shares reflect prior performance of the Stagecoach Institutional Class shares
and are no longer part of the Fund's financial statements.
National Tax-Free Fund-The Fund operated as the Quality Tax-Exempt Income Fund
of Westcore Trust and was advised by First Interstate Bank of Oregon, N.A.
from its commencement of operations on January 15, 1993 until its
reorganization as a portfolio of Pacifica Funds Trust on October 1, 1995 when
First Interstate Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust until
it was reorganized as a series of Stagecoach Funds on September 6, 1996. The
Institutional Class shares of the Fund commenced operations on October 1,
1995. Financial information for periods prior to this date is for the Investor
Class shares of the Pacifica portfolio. In connection with the merger of First
Interstate Bancorp with Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
Oregon Tax-Free Fund-The Fund operated as the Oregon Tax-Exempt Fund of
Westcore Trust and was advised by First Interstate Bank of Oregon, N.A. from
its commencement of operations on June 1, 1988 until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995 when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust until
it was reorganized as a series of Stagecoach Funds on September 6, 1996. The
Institutional Class shares of the Fund commenced operations on October 1,
1995. Financial information for periods prior to this date is for the Investor
Class shares of the Pacifica portfolio. In connection with the merger of First
Interstate Bancorp with Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
Stagecoach Tax-Free Income Funds Prospectus 37
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Share Class - This Prospectus contains information about Institutional Class
shares. The Funds 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.
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
$1,000,000 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 - The Institutions mail statements after any account activity,
including transactions, dividends or capital gains, and at year-end. The
Institutions will also send any necessary tax reporting documents in January,
and will send Annual and Semi-Annual Reports each year.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, servicing plans, tax issues and other important issues are
available in the Statement of Additional Information for the Funds. The
Statement of Additional Information should be read along with this Prospectus
and may be obtained free of charge by calling Investor Services at 1-800-260-
5969.
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.
38 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different companies provide services to the Funds. This section
shows how the Funds are organized and the companies that perform different
services and how they are compensated. Further information is available in the
Statement of Additional Information for the Funds.
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, or amending fundamental investment strategies or policies.
================================================================================
Shareholders
================================================================================
Institutions and Their Representatives
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-Administrator Administrator Agent Servicing Agents
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various
111 Center St. 525 Market St. 525 Market St. Institutions
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Manages the Funds' Maintains records Provide services
Funds, distributes business activities of shares and to customers
shares, and manages supervises the
the Funds' paying of dividends
business activities
- --------------------------------------------------------------------------------
|
================================================================================
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 the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
Board of Directors
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 39
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Institutional Class shares 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 period ended March 31,
1997:
- ---------------------------------------------------------------------
Arizona Tax-Free Fund .00%
- ---------------------------------------------------------------------
California Tax-Free Bond Fund .50%
- ---------------------------------------------------------------------
California Tax-Free Income Fund .16%
- ---------------------------------------------------------------------
National Tax-Free Fund .50%
- ---------------------------------------------------------------------
Oregon Tax-Free Fund .00%
- ---------------------------------------------------------------------
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.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator.
40 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Institutional Class shares. We
have agreements with various Institutions as shareholder servicing agents to
process purchase and redemption requests, to service shareholder accounts, and
to provide other related services.
For these services, the Institutional Class of each Fund pays the
following:
- ---------------------------------------------------------------------
Arizona Tax-Free Fund .25%
- ---------------------------------------------------------------------
California Tax-Free Bond Fund .25%
- ---------------------------------------------------------------------
California Tax-Free Income Fund .25%
- ---------------------------------------------------------------------
National Tax-Free Fund .25%
- ---------------------------------------------------------------------
Oregon Tax-Free Fund .25%
- ---------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 41
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
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.
* Stephen Galiani
Manager - Tax-Exempt Securities
Joined Wells Fargo Bank in 1997, worked for Qualivest Capital Management,
Portland, Oregon as a Senior Portfolio Manager from May 1995 until May 1997,
and was president and portfolio manager of Galiani Asset Management Corp.
from March 1990 until May 1995.
* David Klug, CFA
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over nine years.
* Laura Milner
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over nine years.
* Mary Gail Walton
Senior Tax-Exempt Specialist
Joined Wells Fargo Bank after the merger with First Interstate Bank, where
she had worked since 1991.
42 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of each Fund there is a chart showing important
financial information about the Fund. The chart is called the "Financial
Highlights" and is designed to help you understand the past performance of the
Fund. The financial statements from which the 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 1-800-260-5969.
Other auditors audited the financial statements for the Arizona Tax-Free,
National Tax-Free and Oregon Tax-Free Funds for periods prior to October 1,
1995.
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.
Stagecoach Tax-Free Income Funds Prospectus 43
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
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.
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.
44 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Annual and Semi-Annual Reports
Documents that provide certain financial and other important information for
the most recent reporting period, including each Fund's portfolio of
investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
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 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.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer duration typically
more sensitive to interest rate changes than shorter duration.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally-sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and
other institutions.
Stagecoach Tax-Free Income Funds Prospectus 45
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Investment Grade
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.
Municipal Obligations
We buy municipal obligations of any maturity length, but we invest
substantially all of our assets in securities with remaining maturities of 2
to 10 years (medium term) or 10 years or longer (long term), except that the
California Tax-Free Income Fund invests primarily in securities with remaining
maturities of less than 2 years or 2 to 10 years.
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.
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.
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.
Shareholder Servicing Agent
An entity appointed by a Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar
functions.
46 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 this Prospectus.
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.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted Average Maturity
The average remaining maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
Stagecoach Tax-Free Income Funds Prospectus 47
<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
1-800-260-5969 or from
Stagecoach Funds
P.O. 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.
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WELLS FARGO LOGO
STAGECOACH FUNDS
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PROSPECTUS
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TREASURY MONEY MARKET MUTUAL FUND
Class E Shares
February 1, 1998
<PAGE>
STAGECOACH FUNDS(R)
TREASURY MONEY MARKET MUTUAL FUND
CLASS E SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class E shares offered by
one fund of the Stagecoach Family of Funds -- the TREASURY MONEY MARKET MUTUAL
FUND (the "Fund").
The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with current
income and stability of principal. The Fund's fundamental policy is to seek its
objective by investing its assets only in obligations issued or guaranteed by
the U.S. Treasury and in notes or other instruments collateralized or secured
by such obligations.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI") dated February 1, 1998, containing additional information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling 1-800-260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND PROVIDES THE
FUNDS WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUNDS'
CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED FEBRUARY 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-------
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
Financial Highlights 5
How the Fund Works 6
The Fund and Management 10
Investing in the Fund 12
Dividend and Capital Gain Distribut 16
Management and Servicing Fees 17
Taxes 21
Prospectus Appendix -- Additional I A-1
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides investors with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides summary information about the Fund. For more information, please refer
specifically to the identified Prospectus sections and generally to the
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with
current income and stability of principal. The Fund's fundamental policy is
to seek its objective by investing its assets only in obligations issued or
guaranteed by the U.S. Treasury and in notes and other instruments,
including repurchase agreements, collateralized or secured by such
obligations.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to
maintain a stable net asset value of $1.00 per share, there is no assurance
that it will be able to do so. The Fund may not achieve as high a level of
current income as other mutual funds that do not limit their investments to
the high credit quality instruments in which the Fund invests. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective. See "How the Fund Works -- Risk Factors" in this
Prospectus and "Additional Investment Activities" in the SAI for further
information about Fund Investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and selling
agent for the Fund. See "The Fund and Management" and "Management and
Servicing Fees" for further information.
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Class E shares of the Fund at
the net asset value per share without a sales charge ("NAV"). Qualified
investors include certain customers of affiliate, franchise or
correspondent banks of Wells Fargo & Company and other selected
institutions ("Institutions"). Customers may include individuals, trusts,
partnerships and corporations. Purchases are effected through the
customer's account with the Institution under the terms of the
customer's
1 PROSPECTUS
<PAGE>
account agreement with the Institution. Investors wishing to purchase a
Fund's Class E shares should contact their account representatives.
Investors are not subject to minimum initial or subsequent purchase amount
requirements. See "Investing in the Funds" for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly and any capital gains
are distributed at least annually. All distributions may be reinvested in
additional Class E shares of the Fund at NAV or received in cash. See
"Dividend and Capital Gain Distributions" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares at NAV, without charge by the Company. Class E shares
held by an Institution on behalf of its customers must be redeemed under
the terms of the customer's account agreement with the Institution.
Institutions are responsible for transmitting redemption requests to the
Company crediting its customers' accounts. The Company reserves the right
to impose charges for wiring redemption proceeds. See "Investing in the
Fund -- Redemption of Class E Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
TREASURY MONEY
MARKET MUTUAL FUND
(CLASS E SHARES)
------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).......................... None
Maximum Sales Charge on Reinvested Distributions........ None
Maximum Sales Charge on Redemptions..................... None
Exchange Fees........................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TREASURY MONEY
MARKET MUTUAL FUND
(CLASS E SHARES)
------------------
<S> <C>
Management Fee (after waivers or reimbursements)1........ 0.12%
Rule 12b-1 Fee (after waivers or reimbursements)2........ 0.00%
Other Expenses (after waivers or reimbursements)......... 0.53%
----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/3/...................................... 0.65%
====
</TABLE>
--------------------------------
/1/Management Fee (before waivers or reimbursements) would be 0.25%.
/2/Rule 12b-1 Fee (before waivers or reimbursements) would be 0.10%.
/3/Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.88%.
Note: The tables do not reflect any charges that may be imposed by Wells
Fargo Bank or another Institution directly on certain customer
accounts in connection with an investment in the Fund.
3 PROSPECTUS
<PAGE>
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in the Fund, assuming (A) a
5% annual return and (B) redemption at the
end of each time period indicated:
Treasury Money Market Mutual Fund.......... $7 $21 $36 $81
</TABLE>
Explanation of Tables
The purpose of the foregoing tables is to help a shareholder understand the
various costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Class E shares are sold with no shareholder transaction
expenses imposed by the Company. However, the Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the prior
fiscal period. The amounts have been adjusted to reflect voluntary fee waivers
and expense reimbursements expected to be in effect during the current year.
Any waivers or reimbursements will reduce the Fund's total expenses. There can
be no assurance that waivers or reimbursements will continue. For more complete
descriptions of the various costs and expenses you can expect to incur as an
investor in the Fund, please see "Investing in the Fund -- How to Buy Shares"
and "Management and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above table and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of the
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown.
The Fund offers certain classes of shares not described herein. The expenses
and corresponding returns of these other classes may differ from the expenses
and returns of the shares described herein. Information regarding these and any
other investment options in the Fund may be obtained by calling Stephens at 1-
800-643-9691. Additional information regarding the Fund's expenses is included
under "The Fund
PROSPECTUS 4
<PAGE>
and Management" and "Management and Servicing Fees," and in the SAI under
"Management," "Distributions Plan" and "Servicing Plan."
Financial Highlights
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the six-month periods ended March 31, 1997
and September 30, 1997. The financial statements for the six-month period ended
March 31, 1997 have been audited by KPMG Peat Marwick LLP. These audited
financial statements and the report thereon, as well as the unaudited financial
statements for the period ended September 30, 1997, are incorporated by
reference into the SAI. This information should be read in conjunction with the
Fund's 1997 financial statements and notes thereto. The SAI for the Fund has
been incorporated by reference into this Prospectus.
5 PROSPECTUS
<PAGE>
TREASURY MONEY MARKET MUTUAL FUND
FOR A CLASS E SHARE OUTSTANDING
<TABLE>
<CAPTION>
SIX MONTH
PERIOD PERIOD
ENDED ENDED
SEPT. 30, 1997 MAR. 31, 1997/1/
-------------- ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income....................... 0.02 0.00
Net Realized and Unrealized Gain (Loss) on
Investments................................ 0.00 0.00
-------- --------
Total from Investment Operations............ 0.02 0.00
Less Distributions:
Dividends from Net Investment Income........ (0.02) 0.00
Distributions from Net Realized Gain........ 0.00 0.00
-------- --------
Total From Distributions.................... (0.02) 0.00
-------- --------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00
======== ========
Total Return (not annualized)................ 2.45% 0.11%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........... $753,349 $820,657
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets..... 0.65% 0.65%
Ratio of Net Investment Income to Average
Net Assets................................. 4.82% 4.86%
Ratio of Expenses to Average Net Assets
Prior To Waived Fees and Reimbursed
Expenses................................... 0.86% 0.88%
Ratio of Net Investment Income to Average
Net Assets Prior To Waived Fees and
Reimbursed Expenses........................ 4.61% 4.63%
</TABLE>
--------------------------------
/1/The Class E shares commenced operations on March 24, 1997.
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objective and related
policies of the Fund. The Fund seeks to maintain a net asset value of $1.00 per
share. Its assets consist only of obligations with remaining maturities (as
defined by the SEC) of 397 days (13 months) or less at the date of acquisition,
and the dollar-weighted average maturity of the Fund's investments is 90 days
or less. There can be no assurance that the Fund's investment objective will be
achieved or that the Fund will be able to maintain a net asset value of $1.00
per share. A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and the SAI.
PROSPECTUS 6
<PAGE>
The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with current
income and stability of principal. The Fund's fundamental policy is to invest
only in obligations issued or guaranteed by the U.S. Treasury and in notes and
other instruments, including repurchase agreements, collateralized or secured
by such obligations.
The Fund's investment objective and fundamental policy may not be changed
without the vote of a majority of the outstanding shares of the Fund.
All securities acquired by the Fund will be U.S. Government obligations (see
below) or "First Tier Eligible Securities" as defined under Rule 2a-7 of the
Investment Company Act of 1940 (the "1940 Act"). First Tier Eligible Securities
generally consist of instruments that are either rated at the time of purchase
in the highest rating category by one or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") or issued by issuers
with such ratings. The Appendix to the SAI includes a description of the
applicable ratings. Unrated instruments purchased by the Fund will be of
comparable quality as determined by the adviser pursuant to guidelines approved
by the Board of Directors.
U.S. Treasury and U.S. Government Obligations. The Fund may invest only in
obligations issued or guaranteed by the U.S. Treasury such as bills, notes,
bonds and certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such obligations. These obligations may also
include U.S. Treasury STRIPS (U.S. Treasury securities that have been separated
into their component parts of principal and interest payments and recorded as
such in the Federal Reserve book-entry record keeping system). U.S. Government
obligations in which the Fund may invest include securities issued or
guaranteed as to principal and interest by the U.S. Government and supported by
the full faith and credit of the U.S. Treasury. U.S. Treasury obligations
differ mainly in the length of their maturity. Treasury bills, the most
frequently issued marketable government securities, have a maturity of up to
one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of agencies or instrumentalities of the U.S. Government are supported by the
full faith and credit of the United States or U.S. Treasury guarantees; others,
by the right of the issuer or guarantor to borrow from the U.S. Treasury; still
others, by the discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, only by the
credit of the agency or instrumentality issuing the obligation. In the case of
obligations not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. As a general matter,
7 PROSPECTUS
<PAGE>
the value of debt instruments, including U.S. Government obligations, declines
when market interest rates increase and rises when market interest rates
decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
The Fund may attempt to increase yields by trading to take advantage of short-
term market variations which may result in high portfolio turnover, which
should not adversely affect the Fund since it does not ordinarily pay brokerage
commissions on the purchase of short-term debt obligations.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invests. As with all mutual funds, there
can be no assurance that the Fund will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days. In
addition, the Fund purchases must present minimal credit risks and be of the
highest quality (i.e., be rated in the top rating category by the requisite
NRSROs or, if unrated, determined to be of comparable quality to such rated
securities by Wells Fargo Bank, as the Fund's investment adviser, under
guidelines adopted by the Company's Board of Directors).
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests may default on the payment of principal and/or interest.
Interest-rate risk is the risk that increases in market interest rates may
adversely affect the value of the debt instruments in which the Fund invests
and hence the value of your investment in the Fund.
The Fund seeks to reduce risk by investing its assets in securities of various
issuers. As such, the Fund is considered to be diversified for purposes of the
1940 Act. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular,
PROSPECTUS 8
<PAGE>
the internal investment policies of Wells Fargo Bank, the Fund's investment
adviser, prohibit the purchase for the Fund of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates move above
a certain level);
. leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
. dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
. inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Fund may invest only in floating-rate
securities that bear interest at a rate that resets quarterly or more
frequently and which resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate or LIBOR,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
The Fund restricts its investment to U.S. Treasury obligations that meet all
of the standards described above. Obligations issued or guaranteed by the U.S.
Treasury have historically involved little risk of loss of principal if held to
maturity. However, due to fluctuations in interest rates, the market value of
such obligations may vary during the period a shareholder owns shares of the
Fund. It should be noted that neither the United States, nor any agency or
instrumentality thereof, has guaranteed, sponsored or approved the Fund or its
shares.
Generally, securities in which the Fund invests will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. The Fund attempts to maintain the value of its shares at
a constant $1.00 per share, although there can be no assurance that the Fund
will always be able to do so. See "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information about investment policies and
risks.
9 PROSPECTUS
<PAGE>
PERFORMANCE
Fund performance may be advertised from time to time in terms of current
yield, effective yield or average annual total return. Performance figures are
based on historical results and are not intended to indicate future
performance. Performance figures are calculated separately for each class of
shares of the Fund.
Yield refers to the income generated by an investment in a class of the Fund's
shares over a specified period (usually 7 days), expressed as an annual
percentage rate. Effective yield is calculated similarly but assumes
reinvestment of the income earned by a class of the Fund. Because of the
effects of compounding, effective yields are slightly higher than yields.
Average annual total return of Class E shares is based on the overall dollar
or percentage change of an investment in such shares and assumes the investment
is at NAV and all dividends and any capital-gain distributions attributable to
a class are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund may also present non-standard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates. Because of the differences in the fees and/or expenses
borne by shares of each class of the Fund, the performance figures on one class
of shares can be expected, at any given time, to vary from the performance
figures for other classes of the Fund.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request
without charge by calling the Company at 1-800-260-5969 or by writing the
Company at the address shown on the inside front cover of the Prospectus.
The Fund and Management
THE FUND
The Fund is a part of the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of thirty-one other funds. Most of the Company's funds are authorized to
issue multiple classes of shares, one class generally subject to a front-end
sales charge and, in some cases, a class subject to a contingent-deferred sales
charge, that are offered to retail investors. Certain of the Company's funds
also are authorized to issue other classes of shares, which are sold primarily
to institutional investors at NAV. The Treasury Money Market Mutual Fund offers
four classes of shares: Class A, Service Class, Institutional Class and Class
E. Each class of shares represents an equal proportionate interest in the Fund
with
PROSPECTUS 10
<PAGE>
other shares of the same class. Shareholders of each class bear their pro rata
portion of the Fund's operating expenses except for certain class-specific
expenses that are allocated to a particular class and, accordingly, may affect
performance. For information on another fund or a class of shares, please call
Stagecoach Shareholder Services at 1-800-260-5969 or write the Company at the
address shown on the inside front cover of the Prospectus.
The Company's Board of Directors supervises the Fund's activities and monitors
its contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and are voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). A Fund shareholder of record is entitled to one vote
for each share owned and fractional votes for fractional shares owned. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes
of the shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment adviser, administrator,
custodian, transfer agent and dividend disbursing agent (the "Transfer Agent").
In addition, Wells Fargo Bank serves as a shareholder servicing agent and
selling agent of the Fund. Wells Fargo Bank, one of the largest banks in the
United States, was founded in 1852 and is the oldest bank in the western United
States. As of December 31, 1997 Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $62 billion of assets of
individuals, trusts, estates and institutions. Wells Fargo Bank also serves as
investment adviser to other separately managed funds (or the master portfolio
in which a fund may invest) of the Company, and as investment adviser or sub-
adviser to separately managed funds of five other registered, open-end,
management investment companies. Wells Fargo Bank, a wholly-owned subsidiary of
Wells Fargo & Company, is located at 525 Market Street, San Francisco,
California 94105.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, Wells
Fargo Investment Management, Inc. ("WFIM") (formerly, First Interstate Capital
Management, Inc.) served as investment adviser to the Fund. WFIM, a wholly-
owned subsidiary of Wells Fargo Bank, has changed its name to Wells Capital
Management Incorporated and is located at 444 Market Street, San Francisco,
California 94105. Prior to March 18, 1994, the Fund's investment adviser was
San Diego Financial Capital Management, Inc., which was acquired by First
Interstate Bancorp through its merger with San Diego Financial Corporation.
11 PROSPECTUS
<PAGE>
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Investing in the Fund
Class E shares may be purchased on any day the Fund is open for business (a
"Business Day"). The Fund is open Monday through Friday and is closed on
weekends and federal bank holidays. On any day the trading markets for both
U.S. government securities and money market instruments close early, the Fund
will close early. On these days, the NAV calculation time and the purchase and
redemption cut-off times discussed below may be earlier than 12:00 Noon
(Pacific time).
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from an investor or the investor's
representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic
Prospectus.
SHARE VALUE
The value of a share of each class is its NAV. Wells Fargo Bank calculates the
NAV of each class of the Fund as of 12:00 Noon and 1:00 p.m. (Pacific time) on
each Business Day. The NAV per share of each class of shares of the Fund is
computed by dividing the value of the Fund's assets allocable to a particular
class, less the liabilities charged to that class by the total number of
outstanding shares of that class. All expenses are accrued daily and taken into
account for the purpose of determining the NAV. As noted above, the Fund seeks
to maintain a constant $1.00 NAV share price, although there is no assurance
that it will be able to do so.
The Fund's NAV is calculated on the basis of the amortized-cost method. This
valuation method is based on the receipt of a steady rate of payment on
portfolio
PROSPECTUS 12
<PAGE>
instruments from the date of purchase until maturity rather than actual changes
in market value. The Company's Board of Directors believes that this valuation
method accurately reflects fair value.
PURCHASE OF CLASS E SHARES
Class E shares of the Fund are sold at NAV (without a sales charge) on a
continuous basis primarily to certain customers ("Customers") of affiliate,
franchise or correspondent banks of Wells Fargo & Company and other selected
institutions (previously defined as Institutions). Customers may include
individuals, trusts, partnerships and corporations. Share purchases are
effected through a Customer's account at an Institution under the terms of the
Customer's account agreement with the Institution, and confirmations of share
purchases and redemptions are sent by the Funds to the Institution involved.
Investors are not subject to minimum initial or subsequent purchase amount
requirements.
Institutions (or their nominees), acting on behalf of their Customers,
normally are the holders of record of Class E shares. Customers' beneficial
ownership of Institutional Class shares is reflected in the account statements
provided by Institutions to their Customers. The exercise of voting rights and
the delivery to Customers of shareholder communications from the Fund is
governed by the Customers' account agreements with an Institution. Investors
wishing to purchase Class E shares of the Fund should contact their account
representatives.
Class E shares of the Fund are sold at the NAV per share next determined after
a purchase order has become effective. Purchase orders placed by an Institution
must be received by the Company by 12:00 Noon (Pacific time) on any Business
Day. Payment for such shares may be made by Institutions in federal funds or
other funds immediately available to the custodian no later than 1:00 p.m.
(Pacific time) on that Business Day.
Institutions are responsible for transmitting orders for purchases by their
Customers and delivering required funds on a timely basis. If funds are not
received within the periods described above, the order will be canceled, notice
thereof will be given, and the Institution will be responsible for any loss to
the Fund or its shareholders.
Institutions may charge certain account fees depending on the type of account
the investor has established with the Institution. In addition, an Institution
may receive fees from the Fund with respect to the investments of its Customers
as described under "Management and Servicing Fees." Payment for Class E shares
of the Fund may, in the discretion of the investment adviser, be made in the
form of securities that are permissible investments for the Fund. For further
information see "Additional Purchase and Redemption Information" in the
SAI.
13 PROSPECTUS
<PAGE>
The Company reserves the right to reject any purchase order or to suspend
sales at any time. Payment for orders that are not received will be returned
after prompt inquiry. The issuance of Class E shares is recorded on the
Company's books, and share certificates are not issued.
WIRE INSTRUCTIONS DIRECT PURCHASES BY INSTITUTIONS
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Treasury Money Market Mutual Fund, Class E
shares)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be sent by telefacsimile, with the
original subsequently mailed, to the following address immediately after the
funds are wired and must be received and accepted by the Transfer Agent
before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
STATEMENTS AND REPORTS
Institutions (or their nominees) typically send investors a confirmation or
statement of the account after every month in which there has been a
transaction that affects their share balance or the Fund account registration.
Every January, you will be provided a statement with tax information for the
previous year to assist you in tax return preparation. At least twice a year,
shareholders receive financial statements.
REDEMPTION OF CLASS E SHARES
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Class E shares
held by an
PROSPECTUS 14
<PAGE>
Institution on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the Customer's accounts at the
Institution. Institutions are responsible for transmitting redemption requests
to the Company and crediting its Customers' accounts with the redemption
proceeds on a timely basis. The redemption proceeds for Class E shares of the
Fund normally are wired to the redeeming Institution the following Business Day
after receipt of the request by the Company. The Company reserves the right to
delay the wiring of redemption proceeds for up to ten days after it receives a
redemption order if, in the judgment of the investment adviser, an earlier
payment could adversely affect the Fund or unless the SEC permits a longer
period under extraordinary circumstances. Such extraordinary circumstances
could include a period during which an emergency exists as a result of which
(a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund to fairly
determine the value of its net assets, or a period during which the SEC by
order permits deferral of redemptions for the protection of security holders of
the Fund.
With respect to shareholders who do not have a relationship with an
Institution, shares of the Fund may be redeemed by writing or calling the Fund
directly at the address or phone number shown on the inside front cover of the
Prospectus. When Class E shares are redeemed directly from the Fund, the
Company ordinarily send the proceeds by check to the shareholder at the address
of record on the next Business Day unless payment by wire is requested. The
Company may take up to seven days to make payment, although this will not be
the customary practice. Also, if the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than the customary weekend or
holiday closing, or if an emergency condition as determined by the SEC merits
such action, the Fund may suspend redemptions or postpone payment dates.
To be accepted by the Fund, a letter requesting redemption must include: (i)
the Fund's name and account registration from which the Class E shares are
being redeemed; (ii) the account number; (iii) the amount to be redeemed; (iv)
the signatures of all registered owners; and (v) a signature guarantee by any
eligible guarantor institution. An "eligible guarantor institution" includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may be
requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
All redemptions of Class E shares of the Fund are made in cash, except that
the commitment to redeem Class E shares in cash extends only to redemption
requests made by each Fund shareholder during any 90-day period of up to the
lesser of $250,000 or 1% of the NAV of the Fund at the beginning of such
period. This
15 PROSPECTUS
<PAGE>
commitment is irrevocable without the prior approval of the SEC. In the case of
redemption requests by shareholders in excess of such amounts, the Board of
Directors reserves the right to have the Fund make payment, in whole or in
part, in securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as the securities of the Fund are valued. If the recipient were to
sell such securities, the recipient would incur brokerage charges.
REDEMPTIONS BY TELEPHONE
Telephone exchange or redemption privileges authorize the Transfer Agent to
act on telephone instructions from any person representing himself or herself
to be the shareholder of record and reasonably believed by the Transfer Agent
to be genuine. The Company requires the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Company and the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Company nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be genuine.
Dividend and Capital Gain Distributions
Dividends from net investment income of the Fund are declared daily payable to
Class E shareholders of record as of 12:00 p.m. (Pacific time). Class E
shareholders begin earning dividends on the Business Day the investment is
effected and continue to earn dividends through the day before the date that
the shares are redeemed. Dividends for a Saturday, Sunday or Holiday are
declared payable to shareholders of record as of the preceding Business Day.
The Fund declares and distributes any capital gains at least annually.
Expenses, such as state securities registration fees and transfer agent fees,
that are attributable to a particular class may affect the relative dividends
and/or capital-gain distributions of a class of shares.
Dividends declared in a month generally are distributed on the last Business
Day of the each month. Dividends and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive distributions in cash.
PROSPECTUS 16
<PAGE>
Management and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, Wells Fargo
Bank is entitled to receive monthly investment advisory fees at the annual rate
of 0.25% of the average daily net assets of each Fund. From time to time, Wells
Fargo Bank may waive such fees in whole or in part. Any such waiver will reduce
the expenses of the Fund and, accordingly, have a favorable impact on the
Fund's performance. From time to time, the Fund, consistent with its investment
objective, policies and restrictions, may invest in securities of entities with
which Wells Fargo Bank has a lending relationship. For the six-month period
ended March 31, 1997 and the year ended September 30, 1996, the Fund paid
advisory fees at the annual rate of 0.17% and 0.13%, respectively, of its
average daily net assets. For periods prior to September 6, 1996, this amount
includes an advisory fee paid by the Fund to Wells Fargo Investment Management,
Inc.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement with Wells Fargo Bank, the Fund
may, at times, borrow money from Wells Fargo Bank as needed to satisfy
temporary liquidity needs. Wells Fargo Bank charges interest on such overdrafts
at a rate determined pursuant to the Custody Agreement. Wells Fargo Bank
performs its custodial and transfer and dividend disbursing agency services at
525 Market Street, San Francisco, California 94105.
INSTITUTIONS AND SHAREHOLDER SERVICING AGENTS
The Fund has entered into a Shareholder Servicing Agreement on behalf of Class
E shares with Wells Fargo Bank and may enter into similar agreements with other
Institutions ("Shareholder Servicing Agents"). Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide shareholder administrative and liaison services
with respect to Fund shares, which include, without limitation, aggregating and
transmitting shareholders orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; exchanges and redemptions; and
providing such other related services as the Company or a shareholder may
reasonably request. For these services, a Shareholder Servicing Agent is
entitled to receive a fee at the annual rate of up to 0.30% (0.25% prior to
September 1, 1997) of the average daily net assets attributable to the Class E
shares
17 PROSPECTUS
<PAGE>
owned of record or beneficially by investors with whom the Shareholder
Servicing Agent maintains a servicing relationship. In no case shall payments
exceed any maximum amount that may be deemed applicable under applicable laws,
regulations or rules, including the Conduct Rules of the NASD ("NASD
Rules").
A Shareholder Servicing Agent may impose certain conditions on its customers,
subject to the terms of this Prospectus, in addition to or different from those
imposed by the Fund, such as requiring a minimum initial investment or payment
of a separate fee for additional services. Each Shareholder Servicing Agent has
agreed to disclose any fees it may directly charge its customers who are
shareholders of the Fund and to notify them in writing at least 30 days before
it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator provide the Fund
with administration services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund, compilation
of information for reports to the SEC and the state securities commissions,
preparation of proxy statements and shareholder reports, and general
supervision of data compilation in connection with preparing periodic reports
to the Company's Directors and officers. Wells Fargo Bank and Stephens also
furnish office space and certain facilities to conduct the Fund's business, and
Stephens compensates the Company's Directors and officers who are affiliated
with Stephens. For these administration services, Wells Fargo Bank and Stephens
are entitled to receive a monthly fee at the annual rate of 0.03% and 0.04%,
respectively, of the Fund's average daily net assets. Wells Fargo Bank and
Stephens may delegate certain of their respective administration duties to sub-
administrators.
Prior to February 1, 1998, Wells Fargo Bank and Stephens were entitled to
receive a monthly fee at the annual rate of 0.04% and 0.02%, respectively, of
the Fund's average daily net assets for administration services.
Prior to February 1, 1997, Stephens provided substantially the same services
as sole administrator to the Fund. Under the previous agreement, Stephens was
entitled to receive a monthly fee at the annual rate of 0.05% of the average
daily net assets for the Fund.
For the period from April 15, 1996 to September 5, 1996, Furman Selz provided
administration services for the operation of the Fund. As compensation for such
services, the Fund paid Furman Selz an annual fee, payable monthly, of up to
0.15% of the average daily net assets of the Fund. For the period from October
1, 1995 to April 15, 1996, The Dreyfus Corporation ("Dreyfus") provided
administration services for the operation of the Fund. As compensation for such
services, the Fund paid Dreyfus an annual fee, payable monthly, of up to 0.10%
of the average daily net assets of the Fund.
PROSPECTUS 18
<PAGE>
DISTRIBUTOR
Stephens is the Company's co-administrator and distributes the Fund's shares.
Stephens is a full service broker-dealer and investment advisory firm located
at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit-sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under
which Stephens acts as agent for the Fund for the sale of its shares and may
enter into selling agreements with other agents ("Selling Agents") that wish to
make available shares of the Fund to their respective customers.
The Company also has adopted a Distribution Plan under Rule 12b-1 (the
"Plan"). Under the Plan for Class E shares of the Fund, the Fund may pay, as
compensation for distribution-related services or as reimbursement for
distribution-related expenses, a monthly fee at an annual rate of up to 0.10%
of the average daily net assets attributable to its Class E shares. Prior to
September 1, 1997, the Fund paid, for distribution-related services, a monthly
fee at an annual rate of up to 0.25% of the average daily net assets
attributable to its Class E shares. Distribution related services may include,
among other services, costs and expenses for advertisements, sales literature,
direct mail or any other form of advertising; expenses of sales employees or
agents of the Distributor, including salary, commissions, travel and related
expenses; payments to broker-dealers and financial institutions for services in
connection with the distribution of shares, including promotional incentives
and fees calculated with reference to the average daily net asset value of
shares held by shareholders that have a brokerage or other service relationship
with the broker-dealer or other institution receiving such fees; costs of
printing prospectuses and other materials to be given or sent to prospective
investors; and other similar services as the Directors determine to be
reasonably calculated to result in the sale of Fund shares. In addition, the
Plan contemplates that, to the extent any fees payable pursuant to a
Shareholder Servicing Agreement (discussed above) are deemed to be for
distribution-related services, such payments are approved and payable pursuant
to the Plan.
Under the Distribution Agreement, Stephens may enter into Selling Agreements
with Selling Agents that wish to make available shares of the Fund to their
respective customers. On behalf of the Class E shares, the Fund may participate
in joint distribution activities with any of the other funds of the Company, in
which event, expenses reimbursed out of the assets of the Fund may be
attributable, in part, to the distribution-related activities of another fund
of the Company. Generally, the expenses attributable to joint distribution
activities are allocated between the Fund and the other
19 PROSPECTUS
<PAGE>
funds of the Company in proportion to their relative net asset sizes, although
the Company's Board of Directors may allocate such expenses in any other manner
that it deems fair and equitable.
Stephens has established a non-cash compensation program, pursuant to which
broker-dealers or financial institutions that sell shares of the Company's
funds may earn additional compensation in the form of trips to sales seminars
or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
Financial institutions acting as Shareholder Servicing Agents or Selling
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses, and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, each fund of the Company bears all
costs of its operations, including its pro rata portion of the Company expenses
such as fees and expenses of its independent auditors and legal counsel;
compensation of the Company's directors who are not affiliated with the
adviser, administrator or any of their affiliates; advisory, transfer agency,
custody and administration fees; and any extraordinary expenses. Expenses
attributable to each fund or class are charged against the assets of the class.
General expenses of the Company are allocated among all of the funds of the
Company in a manner proportionate 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.
PROSPECTUS 20
<PAGE>
Taxes
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net long-
term capital gains, if any, are designated as capital gain distributions and
taxable to the Fund's shareholders as long-term capital gains. Under the
Taxpayer Relief Act of 1997, noncorporate Shareholders may be taxed on such
distributions at preferential rates. See "Federal Income Taxes--Capital Gain
Distributions" in your SAI. In general, your distributions will be taxable when
paid, whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will
be taxable as if they were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in your
SAI. In certain circumstances, U.S. residents may also be subject to backup
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in your
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Fund and
it's shareholders. It is not intended as a substitute for careful tax planning;
you should consult your own tax advisor with respect to your specific tax
consequences of purchasing, holding and redeeming Class E shares. Further
federal income tax considerations are discussed in your SAI.
21 PROSPECTUS
<PAGE>
Prospectus Appendix --
Additional Investment Policies
FUND INVESTMENTS
The Treasury Money Market Mutual Fund may invest in the following:
(i) obligations issued or guaranteed by the U.S. Treasury such as bills,
notes, bonds and certificates of indebtedness, and in notes and
repurchase agreements collateralized or secured by such obligations
(see below);
(ii) certain repurchase agreements ("repurchase agreements") (discussed
below);
(iii) certain floating- and variable-rate instruments ("variable-rate
instruments");
(iv) securities purchased on a "when-issued" basis and securities
purchased or sold on a "forward-commitment" basis or "delayed-
settlement" basis (discussed below);
(v) certain securities issued by other investment companies.
Floating- and Variable-Rate Obligations
The Fund may purchase floating- and variable-rate obligations. The Fund may
purchase floating- and variable-rate demand notes and bonds. These obligations
may have stated maturities in excess of thirteen months, but they permit the
holder to demand payment of principal at any time, or at specified intervals
not exceeding thirteen months. Variable-rate demand notes include master demand
notes that are obligations that permit the Fund to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Fund, as lender, and the borrower. The interest rates on these notes may
fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally
will be traded, and there generally is no established secondary market for
these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the
A-1 PROSPECTUS
<PAGE>
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and the Fund may invest in obligations
which are not so rated only if Wells Fargo Bank determines that at the time of
investment the obligations are of comparable quality to the other obligations
in which the Fund may invest. Wells Fargo Bank, on behalf of the Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Fund's portfolio. The
Fund will not invest more than 10% of the value of its total net assets in
floating- or variable-rate demand obligations whose demand feature is not
exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although the Fund
will generally purchase securities with the intention of acquiring them, the
Fund may dispose of securities purchased on a when-issued, delayed-delivery or
a forward commitment basis before settlement when deemed appropriate by the
advisor.
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.
Illiquid Securities
The Fund may invest in securities not registered under the 1933 Act and other
securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to the Fund. The Fund may invest up to 10% of
its net assets in illiquid securities.
Other Investment Companies
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the
PROSPECTUS A-2
<PAGE>
Fund's net assets in aggregate. 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.
Repurchase Agreements
The Fund may enter into repurchase agreements, wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. The Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, the Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the
Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% 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.
U.S. Treasury Obligations
The Fund may invest in obligations issued or guaranteed by the U.S. Treasury
such as bills, notes, bonds and certificates of indebtedness, and in notes and
repurchase agreements collateralized or secured by such obligations ("U.S.
Treasury obligations"). U.S. Treasury notes, bills and bonds differ mainly in
the length of their maturity. The U.S. Treasury obligations in which the Fund
invests may also include "U.S. Treasury STRIPS," interests in U.S. Treasury
obligations reflected in the Federal Reserve-Book Entry System that represent
ownership in either the future interest payments or the future principal
payments on the U.S. Treasury obligations. U.S. Treasury STRIPS are "stripped
securities." Stripped securities are issued at a discount to their face value
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are paid to investors.
The Fund may attempt to increase yields by trading to take advantage of short-
term market variations. This policy could result in high portfolio turnover,
which should not adversely affect the Fund since it does not ordinarily pay
brokerage commissions on the purchase of short-term debt obligations.
A-3 PROSPECTUS
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth under "How the Fund Works --
Investment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI.
In addition, any fundamental investment policy may not be changed without such
shareholder approval. If the Company's Board of Directors determines, however,
that the Fund's investment objective could best be achieved by a substantive
change in a nonfundamental investment policy or strategy, the Company's Board
may make such change without shareholder approval and will disclose any such
material changes in the then-current prospectus.
Fundamental Investment Policies
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
20% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased by the Fund while any such outstanding borrowing in excess of 5% of
its net assets exists); and (ii) not invest more than 25% of its assets (i.e.,
concentrate) in any particular industry, excluding, U.S. Government
obligations.
These investment restrictions are applied at the time investment securities
are purchased. As a matter of nonfundamental policy, the Fund may make loans of
portfolio securities or other assets, although the Fund does not intend to do
so during the current fiscal year.
Non-Fundamental Investment Policies
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of
the 1940 Act. Under the 1940 Act, the Fund's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of the Fund's
net assets with respect to any one investment company, and (iii) 10% of
the Fund's net assets in the aggregate. Other investment companies in
which the Fund invest can be expected to charge fees for operating
expenses, such as investment advisory and administrative fees, that would
be in addition to those charged by the Fund.
PROSPECTUS A-4
<PAGE>
(2) The Fund may not invest or hold more that 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to withdrawal penalties and that
have maturities of more than seven days, and (c) repurchase agreement snot
terminable within seven days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in
and pay interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios 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.
Illiquid securities shall not include (a) securities eligible for resale
pursuant to Rule 144A Securities Act of 1933 (the "1933 Act") Act that have
been determined to be liquid by the adviser, pursuant to guidelines established
by the Company's Board of Directors, and (b) commercial paper sold under
Section 4(2) of the 1933 Act that (i) is not traded flat or in default as to
interest or principal and (ii) is rated in one of the two highest categories by
at least two NRSROs and the adviser, pursuant to guidelines established by the
Company's Board of Directors, has determined the commercial paper to be liquid;
or (iii) is rated in one of the two highest categories by one NRSRO and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined that the commercial paper is of equivalent quality
and is liquid, if by any reason thereof the value of its aggregate investment
in such classes of securities will exceed 10% of its total assets.
A-5 PROSPECTUS
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
--------------------------------------------------------------------------
. are NOT FDIC insured
. are NOT deposits or obligations of Wells Fargo Bank
. are NOT guaranteed by Wells Fargo Bank
. involve investment risk, including possible loss of principal --
. seek to maintain a stable net asset value of $1.00 per share, however,
there can be no assurance that either fund will meet this goal. Yields and
returns will vary with marketconditions.
LOGO
RECYCLED LOGO
Printed on Recycled Paper SC 400 P (2/98)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
BALANCED FUND
EQUITY VALUE FUND
GROWTH FUND
SMALL CAP FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about four of the funds in the Stagecoach Family of Funds
(each, a "Fund" and collectively, the "Funds") -- the BALANCED, EQUITY VALUE,
GROWTH and SMALL CAP FUNDS. This SAI relates to the Institutional Class shares
of each Fund.
This SAI is not a Prospectus and should be read in conjunction with the
Funds' Prospectus, dated February 1, 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 calling 1-800-260-5969 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
Historical Fund Information......................................... 1
Investment Restrictions............................................. 1
Additional Permitted Investment Activities.......................... 6
Risk Factors........................................................ 23
Management.......................................................... 25
Performance Calculations............................................ 37
Determination of Net Asset Value.................................... 41
Additional Purchase and Redemption Information...................... 42
Portfolio Transactions.............................................. 43
Fund Expenses....................................................... 45
Federal Income Taxes................................................ 46
Capital Stock....................................................... 51
Other............................................................... 54
Independent Auditors................................................ 54
Financial Information............................................... 55
Appendix............................................................A-1
i
</TABLE>
<PAGE>
HISTORICAL FUND INFORMATION
The Balanced and Equity Value Funds were originally organized on July
1, 1990 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 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. From September 16, 1996 to December 12,
1997, the Fund invested all of its assets in a Master Portfolio of Master
Investment Trust with a corresponding investment portfolio that, in turn,
invested directly in a portfolio of securities. The Fund currently invests
directly in a portfolio of securities and no longer invests in a master
portfolio.
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.
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;
1
<PAGE>
(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;
(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 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
<PAGE>
(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.
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
3
<PAGE>
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 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.
4
<PAGE>
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 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 or hold 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 the Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Fund
will not enter into any portfolio security lending arrangement having a duration
of longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the 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
5
<PAGE>
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of 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 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 Nationally Recognized
Statistical Ratings Organization ("NRSRO"). The yields on such lower rated
securities, which includes securities also known as junk bonds, generally are
higher than the yields available on higher-rated securities. However,
investments in lower rated securities and comparable unrated securities
generally involve greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy of the
issuers of such securities. Lower rated securities and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Accordingly, it is possible that these types of factors could, in
6
<PAGE>
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 Fund may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for lower
rated securities and comparable unrated securities may diminish the Fund's
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (b) sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in financial markets.
Certain lower rated debt securities and comparable unrated securities
frequently have call or buy-back features that permit their issuers to call or
repurchase the securities from their holders, such as the Fund. If an issuer
exercises these rights during periods of declining interest rates, the Fund may
have to replace the security with a lower yielding security, thus resulting in a
decreased return to the Fund.
The market for certain lower rated securities and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
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
7
<PAGE>
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 Market Securities
--------------------------
The Growth and Small Cap 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 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 Depositary Receipts ("ADRs"),
Canadian Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and International Depositary 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
8
<PAGE>
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. 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.
9
<PAGE>
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 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. 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 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
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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 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.
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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 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
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issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Purchase 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.
The Balanced and Equity Value Funds may not enter into a repurchase
agreement with a maturity of more than seven days, if, as a result, more than
10% of the market value of the respective Fund's total net assets would be
invested in repurchase agreements with maturities of more than seven days,
restricted securities and illiquid securities. The Growth and Small Cap Funds
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 respective
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 Fund may invest in mortgage-related securities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose the Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of 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
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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 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, 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.
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. 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.
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<PAGE>
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 the 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 the Fund writes a secured put option, it
assumes the risk of loss should the market value of the underlying security
decline below the exercise price of the option. The aggregate value of the
securities subject to options written by the Fund will not exceed 25% of the
value of the assets of the Balanced or Equity Value Funds or 15% of the value of
the assets of the Small Cap Fund. The use of covered call options and securities
put options will not be a primary investment technique of the Fund, 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, the 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. The Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
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 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.
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<PAGE>
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell the security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
Options on indices provide the holder with the right to make or receive a cash
settlement upon exercise of the option. With respect to options on indices, the
amount of the settlement equals the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the instrument underlying the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call option
is also covered if a Fund holds a call on the same instrument or index as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written provided the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. The Funds will write
put options only if they are "secured" by liquid assets maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction is ordinarily effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the writing
of a new option containing different terms on such underlying instrument. The
cost of such a liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary 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
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<PAGE>
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.
Stock Index Options. Each Fund may purchase call and put options and
write covered call options on stock indices listed on national securities
exchanges or traded in the over-the-counter market to the extent of 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
17
<PAGE>
exchange-traded, where the exchange serves as the ultimate counterparty for all
contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller recognizes a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser realizes a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against
an increase in the prices of stocks that 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 a Fund then
concludes not to invest in stock at that time, or if the price of the securities
to be purchased remains constant or increases, the Fund realizes a loss on the
stock index futures contract that is not offset by a reduction in the price of
securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The 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
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<PAGE>
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 Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.
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
19
<PAGE>
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 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.
20
<PAGE>
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 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, traded
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
21
<PAGE>
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.
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.
22
<PAGE>
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.
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 Inc; President of Stephens Insurance
President Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the
321 Beechcliff Court School of Business and Accounting at
Wake Forest
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community
75 Grasslands Road College since 1971; Adjunct Professor
Valhalla, N.Y. 10595 of Columbia 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
Crystal Geyser Water Co. Geyser Water Company and President
55 Francisco Street of Crystal Geyser Roxane Water
San Francisco, CA 94133 Company since 1977.
(As of 1/1/98)
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home
4 Beaufain Street Account Network, Inc. Real Estate
Charleston, SC 29401 Developer; Chairman of Renaissance
Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Chief Vice President of Stephens Inc.;
Jr., 41 Operating Director of Stephens Sports
Officer, Management Inc.; and Director of
Secretary and 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
Director $11,250 $33,750
R. Greg Feltus
Director $ 0 $ 0
Thomas S. Goho
Director $11,250 $33,750
Joseph N. Hankin
Director $ 8,750 $26,250
W. Rodney Hughes
$ 9,250 $27,750
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Director
Robert M. Joses
Director $11,250 $33,750
J. Tucker Morse
Director $ 9,250 $27,750
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complex as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and officers of the Company, as a
group, beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory
------------------
services to the 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 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%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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%
</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:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Balanced $261,078 $30,456
Equity Value $557,096 $ 0
Growth $782,529 $ 0
Small Cap $ 89,707 $ 0
</TABLE>
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 October 1, 1995 and ended September 5, 1996, the
Pacifica predecessor portfolios paid to FICM/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:
26
<PAGE>
<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>
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>
Growth Fund. For the periods indicated below, the Fund paid to Wells
-----------
Fargo Bank the following advisory fees and Wells Fargo Bank waived the indicated
amounts :
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
------------ ---------- ----------
Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
$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 the Small Cap Master
Portfolio of Master Investment Trust (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 begun September 16, 1996 (the Small Cap Fund's
commencement of operations) and ended September 30, 1996, the Small Cap
Master
27
<PAGE>
Portfolio paid to Wells Fargo Bank $6,129 in advisory fees on behalf of the
Small Cap Fund. No fees were waived.
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. Allen Ayvazian, as co-manager, has been
responsible for the day-to-day management of the portfolio of the Growth Fund
since December 15, 1997. Mr. Ayvazian joined Wells Fargo Bank in 1989 and is
the Chair of the Equity Policy Committee.
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.
Mr. Rex Wardlaw, as co-manager, has been responsible for the day-to-day
management of the portfolios of the Balanced and Equity Value Funds since
February 1, 1997. Mr. Wardlaw joined Wells Fargo Bank in 1986 and has eight
years of investment experience. He is the Private Client Services investment
manager for the Portland office and is responsible for stock market research in
healthcare, basic industries and transportation sectors. He holds an M.B.A. from
the University of Oregon and a B.A. from Northwest Nazarene College. Mr. Wardlaw
is a chartered financial analyst and a member of the Portland Society of
Financial Analysts. He is also a member of the Association for Investment
management and Research and the American Association of Individual Investors.
Mr. Allen Wisniewski is 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 assumed responsibility as co-manager of the Small Cap
Fund 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.
28
<PAGE>
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. 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. Scott Smith assumed responsibility as a portfolio co-manager for the
day-to-day management of the Balanced Fund on February 1, 1998. Mr. Smith is
also responsible for the day-to-day management of the portfolio of the U.S.
Government Income Fund and the Intermediate Bond Fund. He joined Wells Fargo
Bank in 1988 as a Taxable Money Market Portfolio Specialist. Currently, Mr.
Smith holds the position of Liquidity Management Specialist/Portfolio Manager
with Wells Fargo Bank. His experience includes a position with a private money
management firm with mutual fund investment operations. Mr. Smith holds a B.A.
from the University of San Diego and is a chartered financial analyst.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of 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 received 0.04% and 0.02% of the
average daily net assets of each Fund for performing administration services. In
connection with the change in fees, the responsibility for performing various
administration services was shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served as
the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank.
For the period indicated below, the Funds paid the following dollar
amounts to Wells Fargo Bank and Stephens for administration and co-
administration fees:
29
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Balanced $25,743 $ 5,149 $20,594
Equity Value $59,479 $11,896 $47,583
Growth $64,992 $12,998 $51,994
Small Cap $ 8,027 $ 1,605 $ 6,422
</TABLE>
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 Value 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>
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.
Growth and Small Cap Funds. For the periods indicated below, the Growth
--------------------------
and Small Cap 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 0.05% of each Fund's
average daily net assets:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year-Ended Year-Ended
Fund 9/30/96 12/30/95 12/31/94
- ---- ------------ ---------- ----------
<S> <C> <C> <C>
Growth $51,193 $45,249 $35,279
Small Cap $ 492* N/A N/A
</TABLE>
_______________
30
<PAGE>
* The fees are for the period begun September 16, 1996 and ended September 30,
1996.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the distributor for the Funds.
SHAREHOLDER SERVICING AGENT. The Balanced, Equity Value and Growth Funds
---------------------------
have approved Servicing Plans and have entered into related Shareholder
Servicing Agreements, on behalf of the Institutional Class shares, with
financial institutions, including Wells Fargo Bank. The Small Cap Fund also has
approved a Shareholder Servicing Agreement with Wells Fargo Bank. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the applicable Fund, not to exceed
0.25%, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The Servicing Plans and
related 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 National Association of Securities
Dealers, Inc. ("NASD").
For the period indicated below, the dollar amounts of shareholder
servicing fees paid, after waivers, by the Funds (on behalf of the Institutional
Class shares) to Wells Fargo Bank or its affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- ------------
<S> <C>
Balanced $ 79,847
Equity Value $ 253,204
Growth $ 24,728
Small Cap $ 0
</TABLE>
Balanced, Small Cap and Equity Value Funds. For the period begun October
------------------------------------------
1, 1995 and ended September 5, 1996, and under a similar service agreement, the
Pacifica Balanced and Equity Value Funds made payments to First Interstate
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 Funds 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 $ 11,728
Equity Value $ 31,181
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Small Cap $ 2,460
</TABLE>
Growth Fund. For the nine-month period ended September 30, 1996, the
-----------
Growth Fund paid to Wells Fargo Bank or its affiliates, without regard to class,
$457,088 in shareholder servicing fees.
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.
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 will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Funds paid the
following dollar amounts in custody fees, after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Fund Custody Fees
---- ------------
<S> <C>
Balanced $ 0
Equity Value $ 0
Growth $28,876
Small Cap $ 0
</TABLE>
Balanced and Equity Value Funds. FICAL, located at 707 Wilshire Blvd.,
-------------------------------
Los Angeles, California 90017, acted as Custodian of 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
32
<PAGE>
$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:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Balanced $ 0
Equity Value $40,035
</TABLE>
Growth Fund. For the nine-month period ended September 30, 1996, the
-----------
Growth Fund paid $17,963 in custody fees, after waivers, to Wells Fargo Bank.
Small Cap Fund. For the period begun September 16, 1996 and ended
--------------
September 30, 1996, the Small Cap Fund did not pay any custody fees to Wells
Fargo Bank.
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 0.06% of the average daily net assets of each Fund's Institutional Class
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
Equity Value $ 77,309
Growth $ 175,860
Small Cap $ 0
</TABLE>
Balanced and Equity Value Funds. Under the prior transfer agency
-------------------------------
agreement for the Institutional Class shares of 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 the Institutional Class shares
of each Fund, as well as reimbursement for all reasonable out-of-pocket
expenses. Furman Selz acted as Transfer Agent for the predecessor portfolios.
Pacifica compensated Furman Selz for providing personnel and facilities to
perform transfer agency related services for Pacifica at a rate intended to
represent the cost of providing such services.
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 reimbursement of out-of-
33
<PAGE>
pocket expenses, 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 the Institutional
Class shares, 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.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-deferred
sales charges are not assessed in connection with the purchase and redemption of
its Institutional Class shares. Therefore no underwriting commissions are paid
to Stephens as the Funds' Distributor.
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Institutional Class shares of
the Balanced Fund for periods prior to September 6, 1996, reflects performance
of the Institutional Class shares and the Investor Class shares (prior to
October 1,1995) of the Pacifica Balanced Fund, a predecessor portfolio with the
same investment objective and policies as the Stagecoach Balanced Fund.
34
<PAGE>
Performance shown or advertised for the Institutional Class shares of
the Equity Value Fund for periods prior to September 6, 1996, reflects
performance of the Institutional Class shares and the Investor Class shares
(prior to October 1, 1995) 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 Institutional Class shares of
the 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 Institutional Class shares of
the 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.
See "Historical Fund Information."
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total
---------------------------
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula:
P(1+T)n=ERV.
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended September 30, 1997
- ------------------------------------------------------------------------------
Institutional Five Three One
Class Inception Year Year Year
------------- --------- ---- ----- ----
<S> <C> <C> <C> <C>
Balanced 12.65% 13.65% 15.65% 25.44%
Equity Value 16.75% 21.71% 24.67% 44.42%
Growth 16.43% 17.10% 23.47% 30.56%
Small Cap 42.73% N/A N/A 25.75%
</TABLE>
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.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
Institutional Five Three
Class Inception Year Year
------------- --------- ---- -----
<S> <C> <C> <C>
Balanced 137.23% 89.62% 54.68%
Equity Value 207.32% 167.07% 93.77%
Growth 197.55% 120.21% 88.24%
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Small Cap 182.30% N/A N/A
</TABLE>
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 Funds: (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
36
<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 Advisor. 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 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 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
37
<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
38
<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 in accordance
with procedures adopted by the Company's Board of 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.
39
<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 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 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 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
40
<PAGE>
dealers serving as market makers for the securities at a net price. 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
Equity Value $282,027
Growth $466,282
Small Cap $ 34,324
</TABLE>
The Growth Fund 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>
Growth $531,052 $607,442 $407,643
</TABLE>
During the years ended September 30, 1996, 1995 and 1994, the Equity
Value and Balanced Funds paid the following amounts in brokerage commissions:
<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>
For the period beginning September 16, 1996 and ended September 30,
1996, the Small Cap Fund paid $1,856 for brokerage commissions.
During the time periods stated above, no brokerage commissions were paid
by the Funds to an affiliated broker.
41
<PAGE>
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
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
</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.
FUND EXPENSES
From time to time, 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
42
<PAGE>
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 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.
43
<PAGE>
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 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
44
<PAGE>
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.
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
45
<PAGE>
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 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
46
<PAGE>
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 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.
47
<PAGE>
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.
CAPITAL STOCK
The Funds are four 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 1-800-260-5969 if you would like additional information about other funds or
classes of shares offered.
48
<PAGE>
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 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 the Institutional Class shares 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.
49
<PAGE>
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
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, TTEE Institutional Class 18.01% 12.39%
FUND 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
GROWTH FUND Wells Fargo Bank Class A 49.18% 39.78%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
Dim & Co. Institutional Class 5.26% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Virg. & Co. Institutional Class 35.60% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 50.61% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
Pittsburg State University Institutional Class 5.15% N/A
Attn: John Patterson Record Holder
401 E. Ford Street
Pittsburg, KS 66762
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Name and Class Type Percentage Percentage
Fund Address of Ownership of Class of Fund
- ---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
SMALL CAP Wells Fargo Bank Class A 32.08% 5.16%
FUND P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
Wells Fargo Bank Institutional Class 81.02% 55.45%
420 Montgomery Street Record Holder
San Francisco, CA 94104
Virg. & Co. Institutional Class 6.23% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 5.61% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
</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 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, 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.
51
<PAGE>
The portfolio of investments, audited financial statements and
independent auditors' reports for the Balanced, 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 Company's Semi-Annual and Annual Reports may be obtained by calling
1- 800-260-5969.
52
<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: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
INTERMEDIATE BOND FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
U.S. GOVERNMENT INCOME FUND
Institutional Class
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 INTERMEDIATE BOND, SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME and U.S. GOVERNMENT INCOME FUNDS. This SAI
relates to the Institutional Class shares for each Fund.
This SAI is not a Prospectus and should be read in conjunction with
the Funds' Prospectus, dated February 1, 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 calling 1-800-260-
5969 or writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-
7066.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Historical Fund Information..................................... 1
Investment Restrictions......................................... 1
Additional Permitted Investment Activities...................... 5
Risk Factors.................................................... 17
Management...................................................... 19
Performance Calculations........................................ 30
Determination of Net Asset Value................................ 36
Additional Purchase and Redemption Information.................. 36
Portfolio Transactions.......................................... 37
Fund Expenses................................................... 39
Federal Income Taxes............................................ 39
Capital Stock................................................... 44
Other........................................................... 46
Independent Auditors............................................ 46
Financial Information........................................... 47
Appendix........................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Intermediate Bond Fund commenced operations on June 1, 1988, as an
investment portfolio of Westcore Trust ("Westcore") under the name Bonds Plus
Fund. On October 1, 1995, the Fund was reorganized as the Pacifica Intermediate
Bond Fund, an investment portfolio of Pacifica Funds Trust ("Pacifica"). On
September 6, 1996, the Pacifica Intermediate Bond Fund was reorganized as the
Company's Intermediate Bond Fund.
The Short-Intermediate U.S. Government Income Fund commenced
operations on October 27, 1993, as a Fund of the Company. The Institutional
Class shares of the Short-Intermediate U.S. Government Income Fund commenced
operations on September 6, 1996.
The U.S. Government Income Fund commenced operations on January 1,
1992, as the successor to the Ginnie Mae Fund of Wells Fargo Investment Trust
for Retirement Programs, which commenced operations on January 3, 1991. The
Institutional Class shares of the U.S. Government Income Fund commenced
operations on September 6, 1996. On July 23, 1997, the Boards of Directors of
the Company and Overland Express Funds, Inc. ("Overland"), another investment
company advised by Wells Fargo Bank, approved an Agreement and Plan of
Consolidation providing for, among other things, the reorganization of the
U.S. Government Income Fund of Overland with and into the Company's U.S.
Government Income Fund (the "Consolidation"). For accounting purposes, the
Overland Fund is considered the survivor of the Consolidation. The Overland
Fund is sometimes referred to throughout this SAI as the "predecessor
portfolio" to the Company's U.S. Government Income Fund. The Overland Fund did
not offer Institutional Class shares. For accounting purposes, the
Institutional Class shares are therefore considered a new class. Prior to
December 12, 1997, the effective date of the Consolidation of the Company and
Overland, the Company's U.S. Government Income Fund was known as the Ginnie
Mae 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 (defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the outstanding voting
securities of such Fund.
The Intermediate Bond Fund may not:
(1) purchase or sell commodity contracts or invest in oil, gas or
mineral exploration or development programs, except that the Fund, to the
extent appropriate to its investment objective, may purchase publicly traded
securities of companies engaging in whole or in part in such activities, and
provided that the Fund may enter into futures contracts and related options;
(2) purchase or sell real estate, except that the Fund may purchase
securities of issuers that deal in real estate and may purchase securities
that are secured by interests in real estate;
1
<PAGE>
(3) purchase securities of companies for the purpose of exercising
control;
(4) acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act;
(5) act as an underwriter of securities within the meaning of the
Securities Act of 1933 (the "1933 Act") except insofar as the Fund might be
deemed to be an underwriter upon disposition of portfolio securities acquired
within the limitation on purchases of restricted securities and except to the
extent that the purchase of obligations directly from the issuer thereof in
accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting;
(6) write or sell put options, call options, straddles, spreads, or
any combination thereof, except that the Fund may enter into transactions in
options on securities, futures contracts and options on futures contracts;
(7) borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of the Fund's total assets
at the time of such borrowing. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. Securities held in escrow or separate accounts
in connection with the Fund's investment practices described in this SAI or in
its Prospectus are not deemed to be pledged for purposes of this limitation;
(8) purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, or more than 10% of the issuer's outstanding voting securities would
be owned by the Fund or the Company, except that up to 25% of the value of the
Fund's total assets may be invested without regard to these limitations;
(9) purchase any securities that would cause 25% or more of the
Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) wholly owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry;
(10) make loans, except that the Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an
amount not exceeding 30% of its total assets; nor
(11) purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall
not apply to the Fund's transactions in futures contracts and related options,
and (b) the Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
2
<PAGE>
The Short-Intermediate U.S. Government Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry
would be 25% or more of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in U.S. Government
Obligations;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of
securities;
(6) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) borrow money or issue senior securities as defined in the 1940
Act, except that the Fund may borrow from banks up to 10% of the current value
of its net assets for temporary purposes only in order to meet redemptions,
and these borrowings may be secured by the pledge of up to 10% of the current
value of its net assets (but investments may not be purchased while any such
outstanding borrowings exceed 5% of its net assets), and except that the Fund
may issue multiple Classes of shares in accordance with applicable laws,
rules, regulations or orders;
(9) write, purchase or sell straddles, spreads, warrants, or any
combination thereof;
(10) purchase securities of any issuer (except U.S. Government
Obligations) if, as a result, with respect to 75% of its total assets, more
than 5% of the value of the Fund's total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets the
Fund's ownership would be more than 10% of the outstanding voting securities
of such issuer; nor
(11) make loans, except that the Fund may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.
3
<PAGE>
The U.S. Government Income Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry
would be 25% or more of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in obligations of the
United States Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for margin payments in
connection with options, futures and options on futures) or make short sales
of securities;
(6) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) issue senior securities, except that the Fund may borrow up to
20% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge
of up to 20% of the current value of the Fund's net assets (but investments
may not be purchased by such Fund while any the 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; 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>
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. 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 or hold more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) 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 the Fund's total assets, and for the Intermediate Bond Fund, 30% of
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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Asset-Backed Securities
-----------------------
The Funds may invest in various types of asset-backed securities.
Asset-backed securities are securities that represent an interest in an
underlying security. The asset-backed securities in which the Funds invest may
consist of undivided fractional interests in pools of consumer loans or
receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a
monthly or other periodic basis to certificate holders and are typically
supported by some form of credit enhancement, such as a surety bond, limited
guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon
payment of the consumer loans or receivables by individuals,
5
<PAGE>
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.
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 the Fund will not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances
are credit instruments evidencing the obligation of a bank to pay a draft
drawn on it by a customer. These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest rates.
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. A
bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have
to reinvest the proceeds at lower market rates. Most bonds bear interest
income at a "coupon" rate that is fixed for the life of the bond. The value of
a fixed rate bond usually rises when market interest rates fall, and
falls
6
<PAGE>
when market interest rates rise. Accordingly, a fixed rate bond's yield
(income as a percent of the bond's current value) may differ from its coupon
rate as its value rises or falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes
of calculating the weighted average maturity of their investment portfolios.
Bonds may be senior or subordinated obligations. Senior obligations generally
have the first claim on a corporation's earnings and assets and, in the event
of liquidation, are paid before subordinated debt. Bonds may be unsecured
(backed only by the issuer's general creditworthiness) or secured (also backed
by specified collateral).
Commercial Paper
----------------
The 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
highest rating categories by a NRSRO. Commercial paper may include variable-
and floating-rate instruments.
Custodial Receipts for Treasury Securities
------------------------------------------
The Intermediate Bond Fund may purchase participations in trusts that
hold U.S. Treasury securities (such as TIGRs and CATS) or other obligations
where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the obligations. These
participations are normally issued at a discount to their "face value," and
can exhibit greater price volatility than ordinary debt securities because of
the way in which their principal and interest are returned to investors.
Investments by the Fund in such participations will not exceed 5% of the value
of the Fund's total assets.
Derivative Securities
---------------------
The Intermediate Bond and Short-Intermediate U.S. Government Income
Funds may invest in various instruments that may be considered "derivatives,"
including structured notes, bonds or other instruments with interest rates
that are determined by reference to changes in the value of other interest
rates, indices or financial reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. These Funds may also hold derivative
instruments that have interest rates that re-set inversely to changing current
market rates and/or have embedded interest rate floors and caps that require
the issuer to pay an adjusted interest rate if market rates fall below or rise
above a specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these instruments
is less developed than the markets for traditional
7
<PAGE>
types of debt instruments. It is uncertain how these instruments will perform
under different economic and interest-rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss. The
embedded option features of other derivative instruments could limit the
amount of appreciation a Fund can realize on its investment, could cause a
Fund to hold a security it might otherwise sell or could force the sale of a
security at inopportune times or for prices that do not reflect current market
value. The possibility of default by the issuer or the issuer's credit
provider may be greater for these structured and derivative instruments than
for other types of instruments. In some cases, it may be difficult to
determine the fair value of a structured or derivative instrument because of a
lack of reliable objective information and an established secondary market for
some instruments may not exist. As new types of derivative securities are
developed and offered to investors, the advisor will, consistent with the
Fund's investment objective, policies and quality standards, consider making
investments in such new types of derivative securities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations, demand
notes and bonds. Variable-rate demand notes include master demand notes that
are obligations that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
Fund, as lender, and the borrower. The interest rates on these notes may
fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time
such rate is adjusted. The interest rate on a variable-rate demand obligation
is adjusted automatically at specified intervals. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided
by banks. Because these obligations are direct lending arrangements between
the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and the Fund
may invest in obligations which are not so rated only if Wells Fargo Bank
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which such Fund may invest. Wells Fargo
Bank, on behalf of the Fund, considers on an ongoing basis the
creditworthiness of the issuers of the floating- and variable-rate demand
obligations in such Fund's portfolio. No Fund will invest more than 15% (10%
for the U.S. Government Income Fund) 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.
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, U.S. branches of
foreign banks and short-term debt obligations of foreign governmental agencies
that are denominated in and pay interest in U.S. dollars. Investments in
foreign
8
<PAGE>
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign
issuers also are not subject to the same uniform accounting, auditing and
financial reporting standards or governmental supervision as domestic issuers.
In addition, with respect to certain foreign countries, taxes may be withheld
at the source under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
Investment in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not generally subject to uniform
accounting, auditing and financial reporting standards or governmental
supervision comparable to those applicable to domestic issuers. In addition,
with respect to certain foreign countries, taxes may be withheld at the source
under foreign income tax laws, and there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The 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 transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of
the security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. Although 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.
The Funds will establish a segregated account in which they will
maintain cash, U.S. Government obligations or other high-quality debt
instruments in an amount at least equal in value to each such Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, a Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
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
hold up to 15% (10% for the U.S. Government Income Fund) of its net assets in
illiquid securities.
Loans of Portfolio Securities
-----------------------------
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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) such Fund may
at any time call the loan and obtain the return of the securities loaned
within five business days; (3) such 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 (30% for the
Intermediate Bond Fund) of the total assets of a particular 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 fee earned from securities lending to a borrower or
a placing broker. Borrowers and placing brokers may not be affiliated,
directly or indirectly with Wells Fargo Bank, Stephens Inc. or any of their
affiliates.
Mortgage-Related Securities
---------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-
through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities
are made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
The stated maturities of pass-through obligations may be shortened by
unscheduled prepayments of principal on the underlying mortgages. Therefore,
it is not possible to predict accurately the average maturity of a particular
pass-through obligation. Variations in the maturities of pass-through
obligations will affect the yield of the Fund. Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise,
the value of a mortgage-related security generally will decline; however, when
interest rates decline, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government or its agencies or
instrumentalities. Mortgage pass-through securities created by non- government
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and
10
<PAGE>
hazard insurance, and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers.
The Funds 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 the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
Adjustable Rate Mortgages ("ARMs") and Collateralized Mortgage
Obligations ("CMOs"). The SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND may
invest in ARMs issued or guaranteed by the GNMA, FNMA or FHLMC. The full and
timely payment of principal and interest on GNMA ARMs is guaranteed by GNMA
and backed by the full faith and credit of the U.S. Government. FNMA also
guarantees full and timely payment of both interest and principal, while FHLMC
guarantees full and timely payment of interest and ultimate payment of
principal. FNMA and FHLMC ARMs are not backed by the full faith and credit of
the United States. However, because FNMA and FHLMC are government-sponsored
enterprises, these securities are generally considered to be high quality
investments that present minimal credit risks. The yields provided by these
ARMs have historically exceeded the yields on other types of U.S. Government
securities with comparable maturities, although there can be no assurance that
this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured
or guaranteed by the Federal Housing Administration, the Veterans
Administration or the Farmers Home Administration, while those underlying ARMs
issued by FNMA or FHLMC are typically conventional residential mortgages which
are not so insured or guaranteed, but which conform to specific underwriting,
size and maturity standards.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specified coupon rate and has a stated maturity or final distribution date.
The principal and interest payment on the underlying mortgages may be
allocated among the classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full. One or more classes of CMOs may
have coupon rates that reset periodically based on an index, such as the
London Interbank Offered Rate ("LIBOR").
The interest rates on the mortgages underlying the ARMs and some of
the CMOs in which the Short-Intermediate U.S. Government Income Fund may
invest generally are readjusted at periodic intervals ranging from one year or
less to several years in response to changes in a predetermined interest rate
index. There are two main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure, such as a cost-of-
funds index or a moving average of mortgage rates. Commonly utilized indices
include the one-year and five-year constant maturity Treasury note rates, the
three-month Treasury bill rate, the 180-day Treasury bill rate, rates on
longer-term Treasury securities, the National Median Cost of Funds, the one-
month,
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<PAGE>
three-month, six-month or one-year LIBOR, a published prime rate or commercial
paper rates. Certain of these indices follow overall market interest rates
more closely than others.
Adjustable rate mortgages, an increasingly common form of residential
financing, generally have a specified maturity date. Most provide for
amortization of principal in a manner similar to fixed-rate mortgages, but
have interest rates that change in response to changes in a specified interest
rate index. The rate of interest due on such a mortgage is calculated by
adding an agreed-upon "margin" to the specified index, although there
generally are limitations or "caps" on interest rate movements in any given
period or over the life of the mortgage. To the extent that the interest rates
on adjustable rate mortgages cannot be adjusted in response to interest rate
changes because of interest rate caps, the ARMs or CMOs backed by such
mortgages are likely to respond to changes in market rates more like fixed
rate securities. In other words, interest rate increases in excess of such
caps can be expected to cause CMOs or ARMs backed by mortgages that have such
caps to decline in value to a greater extent than would be the case in the
absence of such caps. Conversely, interest rate decreases below interest rate
floors can be expected to cause the CMOs or ARMs backed by mortgages that have
such floors to increase in value to a greater extent than would be the case in
the absence of such floors.
These adjustable rate features should reduce, but will not eliminate,
price fluctuations in such securities, particularly when market interest rates
fluctuate. Since the interest rates on mortgages typically are reset at most
annually and generally are subject to caps, it can be expected that the prices
of ARMs and CMOs backed by such mortgages will fluctuate to the extent
prevailing market interest rates are not reflected in the interest rates
payable on the underlying adjustable rate mortgages. In this regard, the net
asset value of a Fund's shares could fluctuate to the extent interest rates on
underlying mortgages differ from prevailing market interest rates during
interim periods between interest rate reset dates. Accordingly, investors
could experience some principal loss or less gain than might otherwise be
achieved if they redeem their shares of a Fund or if the Fund sells these
portfolio securities before the interest rates on the underlying mortgages are
adjusted to reflect prevailing market interest rates.
The holder of ARMs and certain CMOs receives not only monthly
scheduled payments of principal and interest, but also may receive unscheduled
principal payments representing prepayments on the underlying mortgages.
Changes in market interest rates and interest rate indexes can affect these
prepayment rates, thereby shortening or lengthening their duration, the holder
therefore, may have to reinvest the periodic payments and any unscheduled
prepayments of principal it receives at a rate of interest which is lower than
the rate on the ARMs and CMOs held by it.
CMOs backed by fixed rate mortgages share many of the rate, duration
and investment risks described above because of their contractual and
investment features and because of factors such as the prepayment rates on the
underlying fixed rate mortgages.
The Funds will not invest in CMOs that, at the time of purchase, are
"high-risk mortgage securities" as defined in the then current Federal
Financial Institutions Examination Council Supervisory Policy Statement on
Securities Activities (the "FFIEC Policy Statement"). Under the FFIEC Policy
Statement, a CMO qualifies as a "high-risk mortgage security" if it meets an
Average Life Test, an Average Life Sensitivity Test, or a Price Sensitivity
Test. A CMO meets the Average Life Test if it has an expected weighted average
life greater than 10 years. A CMO meets the Average Life Sensitivity Test if
the expected weighted average life of the CMO either (i) extends by more than
4 years, assuming an immediate and sustained parallel shift in the yield curve
of plus 300 basis points, or (ii) shortens by more than 6 years, assuming an
immediate and sustained parallel shift in the yield curve of minus 300 basis
points. A CMO
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<PAGE>
meets the Price Sensitivity Test if an immediate and sustained parallel shift
in the yield curve of plus or minus 300 basis points would result in an
estimated change in the price of the CMO of more than 17 percent. Under the
FFIEC Policy Statement, a CMO floating-rate debt class, i.e., a CMO the rate
of which adjusts at least annually on a one-for-one basis with a conventional,
widely used market interest rate index (such as the London Interbank Offered
Rate), will not be subject to the Average Life and Average Life Sensitivity
Tests if it bears a rate that is below the contractual cap on the
instrument.
Mortgage Participation Certificates. The U.S. Government Income Fund
also may invest in the following types of FHLMC mortgage pass-through
securities. FHLMC issues two types of mortgage pass-through securities:
mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA certificates in that each PC
represents a pro rata share of all interest and principal payments made and
owed on the underlying pool of mortgages. GMCs also represent a pro rata
interest in a pool of mortgages. These instruments, however, pay interest
semiannually and return principal once a year in guaranteed minimum payments.
These mortgage pass-through securities differ from bonds in that principal is
paid back by the borrower over the length of the loan rather than returned in
a lump sum at maturity. They are called "pass-through" securities because both
interest and principal payments, including prepayments, are passed through to
the holder of the security.
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such
prepayments are made at the option of the mortgagors for a wide variety of
reasons reflecting their individual circumstances. For example, mortgagors may
speed up the rate at which they prepay their mortgages when interest rates
decline sufficiently to encourage refinancing. The Fund, when such prepayments
are passed through to it, may be able to reinvest them only at a lower rate of
interest. As a result, if the Fund purchases such securities at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the Fund purchased such
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full. In choosing specific
issues, Wells Fargo Bank, as investment advisor, will have made assumptions
about the likely speed of prepayment. Actual experience may vary from this
assumption resulting in a higher or lower investment return than
anticipated.
Other 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.
Stripped Securities
-------------------
13
<PAGE>
The Funds may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either (i) future interest payments or
(ii) future principal payments. The strippted securities the Funds may
purchase are issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks, corporations and other
institutions at a discount to their face value. The Funds will not purchase
stripped mortgage-backed securities ("SMBS"). The stripped securities purchased
by the Funds generally are structured to make a lump-sum payment at maturity and
do not make periodic payments of principal or interest. Hence, the duration of
these securities tends to be longer and they are therefore more sensitive to
interest rate fluctuations than similar securities that offer periodic payments
over time. The stripped securities purchased by the Funds are not subject to
prepayment or extension risk.
Temporary Investments
---------------------
The Funds may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Funds may
purchase include, among other things, U.S. government obligations, shares of
other mutual funds, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities. Some
of these short-term investments are described below.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional
and irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo
Bank, are of comparable quality to issuers of other permitted investments of
such Fund may be used for letter of credit-backed investments.
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.
A Fund may not enter into a repurchase agreement with a maturity of
more than seven days, if, as a result, more than 15% (10% for the U.S.
Government Income Fund) 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.
Unrated Investments
-------------------
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<PAGE>
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 the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. To the extent
the ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Rating Group ("S&P") may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment
policies contained in its Prospectus and in this SAI. The ratings of Moody's
and S&P are more fully described in the Appendix.
U.S. Government Obligations
---------------------------
The 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.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's, S&P, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Thomson Bank Watch and IBCA Inc. represent their
opinions as to the quality of debt securities. It should be emphasized,
however, that ratings are general and not absolute standards of quality, and
debt securities with the same maturity, interest rate and rating may have
different yields while debt securities of the same maturity and interest rate
with different ratings may have the same yield. Subsequent to purchase by the
Intermediate Bond Fund, an issue of debt securities may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by
the Fund. The advisor will consider such an event in determining whether the
Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by
a Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities
may be materially adversely affected by litigation or other conditions.
Further, it should also be, noted with respect to all municipal obligations
issued after August 15, 1986 (August 31, 1986 in the case of certain bonds),
the issuer must comply with certain rules formerly applicable only to
"industrial
15
<PAGE>
development bonds" which, if the issuer fails to observe them, could cause
interest on the municipal obligations to become taxable retroactive to the
date of issue.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells
Fargo Bank, are not insured by the FDIC and are not insured against loss of
principal. When the value of the securities that 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 debt instruments of a Fund also may be subject to credit
and interest rate risk. Credit risk is the risk that the issuers of securities
in which a Fund invests may default in the payment of principal and/or
interest. Interest rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which a Fund
invests and hence the value of your investment in a Fund.
The market value of a Fund's investments in fixed-income securities
will change in response to various factors, such as changes in market interest
rates and the relative financial strength of an issuer. During periods of
falling interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater price
fluctuation than obligations with shorter maturities. Fluctuations in the
market value of fixed-income securities can be reduced, but not eliminated, by
variable rate or floating rate features. In addition, some of the asset-backed
securities in which the Funds invest are subject to extension risk. This is
the risk that when interest rates rise, prepayments of the underlying
obligations slow, thereby lengthening the duration and potentially reducing
the value of these securities.
Although some of the Funds' portfolio securities are guaranteed by the
U.S. Government, its agencies or instrumentalities, such securities are
subject to interest rate risk and the market value of these securities, upon
which the Funds' daily net asset value are based, will fluctuate. No assurance
can be given that the U.S. Government would provide financial support to its
agencies or instrumentalities where it is not obligated to do so.
Although GNMA securities are guaranteed by the U.S. Government as to
timely payment of principal and interest and ARMs are guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises as noted above), the market value of these securities, upon which
the Funds' daily net asset value is based, will fluctuate. The Funds are
subject to interest-rate risk, that is, the risk that increases in interest
rates may adversely affect the value of the securities in which the Funds
invest, and hence the value of your investment in the Funds. The value of the
securities in which a Fund invests generally changes inversely to changes in
interest rates. However, the adjustable-rate feature of the mortgages
underlying the ARMs and the CMOs in which a Fund may invest should reduce, but
will not eliminate, price fluctuations in such securities, particularly during
periods of extreme fluctuations in market interest rates.
The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the U.S. Government. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are considered by some
investors
16
<PAGE>
to be high-quality investments that present minimal credit risks. The yields
provided by these ARMs have historically exceeded the yields on other types of
U.S. Government securities with comparable maturities. Of course, there can be
no assurance that this historical performance will continue or that either
Fund, which are diversified funds, will meet its investment objective.
Moreover, no assurance can be given that the U.S. Government would
supply financial support to U.S. Government-sponsored enterprises such as FNMA
and FHLMC in the event of a default in payment on the underlying mortgages
which the government- sponsored enterprise is unable to make good. Principal
on the mortgages underlying the mortgage pass-through securities in which the
Funds may invest may be prepaid in advance of maturity. Such prepayments tend
to increase when interest rates decline and may present a Fund with more
principal to invest at lower rates. The converse also tends to be the case.
S&P and Moody's assign ratings based upon their judgment of the risk
of default (i.e., the risk that the issuer or guarantor may default in the
payment of principal and/or interest) of the securities underlying the CMOs.
However, investors should understand that most of the risk of these securities
comes from interest-rate risk (i.e., the risk that market interest rates may
adversely affect the value of the securities in which a Fund invests) and not
from the risk of default. CMOs may have significantly greater interest rate
risk than traditional government securities with identical ratings. The
adjustable-rate portions of CMOs have significantly less interest rate risk.
The Funds may invest in illiquid securities which may include certain
restricted securities. Illiquid securities may be difficult to sell promptly
at an acceptable price. Certain restricted securities may be subject to legal
restrictions on resale. Delay or difficulty in selling securities may result
in a loss or be costly to a Fund.
Wells Fargo Bank may use certain derivative investments or techniques,
such as investments in floating- and variable-rate instruments, structured
notes and certain U.S. Government obligations, to adjust the risk and return
characteristics of 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 Wells Fargo Bank judges market
conditions incorrectly, the use of certain derivatives could result in a loss,
regardless of the advisor's intent in using the derivatives.
The Funds may invest up to 25% of their assets in "Yankee Bonds."
Yankee Bonds are U.S. dollar-denominated debt obligations issued in the U.S.
by foreign banks and corporations. Such investments may involve special risks
and considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio
transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability which could affect U.S. investments
in foreign countries. Additionally, dispositions of foreign securities and
dividends and interest payable on those securities may be subject to foreign
taxes, including withholding taxes. Foreign securities often trade with less
frequency and volume than domestic securities and, therefore, may exhibit
greater price volatility. The Fund's investments may be affected either
unfavorably or favorably by
17
<PAGE>
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.
There is, of course, no assurance that 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
Chairman and Stephens Inc.; President of
President Stephens Insurance Services
Inc.; Senior Vice President of
Stephens Sports Management
Inc.; and President of
Investor Brokerage Insurance
Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance
321 Beechcliff Court of the School of Business and
Winston-Salem, NC 27104 Accounting at Wake Forest
University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of
Crystal Geyser Water Co. Crystal Geyser Water Company
55 Francisco Street and President of Crystal Geyser
San Francisco, CA 94133 Roxane Water Company since 1977.
(As of 1/1/98)
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor of
Columbia University Teachers
College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*J. Tucker Morse, 53 Director Private Investor; Chairman of
4 Beaufain Street Home Account Network, Inc. Real
Charleston, SC 29401 Estate Developer; Chairman of
Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens
Officer, Inc.; Director of Stephens
Secretary and Sports Management Inc.; and
Treasurer Director of Capo Inc.
</TABLE>
<TABLE>
<CAPTION>
Compensation Table
Year Ended March 31, 1997
-------------------------
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $ 11,250 $ 33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $ 11,250 $ 33,750
Director
Joseph N. Hankin $ 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>
19
<PAGE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and
by all the registrants in each fund complex they serve as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, Stagecoach Trust and Life & Annuity Trust are
considered to be members of the same fund complex as such term is defined in
Form N-1A under the 1940 Act (the "Wells Fargo Fund Complex"). Overland
Express Funds, Inc. and Master Investment Trust, two investment companies
previously advised by Wells Fargo Bank, were part of the Wells Fargo Fund
Complex prior to December 15, 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, Well 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>
Intermediate Bond 0.50%
Short-Intermediate U.S. Government 0.50%
Income
U.S. Government Income 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
</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:
20
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Intermediate Bond $ 51,418 $ 61,866
Short-Intermediate U.S. Government $ 134,529 $ 121,235
Income
U.S. Government Income* $ 167,516 $ 46,101
____________________
</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.
Intermediate Bond Fund. The Pacifica Intermediate Bond Fund was
----------------------
reorganized as the Company's Intermediate Bond Fund on September 6, 1996.
Prior to September 6, 1996, Wells Fargo Investment Management, Inc. ("WFIM")
and its predecessor, First Interstate Capital Management, Inc. ("FICM") served
as advisor to the Pacifica Intermediate Bond Fund. As of September 6, 1996,
Wells Fargo Bank became the advisor to the Company's Intermediate Bond
Fund.
For the fiscal year ended September 30, 1996, the Fund paid $277,965
in advisory fees and $39,513 of advisory fees were waived. These amounts
include advisory fees paid by the predecessor portfolio to FICM/WFIM prior to
September 6, 1996.
Prior to October 1, 1995, First Interstate Bank of Oregon, N.A. served
as advisor to the predecessor of the Intermediate Bond Fund. For the four-
month period ended September 30, 1995, and the years ended May 31, 1995, and
1994, the prior advisors for the Fund were entitled to receive advisory fees
from the Fund at the same annual rates as those that were in effect for
WFIM.
For the periods indicated below, the prior advisors were entitled to
receive the following amounts in advisory fees and did not waive or reimburse
any advisory fees. In 1995, the Fund changed its fiscal year from May 31 to
September 30.
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended Year Ended
9/30/95 5/31/95 5/31/94
------------- ---------- ----------
<S> <C> <C>
$94,698 $275,948 $318,000
</TABLE>
Short-Intermediate U.S. Government Income Fund and U.S. Government
------------------------------------------------------------------
Income Fund. As discussed herein under "Historical Fund Information," on
- -----------
December 12, 1997 the Overland U.S. Government Income Fund was consolidated
with and into the Fund. For financial reporting purposes, the Overland Fund is
considered the accounting survivor of the Consolidation 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. Prior
21
<PAGE>
to the Consolidation, Wells Fargo Bank served as the investment advisor to the
Overland Fund and was entitled to receive a monthly fee at the annual rate of
0.50% of the Fund's average daily net assets.
For the periods indicated below, the Short-Intermediate U.S.
Government Income and U.S. Government Income 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
------------- ----------- -----------
<S> <C> <C> <C>
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<C> <C> <C> <C> <C> <C>
Short-Int. U.S.
Govt. Income $213,467 $ 0 $ 56,387 $60,241 $ 0 $58,270
U.S. Govt. Income* N/A N/A $840,112 $ 0 $230,619 $28,872
</TABLE>
____________________
* Indicates fees paid by the predecessor portfolio, which commenced operations
on April 7, 1988.
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. Scott Smith as manager of the Intermediate
------------------
Bond Fund is responsible for the day-to-day management of the Fund. Mr. Smith
has been the manager of the Fund since February 1, 1998, and was a co-manager
of the Fund from September 6, 1996 to February 1, 1998. Mr. Smith has also
been responsible for the day-to-day management of the portfolio of the U.S.
Government Income Fund since May 1, 1995. He joined Wells Fargo Bank in 1988
as a taxable money market portfolio specialist. Currently, Mr. Smith holds the
position of liquidity management specialist/portfolio manager with Wells Fargo
Bank. His experience includes a position with a private money management firm
with mutual fund investment operations. Mr. Smith holds a B.A. from the
University of San Diego and is a chartered financial analyst.
Mr. Jeff Weaver assumed responsibility as a portfolio co-manager for
the day-to-day management of the portfolio of the Short-Intermediate U.S.
Government Income Fund as of July 16, 1996. Mr. Weaver joined Wells Fargo Bank
in February of 1994, after three years as a short-term fixed income trader and
portfolio manager in the investment management group of Bankers Trust Company
in New York. He holds a B.A. in economics from the University of Colorado and
is a chartered financial analyst candidate.
Ms. Madeline Gish assumed responsibility as a portfolio co-manager for
the day-to-day management of the portfolio of the Short-Intermediate U.S.
Government Income Fund as of July 16, 1996. Ms. Gish joined Wells Fargo Bank
in 1989 as the portfolio coordinator for the Mutual Funds Division and played
an integral part in the rapid growth of the Overland Express
22
<PAGE>
Funds. Since joining the fixed-income group in 1992, Ms. Gish has assisted in
the research and trading for various portfolios and is currently managing
taxable liquidity portfolios. She holds a B.S. in Business Administration from
the University of Kansas and is a chartered financial analyst candidate.
Mr. Paul Single assumed responsibility for the day-to-day management
of the portfolio of the U.S. Government Income Fund on May 1, 1995. Mr. Single
has managed taxable bond portfolios for over a decade, and has specific
expertise in mortgage-backed securities. Prior to joining Wells Fargo Bank, in
early 1988, he was a senior portfolio manager for Benham Capital Management
Group. Mr. Single received his B.S. from Springfield College.
Administrator and Co-Administrator. The Company has retained Wells
----------------------------------
Fargo Bank as Administrator and Stephens Inc. ("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 received 0.04% and 0.02% of the average daily net assets
of each Fund for performing administration services. In connection with the
change in fees, the responsibility for performing various administration
services was shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served
as the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank.
Intermediate Bond and Short-Intermediate U.S. Government Income Funds.
----------------------------------------------------------------------
For the period indicated below, the Funds paid the following dollar amounts to
Wells Fargo Bank and Stephens for administration and co-administration fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Intermediate Bond $12,053 $2,411 $ 9,642
Short-Intermediate U.S.
Government Income $19,910 $3,982 $ 15,928
</TABLE>
23
<PAGE>
Intermediate Bond Fund. The Pacifica Intermediate Bond Fund was
----------------------
reorganized as the Company's Intermediate Bond Fund on September 6, 1996.
Prior to September 6, 1996, the Administrator, Furman Selz LLC, ("Furman
Selz"), of the Pacifica Intermediate Bond predecessor portfolio provided
management and administration services necessary for the operation of the
Fund, pursuant to an Administrative Services Contract. For these services,
Furman Selz was entitled to receive a fee, payable monthly, at the annual rate
of 0.15% of the average daily net assets of the predecessor portfolio.
For the year ended September 30, 1996, the Fund paid, after waivers,
$55,482 for administration services. This amount reflects fees paid to
Stephens, as sole Administrator to the Fund, for the period begun September 6,
1996 and ended September 30, 1996. During this time, Stephens was entitled to
receive a fee, payable monthly, at the annual rate of 0.05% of the
Intermediate Bond Fund's average daily net assets. The amount also reflects
the net administration fees paid by the predecessor portfolio to Furman Selz
for the period begun October 1, 1995 and ended September 5, 1996.
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS")
served as the Administrator for the predecessor portfolio of the Intermediate
Bond Fund. For its administration services, ALPS was entitled to receive the
dollar amounts indicated below for the periods indicated below. ALPs did not
waive any administration fees during this period. In 1995, the Fund changed
its fiscal year-end from May 31 to September 30.
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended Year Ended
9/30/95 5/31/95 5/31/94
------------- ---------- ----------
<S> <C> <C>
$9,470 $27,595 $31,800
</TABLE>
Short-Intermediate U.S. Government Income Fund. For the periods
----------------------------------------------
indicated below, the Short-Intermediate U.S. Government-Income Fund paid to
Stephens the following dollar amounts of administration fees. Stephens, as
sole Administrator for the years ended December 31, 1994, and 1995, and the
nine-month period ended September 30, 1996, was entitled to receive a fee,
payable monthly, at the annual rate of 0.03% of the Short-Intermediate U.S.
Government Fund's average daily net assets.
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
-------------- ----------- -----------
<S> <C> <C>
$12,808 $ 6,998 $ 3,522
</TABLE>
U.S. Government Income Fund. Prior to the Consolidation of the Overland
---------------------------
portfolios into the Stagecoach funds on December 12, 1997, Wells Fargo Bank and
Stephens served as Administrator and Co-Administrator, respectively, to the
Overland U.S. Government Income predecessor portfolio under substantially
similar terms to the current Administration and Co-Administration Agreements
with the Fund. Prior to February 1, 1997, Stephens served as sole Administrator
to the Overland U.S. Government Income predecessor portfolio and provided the
predecessor portfolio with essentially the same services described
24
<PAGE>
above. Stephens was entitled to receive a fee from the U.S. Government Income
Fund's predecessor portfolio at the annual rate of 0.10% of the average daily
net assets up to $200 million and 0.05% in excess of $200 million.
For the periods indicated below, the predecessor portfolio paid the
following dollar amounts to Stephens for administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
------------ ------------- -------------
<S> <C> <C>
$ 51,898 $ 37,744 $ 42,274
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center
-----------
Street, Little Rock, Arkansas 72201, serves as the distributor for the
Funds.
SHAREHOLDER SERVICING AGENT. The Funds have approved Servicing Plans
---------------------------
and have entered into related Shareholder Servicing Agreements, with financial
institutions, including Wells Fargo Bank, on behalf of the Institutional Class
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 to a shareholder may reasonably request. For providing
shareholder services, a Servicing Agent is entitled to a fee from the
applicable Fund, not to exceed 0.25%, on an annualized basis, of the average
daily net assets of the class of shares owned of record or beneficially by the
customers of the Servicing Agent during the period for which payment is being
made. The Servicing Plans and related 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 National Association of Securities Dealers, Inc. ("NASD").
For the period indicated below, the dollar amounts of shareholder
servicing fees paid, after waivers, by the Institutional Class of each Fund to
Wells Fargo Bank or its affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- -------------
<S> <C>
Intermediate Bond $53,672
Short-Intermediate U.S. Government Income $82,843
U.S. Government Income* $10,116
</TABLE>
____________________
* Represents amounts paid by the Institutional Class shares of the Stagecoach
Fund. The Overland predecessor portfolio did not have an Institutional
Class.
25
<PAGE>
Intermediate Bond Fund. For the period begun October 1, 1995 and ended
----------------------
September 5, 1996, and under similar service agreements, payments were made to
First Interstate Bancorp for the Intermediate Bond Fund. For the period begun
September 6, 1996 and ended September 30, 1996, shareholder servicing fees were
paid to Wells Fargo Bank or its affiliates.
Short-Intermediate U.S. Government Income Fund. The Short-Intermediate
----------------------------------------------
U.S. Government Income Fund did not pay any shareholder servicing fees to Wells
Fargo Bank or its affiliates for the period from its commencement of operations
on September 6, 1996 to 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 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 the 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.
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 will provide portfolio accounting services under the Custody Agreement as
follows: a monthly base fee of $2,000 plus a net asset fee at the annual rate
of 0.070% of the first $50,000,000 of the Fund's average daily net assets,
0.045% of the next $50,000,000, and 0.020% of the average daily net assets in
excess of $100,000,000.
For the six-month period ended March 31, 1997, the Intermediate Bond
and Short-Intermediate U.S. Government Income Funds did not pay any custody
fees to Wells Fargo Bank.
For the year ended December 31, 1996, the Overland predecessor
portfolio to the U.S. Government Income Fund did not pay any custody
fees.
Intermediate Bond Fund. FICAL, located at 707 Wilshire Blvd., Los
----------------------
Angeles, California 90017, acted as Custodian of the Pacifica Intermediate
Bond Fund. FICAL was entitled to receive a fee from Pacifica, computed daily
and payable monthly, at the annual rate of 0.021% of the first $5 billion in
aggregate average daily net assets of the Fund; 0.0175% of the next $5 billion
in aggregate average daily net assets of the Fund; and 0.015% of the aggregate
average daily net assets of the Fund in excess of $10 billion.
26
<PAGE>
The predecessor portfolio to the Intermediate Bond Fund did not pay
any custody fees to FICAL for the period begun October 1, 1995 and ended
September 5, 1996 and did not pay any custody fees to Wells Fargo Bank for the
period begun September 6, 1996 and ended September 30, 1996.
Short-Intermediate U.S. Government Income Fund. The Short-
----------------------------------------------
Intermediate U.S. Government Income Fund did not pay any custody fees for the
period ended September 30, 1996.
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 0.06% of each Fund's average daily net assets of the
Institutional Class 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>
Intermediate Bond $ 0
Short-Intermediate U.S. Government Income $ 0
U.S. Government Income* $ 0
</TABLE>
_______________
* Represents amounts paid by the Overland predecessor portfolio for the year
ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year.
Intermediate Bond Fund. Under the prior transfer agency agreement for
----------------------
the Intermediate Bond Fund, Wells Fargo Bank was entitled to receive monthly
payments at the annual rate of 0.07% of the average daily net assets of the
Institutional Class shares, as well as reimbursement for all reasonable out-of-
pocket expenses. Furman Selz acted as Transfer Agent for the Intermediate Bond
predecessor portfolio. Pacifica compensated Furman Selz for providing
personnel and facilities to perform transfer agency related services for
Pacifica at a rate intended to represent the cost of providing such
services.
Short-Intermediate U.S. Government Income and U.S. Government Income
--------------------------------------------------------------------
Funds. Under the prior transfer agency agreement for the Short-Intermediate
- -----
U.S. Government Income and U.S. Government Income Funds, Wells Fargo Bank was
entitled to receive a per account fee plus transaction fees and reimbursement
of out-of-pocket expenses, with a minimum of $3,000 per month per Fund, unless
net assets of the Fund were under $20 million. For as long as a Fund's assets
remained under $20 million, the Fund was not charged any transfer agency fees.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-
------------------------
deferred sales charges are not assessed in connection with the purchase and
redemption of Institutional Class shares. Therefore no underwriting
commissions were paid to Stephens as the Funds' Distributor.
27
<PAGE>
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Institutional Class shares of
the Intermediate Bond Fund for periods prior to September 6, 1996, reflects the
performance of the Institutional Class shares of the Pacifica Intermediate Bond
Fund (10/95 to 9/96) and the Westcore Bonds Plus Fund (6/88 to 9/95).
Performance shown or advertised for the Institutional Class shares of
the U.S. Government Income Fund for periods prior to December 15, 1997,
reflects the performance of the Class A shares (excluding sales charges) of
the Overland predecessor portfolio.
Performance shown or advertised for the Institutional Class shares of
the Short-Intermediate U.S. Government Income Fund for periods prior to
September 6, 1996, reflects the performance of such Fund's Class A
shares.
See "Historical Fund Information."
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total
---------------------------
return information. As and to the extent required by the SEC, an average
annual compound rate of return ("T") is computed by using the redeemable value
at the end of a specified period ("ERV") of a hypothetical initial investment
("P") over a period of years ("n") according to the following formula:
P(1+T)n=ERV.
28
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended September 30, 1997
- ------------------------------------------------------------------------------
Institutional Five Three One
Class Inception/1/ Year Year Year
-------------- ------------ ---- ----- ----
<S> <C> <C> <C> <C>
Intermediate Bond/2/ 8.14% 5.69% 7.90% 7.57%
Short-Intermediate U.S.
Government Income/2/ 5.19% N/A 7.08% 7.89%
U.S. Government Income/3/ 8.42% 6.37% 6.94% 7.06%
</TABLE>
/1/ The Intermediate Bond Fund or its predecessor commenced operations on
June 1, 1988. The Short-Intermediate U.S. Government Income Fund
commenced operations on October 27, 1993. The Institutional Class shares
of the U.S. Government Income Fund commenced operations on December
12,1997. Information for these shares for periods prior to December 15,
1997, reflects the performance of the Overland predecessor portfolio's
Class A shares, which commenced operations on April 7, 1988. The
Institutional class shares of the Short-Intermediate U.S. Government
Income Fund commenced operations on September 6, 1996.
/2/ Prior to September 6, 1996, performance figures for the Institutional
Class shares of the Short-Intermediate U.S. Government Income Fund
reflect the performance of such Fund's Class A Shares and the performance
figures for the Institutional Class shares of the Intermediate Bond Fund
reflect the performance of such Fund's predecessor portfolio.
/3/ Percentages reflect the performance of the Class A Shares of the
predecessor portfolio for the applicable period ended June 30, 1997.
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.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
Institutional Five Three
Class Inception/1/ Year Year
------------- ------------ ----- -----
<S> <C> <C> <C>
Intermediate Bond/2/ 107.50% 31.87% 25.61%
Short-Intermediate U.S.
Government Income/2/ 21.92% N/A 22.78%
U.S. Government Income/3/ 111.20% 36.17% 22.31%
</TABLE>
/1/ The Intermediate Bond Fund or its predecessor commenced operations on
June 1, 1988. The Short-Intermediate U.S. Government Income Fund
commenced operations on October 27, 1993. The Institutional Class shares
of the U.S. Government Income Fund commenced operations on December
12, 1997. Information for these shares for periods prior to December 15,
1997, reflects the performance of the Overland predecessor portfolio's
Class A shares, which commenced operations on April 7, 1988. The
Institutional class shares of the Short-Intermediate U.S. Government
Income Fund commenced operations on September 6, 1996.
/2/ Prior to September 6, 1996, performance figures for the Institutional
Class shares of the Short-Intermediate U.S. Government Income Fund
reflect the performance of such Fund's Class A Shares and the performance
figures for the Institutional Class shares of the Intermediate Bond Fund
reflects the performance of such Fund's predecessor portfolio.
/3/ Percentages reflect the performance of the Class A Shares of the
predecessor portfolio for the applicable period ended June 30, 1997.
29
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
Thirty-Day Yield
----------------
Fund After Waiver/1/ Before Waiver
---- --------------- -------------
<S> <C> <C>
Intermediate Bond 5.89% 5.45%
Short-Intermediate U.S. Government Income 5.90% 5.49%
</TABLE>
____________________
/1/ "After waiver" figures reflect any waived fees or reimbursed expenses
throughout the period.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in 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
30
<PAGE>
communicating its yields or total return to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
The yields for each class of shares will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to a Fund or to a particular class of a Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of a Fund will affect the yield of the
respective class of shares for any specified period, and such changes should
be considered together with such class' yield in ascertaining such class'
total return to shareholders for the period. Yield information for each class
of shares may be useful in reviewing the performance of the class of shares
and for providing a basis for comparison with investment alternatives. The
yield of each class of shares, however, may not be comparable to the yields
from investment alternatives because of differences in the foregoing variables
and differences in the methods used to value portfolio securities, compute
expenses and calculate yield.
From time to time and only to the extent the comparison is appropriate
for 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
the past performance of each class of shares of a Fund with the performance of
a Fund's competitors.
31
<PAGE>
Of course, past performance cannot be a guarantee of future results. The
Company also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also
be used.
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is
appropriate for each class of shares of a Fund: (i) the Consumer Price Index
may be used to assess the real rate of return from an investment in each class
of shares of a Fund; (ii) other government statistics, including, but not
limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a Fund or the general economic, business, investment,
or financial environment in which a Fund operates; (iii) the effect of tax-
deferred compounding on the investment returns of a Fund, or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax
rates) with the return on a taxable basis; and (iv) the sectors or industries
in which a Fund invests may be compared to relevant indices of stocks or
surveys (e.g., S&P Industry Surveys) to evaluate a Fund's historical
performance or current or potential value with respect to the particular
industry or sector.
The Company also may 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 a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of a Fund's shares or the suitability of a Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to 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
32
<PAGE>
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, Inc.
(formerly, Wells Fargo Investment Management), a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1997 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment advisor. The Company may
also disclose in advertising and other types of sales literature the assets
and categories of assets and mutual fund assets managed by Wells Fargo Bank.
As of December 31, 1997, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $62 billion of assets of
individuals, trusts, estates and institutions and $23 billion of mutual fund
assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account
that can be filled out completely through Electronic Channels. Advertising and
other literature may disclose that Wells Fargo Bank may maintain Web sites,
pages or other information sites accessible through Electronic Channels (an
"Information Site") and may describe the contents and features of the
Information Site and instruct investors on how to access the Information Site
and open a Sweep Account. Advertising and other literature may also disclose
the procedures employed by Wells Fargo Bank to secure information provided by
investors, including disclosure and discussion of the tools and services for
accessing Electronic Channels. Such advertising or other literature may
include discussions of the advantages of establishing and maintaining a Sweep
Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United
States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as
of the close of regular trading on each day the Funds (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
33
<PAGE>
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 in accordance with procedures adopted by the Company's Board of
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, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday
falls on a weekend, the NYSE typically is closed on the weekday immediately
before or after such Holiday.
Payment for shares may, in the discretion of the 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 a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors
such as the dealer's risk
34
<PAGE>
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 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 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Fund may purchase securities from underwriting syndicates of which
Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Investment Advisor of 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.
Brokerage Commissions. For the six-month period ended March 31, 1997,
---------------------
the Intermediate Bond and Short-Intermediate U.S. Government Income Funds did
not pay any brokerage commissions.
For the years ended December 31, 1996, December 31, 1995, and December
31, 1994, the U.S. Government Income predecessor portfolio did not pay any
brokerage commissions.
For the fiscal periods ended September 30, 1996, September 30, 1995,
May 31, 1995, and May 31, 1994, the predecessor portfolio of the Intermediate
Bond Fund did not pay any brokerage commissions.
For the years ended December 31, 1994 and 1995, and the period ended
September 30, 1996, the Short-Intermediate U.S. Government Income Fund did not
pay any brokerage commissions.
35
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1997, each Fund
------------------------------------
owned securities (pooled repurchase agreements) of its "regular brokers or
dealers" as defined in the 1940 Act or their parents, as follows:
<TABLE>
<CAPTION>
Fund Brokers/Dealers Amount
---- --------------- ------
<S> <C> <C>
Intermediate Bond Fund Goldman Sachs & Co. $1,943,000
Short-Intermediate U.S. Government
Income Fund Goldman Sachs & Co. $1,211,000
JP Morgan Securities $2,600,000
U.S. Government Income Fund Goldman Sachs & Co. $ 839,000
</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.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from
the Fund in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance. Except for the
expenses borne by Wells Fargo Bank and Stephens, the Company bears all costs
of its operations, including the compensation of its Directors who are not
affiliated with Stephens or Wells Fargo Bank or any of their affiliates;
advisory, shareholder servicing and administration fees; payments pursuant to
any Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming shares; expenses of preparing and printing Prospectuses
(except the expense of printing and mailing Prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance
premiums and certain expenses relating to insurance coverage; trade
association membership dues; brokerage and other expenses connected with the
execution of portfolio transactions; fees and expenses of its custodian,
including those for keeping books and accounts and calculating the NAV per
share of a Fund; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of a Fund's shares; pricing services,
organizational expenses and any extraordinary expenses. Expenses attributable
to the Fund are charged against Fund assets. General expenses of the Company
are allocated among all of the funds of the Company, including the Funds, 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.
36
<PAGE>
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.
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
37
<PAGE>
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 a Fund at
a market discount (generally at a price less than its principal amount) will
be treated as ordinary income to the extent of the portion of market discount
which accrued, but was not previously recognized pursuant to an available
election, during the term a Fund held the debt obligation.
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 a Fund enters into one of the
following transactions with respect to the same or substantially identical
property: (i) a short sale; (ii) an offsetting notional principal contract; or
(iii) a futures or forward contract.
Foreign Taxes. Income and dividends received by 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 a 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 a Fund to its shareholders not
later than 60 days after the close of a 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.
38
<PAGE>
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 a Fund were an individual whose
ordinary income is subject to a marginal rate of at least 28%.
Other Distributions. Although dividends will be declared daily based
-------------------
on each Fund's daily earnings, for federal income tax purposes, a Fund's
earnings and profits will be determined at the end of each taxable year and
will be allocated pro rata over the entire year. For federal income tax
purposes, only amounts paid out of earnings and profits will qualify as
dividends. Thus, if during a taxable year a Fund's declared dividends (as
declared daily throughout the year) exceed a Fund's net income (as determined
at the end of the year), only that portion of the year's distributions which
equals the year's earnings and profits will be deemed to have constituted a
dividend. It is expected that each Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost
of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a
new purchase of shares of the Fund or a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares
shall not be taken into account (to the extent such previous sales charges do
not exceed the reduction in sales charges on the new purchase) for the purpose
of determining the amount of gain or loss on the disposition, but will be
treated as having been incurred in the acquisition of such other shares. Also,
any loss realized on a redemption or exchange of shares of a 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.
39
<PAGE>
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 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.
40
<PAGE>
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 a 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 a 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, one or more 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 1-800-260-5969 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.
41
<PAGE>
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a class of shares
of the Fund, means the vote of the lesser of (i) 67% of the shares of the
class represented at a meeting if the holders of more than 50% of the
outstanding shares of the class are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the class of the Fund. The term
"majority," when referring to approvals to be obtained from shareholders of
the Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means
the vote of the lesser of (i) 67% of the Company's shares represented at a
meeting if the holders of more than 50% of the Company's outstanding shares
are present in person or by proxy, or (ii) more than 50% of the Company's
outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company. The Company
may dispense with an annual meeting of shareholders in any year in which it is
not required to elect Directors under the 1940 Act.
Each share of a class of 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
the Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular Fund or portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below, as of January 2, 1998, is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of the Institutional Class Shares of a Fund or 5% or
more of the voting securities as a whole. The term "N/A" is used where a
shareholder holds 5% or more of a class, but less than 5% of the Fund as a
whole.
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Portfolio
- ---- ---------------- --------- ---------- ------------
<C> <S> <C> <C> <C>
INTERMEDIATE Virg & Co. Institutional Class 44.12% 33.26%
BOND FUND Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep & Co. Institutional Class 53.54% 40.36%
Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91302
Virg & Co. Class A 48.37% 5.78%
c/o Wells Fargo Bank Record Holder
P. O. Box 9800 MAC 9139-027
Calabasas, CA 91372
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Type of Percentage Percentage
Fund Name and Address Ownership of Class of Portfolio
- ---- ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
SHORT- Wells Fargo Bank Class A 28.47% 9.85%
INTERMEDIATE FBO Retirement Plans Ominibus Beneficially Owned
U.S. P.O. Box 63015
GOVERNMENT San Francisco, CA 94163
INCOME Calabasas, CA 91372
FUND
U.S. Stephens Inc, For the Institutional Class 7.08% N/A
GOVERNMENT Exclusive Benefit of Our Customers Beneficially Owned
INCOME FUND 111 Center Street
Little Rock, AR 72201
Dim & Co. Institutional Class 28.86% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Virg & Co Institutional Class 34.94% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hep & Co Institutional Class 9.23% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
Wells Fargo Bank Class A 18.56% 15.97%
FBO Retirement Plans Omnibus Beneficially Owned
P. O. Box 63015
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 Fund and the exhibits filed therewith, may be examined at the office of
the U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor for
the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation
43
<PAGE>
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
Intermediate Bond and Short-Intermediate U.S. Government Income 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 U.S. Government Income Fund, the predecessor portfolio to the Company's
U.S. Government Income 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 report for the Intermediate Bond and Short-Intermediate
U.S. Government Income Funds 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' reports for the Overland U.S. Government Income Fund, the
predecessor portfolio to the Company's U.S. Government Income 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 1-800-260-
5969.
44
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned
by S&P and have "an extremely strong capacity" to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity" to pay interest and
repay principal and "differ from the highest rated obligations only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Commercial Paper
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for commercial paper is rated "in the highest
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company." This Statement of Additional Information ("SAI") contains
additional information about four funds in the Stagecoach Family of Funds (each
a "Fund" and collectively, the "Funds") -- the NATIONAL TAX-FREE MONEY MARKET
MUTUAL, PRIME MONEY MARKET MUTUAL and TREASURY MONEY MARKET MUTUAL FUNDS. This
SAI relates to the Institutional Class shares of each Fund.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated February 1, 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 calling 1-800-260-5969 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Historical Fund Information..................... 1
Investment Restrictions......................... 1
Additional Permitted Investment Activities...... 4
Risk Factors.................................... 14
Management...................................... 15
Performance Calculations........................ 25
Determination of Net Asset Value................ 30
Additional Purchase and Redemption Information.. 32
Portfolio Transactions.......................... 32
Fund Expenses................................... 34
Federal Income Taxes............................ 35
Capital Stock................................... 40
Other........................................... 43
Independent Auditors............................ 44
Financial Information........................... 44
Appendix........................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The National Tax-Free Money Market Mutual Fund was originally organized
as a fund of the Company and commenced operations on April 2, 1996. The
Institutional Class shares commenced operations on December 12, 1997.
The Prime Money Market Mutual Fund commenced operations on April 30,
1981, as Pacific American Liquid Assets, Inc. It was reorganized as the Pacific
American Money Market Portfolio, a portfolio of the Pacific American Funds, on
October 1, 1985. The Fund operated as a portfolio of Pacific American Funds
through October 1, 1994, when it was reorganized as the Pacific American Money
Market Portfolio, a portfolio of Pacifica Funds Trust ("Pacifica"). In July
1995, the Fund was renamed the Pacifica Prime Money Market Fund. On September 6,
1996, the Pacifica Prime Money Market Fund was reorganized as the Company's
Prime Money Market Mutual Fund.
The Treasury Money Market Mutual Fund commenced operations on October
1, 1985, as the Short-Term Government Fund of the Pacifica American Funds. The
Treasury Money Market Mutual Fund operated as a portfolio of the Pacific
American Funds through October 1, 1994, when it was reorganized as the Pacific
American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust. In July
1995, the Fund was renamed the Pacifica Treasury Money Market Fund. On September
6, 1996, the Pacifica Treasury Money Market Fund was reorganized as the
Company's Treasury Money Market Mutual 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 (defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the outstanding voting
securities of such Fund.
The National Tax-Free Money Market Mutual Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payment of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental entities);
(ii) obligations of the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); and (iii) the obligations of
domestic banks (for the purpose of this restriction, domestic bank obligations
do not include obligations of U.S. branches of foreign banks or obligations of
foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts
1
<PAGE>
(including futures contracts) except that the Fund may purchase securities of an
issuer which invests or deals in commodities and commodity contracts and except
that the Fund may enter into futures and options contracts in accordance with
its investment policies;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions), or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of municipal securities or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
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 borrowing in excess of 5% of its net
assets exists);
(7) write, purchase or sell puts, calls, warrants, options or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity;
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or, with respect to 100% of its
total assets the Fund's ownership would be more than 10% of the outstanding
voting securities of such issuer; nor
(9) make loans, except that the Fund may purchase or hold debt
instruments, lend its portfolio securities or enter into repurchase agreement
transactions in accordance with its investment policies.
With regard to fundamental investment restriction number (1) above, the
Fund intends to reserve freedom of action to have in excess of 25% of the value
of the respective total assets invested in obligations of the banking industry.
Regarding this fundamental concentration policy, the Fund may hold in excess of
25% of the value of the assets in obligations of the banking industry to the
extent that the Fund holds obligations with such credit enhancements as letters
of credit issued by domestic bank issuers, which will be considered to be
obligations of domestic banks. The position of the staff of the U.S. Securities
and Exchange Commission ("SEC") is that the exclusion with respect to banks may
only be applied to domestic banks. For this purpose, the staff also takes the
position that U.S. branches of foreign banks and foreign branches of domestic
banks may, if certain conditions are met, be treated as "domestic banks". The
Company currently intends to consider only obligations of "domestic banks" to be
within the exclusion with respect to bank obligations.
2
<PAGE>
Fundamental investment restriction number (8), above, is less
restrictive than Rule 2a-7 of the 1940 Act. Nonetheless, it is the operating
policy of the Fund to comply with Rule 2a-7's diversification requirements.
The Prime Money Market Mutual and Treasury Money Market Mutual Funds may not:
(1) purchase common stocks and voting securities (including state,
municipal or industrial revenue bonds) except for securities of other
investment companies;
(2) borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing. None of these Funds will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. As a matter of non-fundamental policy, each Fund
intends to limit its investments in reverse repurchase agreements to no more
than 20% of its total assets;
(3) mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of one-third of the value
of each such Fund's total assets at the time of its borrowing. Securities held
in escrow or separate accounts in connection with a Fund's investment practices
are not deemed to be pledged for purposes of this investment restriction;
(4) purchase securities on margin, except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, maintain a
short position;
(5) write put or call options;
(6) underwrite the securities of other issuers, except as each such
Fund may be deemed to be an underwriter in connection with the purchase or sale
of portfolio instruments in accordance with its investment objective and
portfolio management policies;
(7) invest in companies for the purpose of exercising control;
(8) make loans, except that each such Fund may purchase or hold debt
instruments in accordance with its investment objective and policies and may
enter into loans of portfolio securities and repurchase agreements;
(9) invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, acquisition of assets or
where otherwise permitted by the 1940 Act; nor
(10) lend its portfolio securities in excess of one-third of the value
of its total assets.
3
<PAGE>
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. 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 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(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 portfolios to brokers,
dealers and financial institutions, in amounts not to exceed (in the aggregate)
one-third of such 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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Asset-Backed Securities
-----------------------
The Prime Money Market Mutual Fund may purchase asset-backed
securities, which are securities backed by installment contracts, credit-card
receivables or other assets. Asset-backed securities represent interests in
"pools" of assets in which payments of both interest and principal on the
securities are made monthly, thus in effect "passing through" monthly payments
made by the individual borrowers on the assets that underlie the securities, net
of any fees paid to the issuer or guarantor of the securities. The average life
of asset-backed securities varies with the maturities of the underlying
instruments and is likely to be substantially less than the original maturity of
the assets underlying the securities as a result of prepayments. For this and
other reasons, an asset-backed security's stated maturity may be shortened, and
the security's total return may be difficult to predict precisely.
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Bank Obligations
----------------
The Funds, except the Treasury Money Market Mutual Fund, may invest in
bank obligations, including certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of domestic banks, foreign
subsidiaries of domestic banks, foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic savings and loan associations
and other banking institutions. With respect to such securities issued by
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, a Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities and
the possible seizure or nationalization of foreign deposits. In addition,
foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of 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, except the Treasury Money Market Mutual Fund, may invest in
commercial paper. Commercial paper includes short-term unsecured promissory
notes, variable rate demand notes and variable rate master demand notes issued
by domestic and foreign bank holding companies, corporations and financial
institutions as well as similar taxable instruments issued by government
agencies and instrumentalities.
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. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements
5
<PAGE>
between the Fund, as lender, and the borrower. The interest rates on these notes
may fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and each Fund may invest in obligations
which are not so rated only if Wells Fargo Bank determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which such Fund may invest. Wells Fargo Bank, on behalf of each Fund, considers
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. No Fund will invest
more than 10% of the value of its total net assets in floating- or variable-rate
demand obligations whose demand feature is not exercisable within seven days.
Such obligations may be treated as liquid, provided that an active secondary
market exists.
Foreign Obligations
-------------------
Each Fund, except the Treasury Money Market Mutual Fund, may invest
up to 25% of its assets in high-quality, short-term (thirteen months or less)
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations involve certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign income tax laws and there is a possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect adversely investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
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 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
6
<PAGE>
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 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.
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 hold up to
10% of its net assets in illiquid securities.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Funds (other than the Treasury Money Market Mutual
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 each such Fund may be used for
letter of credit-backed investments.
Loans of Portfolio Securities
-----------------------------
The Funds may lend their portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Funds may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed one third of the total assets of a particular Fund.
A Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. 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
7
<PAGE>
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 and fees earned from securities lending to a borrower or
a placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
Mortgage-Backed Securities
--------------------------
The Prime Money Market Mutual Fund may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). These certificates are in most
cases pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage-backed security varies with
the underlying mortgage instruments, which generally have maximum maturities of
40 years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
prepayments, mortgage refinancings or foreclosure. Mortgage prepayment rates are
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lesser or greater rate than expected. To the extent
that advisor's assumptions about prepayments are inaccurate, these securities
may expose the Funds, to significantly greater market risks than expected.
Municipal Bonds
---------------
The National Tax-Free Money Market Mutual and Prime Money Market Mutual
Funds may invest in municipal bonds. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. Municipal bonds
are debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets, and water
and sewer works. Other purposes for which municipal bonds may be issued include
the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. The Funds may not
invest more than 20% of its respective assets in industrial development bonds.
Assessment bonds, wherein a specially created district or project area levies a
tax (generally on its taxable property) to pay for an improvement or project may
be considered a variant of either
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<PAGE>
category. There are, of course, other variations in the types of municipal
bonds, both within a particular classification and between classifications,
depending on numerous factors.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Opinions relating
to the validity of municipal obligations and to the exemption of interest
thereon from federal income tax are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the Funds nor the advisor will review
the proceedings relating to the issuance of municipal obligations or the basis
for such opinions.
Certain of the municipal obligations held by a Fund may be insured as
to the timely payment of principal and interest. The insurance policies usually
are obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance does not protect against
market fluctuations caused by changes in interest rates and other factors. The
Tax-Free Funds may, from time to time, invest more than 25% of their assets in
municipal obligations covered by insurance policies.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities, including those held in a Fund's portfolio, will decline
and (if purchased at par value) sell at a discount. If interests rates fall, the
values of outstanding securities will generally increase and (if purchased at
par value) sell at a premium. Changes in the value of municipal securities held
in the Fund's portfolio arising from these or other factors will cause changes
in the net asset value per share.
Municipal Notes
---------------
The National Tax-Free Money Market Mutual Fund may invest in municipal
notes. Municipal notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes
("RANs") and construction loan notes. Notes sold as interim financing in
anticipation of collection of taxes, a bond sale or receipt of other revenues
are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes
as a result of such events as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix various
tax proceeds into a general fund that is used to meet obligations other than
those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the
9
<PAGE>
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result
of changing market evaluations of the ability of their issuers to meet the
interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in the National Tax-
Free Money Market Mutual Fund's portfolio, will decline and (if purchased at
par value) sell at a discount. If interests rates fall, the values of
outstanding securities will generally increase and (if purchased at par value)
sell at a premium. Changes in the value of municipal securities held in the
Fund's portfolio arising from these or other factors will cause changes in the
net asset value per share of the Fund.
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.
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 10% 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
10
<PAGE>
advisor. The Funds may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
Borrowing and Reverse Repurchase Agreements. The Prime Money Market
Mutual and Treasury Money Market Mutual Funds intend to limit their borrowings
(including reverse repurchase agreements) during the current fiscal year to not
more than 10% of their net assets. At the time a Fund enters into a reverse
repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such as U.S.
Government securities or other liquid high-grade debt securities having a value
equal to or greater than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
Taxable Investments
-------------------
The National Tax-Free Money Market Mutual Fund may make certain taxable
investments. Pending the investment of proceeds from sales of portfolio
securities or in anticipation of redemptions or to maintain a "defensive"
posture when, in the opinion of Wells Fargo Bank, as investment advisor, it is
advisable to do so because of market conditions, the National Tax-Free Money
Market Mutual Fund may elect to invest temporarily up to 20% of the current
value of its net assets in cash reserves including the following taxable high-
quality money market instruments: (I) U.S. Government obligations; (ii)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other obligations of domestic banks (including foreign branches) that have
more than $1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "P-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
Moreover, the National Tax-Free Money Market Mutual Fund may invest
temporarily more than 20% of its total assets in such securities and in high-
quality, short-term municipal obligations the interest on which is not exempt
from federal income taxes to maintain a temporary defensive posture or in an
effort to improve after-tax yield to the Fund's interestholders when, in the
opinion of Wells Fargo Bank, as investment advisor, it is advisable to do so
because of unusual market conditions.
Unrated and Downgraded Investments
----------------------------------
Each Fund, except the Treasury Money Market Mutual Fund, may purchase
instruments that are not rated if, in the opinion of Wells Fargo Bank as
investment advisor, such obligations are of comparable quality to other rated
investments that are permitted to be purchased by the Fund. The Fund may
purchase unrated instruments only if they are purchased in accordance with the
Fund's procedures adopted by Company's Board of Directors in accordance with
Rule 2a-7 under the 1940 Act. After purchase by the Fund, a security may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. In the event that a portfolio security ceases to be an "Eligible
Security" or no longer "presents minimal credit risks," immediate sale of such
security is not required, provided that the
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<PAGE>
Board of Directors has determined that disposal of the portfolio security would
not be in the best interests of the Fund. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies. The ratings of Moody's
and S&P are more fully described in the Appendix.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Funds may invest in obligations of agencies and instrumentalities
of the U.S. Government ("U.S. Government obligations"). The Treasury Money
Market Mutual Fund may invest only in U.S. Government obligations issued or
guaranteed by the U.S. Treasury. Payment of principal and interest on U.S.
Government obligations (i) may be backed by the full faith and credit of the
United States (as with U.S. Treasury bills and GNMA certificates) or (ii) may be
backed solely by the issuing or guaranteeing agency or instrumentality itself
(as with FNMA notes). In the latter case investors must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
The Treasury Money Market Mutual Fund may invest only in obligations
issued or guaranteed by the U.S. Treasury such as bills, notes, bonds and
certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such obligations ("U.S. Treasury obligations").
U.S. Treasury notes, bills and bonds differ mainly in the length of their
maturity. The U.S. Treasury obligations in which the Fund invests may also
include "U.S. Treasury STRIPS," interests in U.S. Treasury obligations reflected
in the Federal Reserve-Book Entry System that represent ownership in either the
future interest payments or the future principal payments on the U.S. Treasury
obligations. U.S. Treasury Strips are "stripped securities." Stripped securities
are issued at a discount to their face value and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are paid to investors. The Treasury Money Market Mutual
and Government Money Market Mutual Funds may invest in U.S. Treasury STRIPS.
The Funds may attempt to increase yields by trading to take advantage
of short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Funds since they do not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P"), Duff & Phelps Credit Rating Co., Fitch Investors
Service, Inc., Thomson Bank Watch and IBCA Inc. represent their opinions as to
the quality of debt securities. It should be emphasized, however, that
12
<PAGE>
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 Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
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 or guaranteed against loss of principal. Therefore,
you should be willing to accept some risk with money you invest in a Fund.
Although the Funds seek to maintain a stable net asset value of $1.00 per share,
there is no assurance that they will be able to do so. The Funds may not achieve
as high a level of current income as other mutual funds that do not limit their
investment to the high credit quality instruments in which the Funds invest. As
with all mutual funds, there can be no assurance that a Fund will achieve its
investment objective.
The Funds, under the 1940 Act, must comply with certain investment
criteria designed to provide liquidity, reduce risk, and allow the Funds to
maintain a stable net asset value of $1.00 per share. The Funds' dollar-weighted
average portfolio maturity must not exceed 90 days. Any security that a Fund
purchases must have a remaining maturity of not more than 397 days (13 months).
In addition, any security that a Fund purchases must present minimal credit
risks and be of "high quality," or in the case of the Treasury Money Market
Mutual Fund, be of the "highest quality." "High quality" means to be rated in
the top two rating categories and "highest quality" means to be rated only in
the top rating category, by the requisite NRSROs or, if unrated, determined to
be of comparable quality to such rated securities by Wells Fargo Bank, as the
Funds' investment advisor, under guidelines adopted by the Board of Directors of
the Company.
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers and the Funds are considered to be diversified for purposes of
the 1940 Act. In addition, the Funds emphasize safety of principal and high
credit quality. In particular, the internal investment policies of the
investment advisor prohibit the purchase
13
<PAGE>
of many types of floating-rate derivative securities that are considered
potentially volatile. The following types of derivative securities ARE NOT
permitted investments for the Funds:
o capped floaters (on which interest is not paid when market
rates move above a certain level);
o leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
o range floaters (which do not pay any interest if market
interest rates move outside of a specified range);
o dual index floaters (whose interest rate reset provisions
are tied to more than one index so that a change in the
relationship between these indices may result in the value
of the instrument falling below face value); and
o inverse floaters (which reset in the opposite direction of
their index).
Additionally, the Funds may not invest in securities whose interest
rate reset provisions are tied to an index that materially lags short-term
interest rates, such as Cost of Funds Index floaters. The Funds may invest only
in variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Money Market Mutual Fund restricts its investment to U.S.
Treasury obligations that meet all of the standards described above. Obligations
issued or guaranteed by the U.S. Treasury have historically involved little risk
of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such obligations may vary during the period
a shareholder owns shares of the Fund. It should be noted that neither the
United States, nor any agency or instrumentality thereof, has guaranteed,
sponsored or approved the Fund or its shares.
The portfolio debt instruments of the Funds are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Funds invest may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Funds invest
and hence the value of your investment in a Fund.
Generally, securities in which the Funds invest will not earn as high
a yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. Each Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that a
Fund will always be able to do so.
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,
14
<PAGE>
Little Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal
55 Francisco Street Geyser Roxane Water Company since 1977.
San Francisco, CA 94133
(As of 1/1/98)
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Joseph N. Hankin Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance Properties Ltd.;
President of Morse Investment Corporation;
and Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and
Secretary and Director of Capo Inc.
Treasurer
</TABLE>
15
<PAGE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 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 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.
16
<PAGE>
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>
National Tax-Free Money Market Mutual 0.30%
Prime Money Market Mutual 0.25%
Treasury Money Market Mutual 0.25%
</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:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
National Tax-Free Money Market Mutual $ 19,989 $ 0
Prime Money Market Mutual $1,311,073 $568,969
Treasury Money Market Mutual $1,518,347 $751,971
</TABLE>
National Tax-Free Money Market Mutual Fund. Prior to the Consolidation,
-------------------------------------------
the National Tax-Free Money Market Mutual Fund invested all of its assets in a
corresponding Master Portfolio of Master Investment Trust ("MIT") and did not
retain an investment advisor. Wells Fargo Bank served as investment advisor to
the Master Portfolio in which the Fund invested and was entitled to receive a
monthly fee at the annual rate of 30% of the Master Portfolio's average daily
net assets.
For the period begun April 2, 1996 (commencement of operations) and
ended September 30, 1996, the National Tax-Free Money Market Mutual Fund paid to
Wells Fargo Bank $76,987 in advisory fees and $10,704 in advisory fees were
waived during this period.
17
<PAGE>
Prime Money Market Mutual and Treasury Money Market Mutual Funds. The
-----------------------------------------------------------------
Pacifica Prime Money Market and Treasury Money Market Funds were reorganized as
the Company's Prime Money Market Mutual and Treasury Money Market Mutual Funds
on September 6, 1996. Prior to September 6, 1996, Wells Fargo Investment
Management, Inc. ("WFIM") and its predecessor, First Interstate Capital
Management, Inc. ("FICM") served as advisor to the Pacifica Prime Money Market
and Treasury Money Market Funds. As of September 6, 1996, Wells Fargo Bank
became the advisor to the Company's Prime Money Market Mutual and Treasury Money
Market Mutual Funds.
For the period begun April 1, 1996 and ended September 5, 1996, the
predecessor portfolios paid to WFIM, and for the period begun September 6, 1996,
and ended September 30, 1996, the Funds paid to Wells Fargo Bank, the advisory
fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended
9/30/96
----------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Prime Money Market Mutual $1,845,269 $1,553,968
Treasury Money Market Mutual $2,442,922 $2,073,426
</TABLE>
For the periods indicated below, the advisory fees paid to the former
advisor by the predecessor portfolios of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds were as shown below. These amounts reflect
voluntary fee waivers and expense reimbursements by the advisor. Prior to
October 1, 1994, all of these fees were, in turn, paid by the advisor to its
affiliates who served as investment sub-advisors during the periods
indicated.
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
---- ---------- ------------ ----------
<S> <C> <C> <C>
Prime Money Market Mutual $ 693,315 $330,715 $737,811
Treasury Money Market Mutual $ 1,160,424 $454,029 $900,919
</TABLE>
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.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells
-----------------------------------
Fargo Bank as Administrator and Stephens Inc. ("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 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,
18
<PAGE>
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 received 0.04% and 0.02% of the average daily net assets of each
Fund for performing administration services. In connection with the change in
fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served
as the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank.
For the period indicated below, the Funds paid the following dollar
amounts to Wells Fargo Bank and Stephens for administration and
co-administration fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
-----------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
National Tax-Free Money Market Mutual $ 3,744 $ 749 $ 2,995
Prime Money Market Mutual $400,123 $80,025 $320,098
Treasury Money Market Mutual $483,198 $96,640 $386,558
</TABLE>
National Tax-Free Money Market Mutual Fund. For the period begun April
-------------------------------------------
2, 1996 and ended September 30, 1996, Stephens served as sole Administrator to
the National Tax-Free Money Market Mutual Fund, and received $731 in
administration fees. Stephens was entitled to receive a monthly fee at the
annual rate of 0.05% of the Fund's average daily net assets for such
services.
Prime Money Market Mutual and Treasury Money Market Mutual Funds. The
-----------------------------------------------------------------
Pacifica Prime Money Market and Treasury Money Market Funds were reorganized as
the Company's Prime Money Market Mutual and Treasury Money Market Mutual Funds
on September 6, 1996. Prior to September 6, 1996, the Administrator, Furman Selz
LLC ("Furman Selz"), of the Pacifica 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 predecessor portfolios.
19
<PAGE>
The predecessor portfolios of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds were administered through April 21, and April
14, 1996, respectively, by the Dreyfus Corporation ("Dreyfus"), at the annual
rate of 0.10% of each such Fund's average daily net assets.
For the periods begun September 6, 1996 and ended September 30, 1996
and October 1, 1996 to January 31, 1997, Stephens served as each Fund's sole
Administrator and was entitled to receive a fee, payable monthly, at the annual
rate of 0.05% of each Fund's average daily net assets.
The following table reflects the administration fees which the
respective Administrators of the Funds and their predecessor portfolios were
paid during the fiscal year ended September 30, 1996. These amounts also reflect
the net administration fees paid to the respective former Administrator of the
predecessor portfolios during the period begun October 1, 1995 and ended
September 5, 1996.
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Prime Money Market Mutual $1,230,872
Treasury Money Market Mutual $1,745,759
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period
ended September 30, 1994 and the fiscal year ended March 31, 1994, the
administration fees paid to Dreyfus by the predecessor portfolios of the Prime
Money Market Mutual Fund and the Treasury Money Market Mutual Fund were as
follows:
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
---- ---------- ------------ ----------
<S> <C> <C> <C>
Prime Money Market Mutual $577,763 $275,596 $614,901
Treasury Money Market Mutual $921,886 $347,499 $690,137
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor") located at 111 Center
------------
Street, Little Rock, Arkansas 72201, serves as the distributor for the
Funds.
SHAREHOLDER SERVICING AGENT. The Prime Money Market Mutual and
----------------------------
Treasury Money Market Mutual Funds have approved Servicing Plans and have
entered into related Shareholder Servicing Agreements, on behalf of the
Institutional Class shares, with financial institutions, including Wells Fargo
Bank. The National Tax-Free Money Market Mutual Fund has also entered into a
Shareholder Servicing Agreement. Under the agreement, Shareholder Servicing
Agents (including Wells Fargo Bank) agree to perform, as agents for their
customers, administrative services, with respect to Fund shares, which include
aggregating and transmitting shareholder orders for purchases, exchanges and
redemptions; maintaining shareholder accounts and records; and providing such
other related services as the Company or a shareholder may reasonably request.
For providing shareholder services, a Servicing Agent is entitled to a fee from
the Prime Money Market Mutual and Treasury Money Market Mutual Funds, not to
exceed 0.25%, and from the National Tax-Free Money Market Mutual Fund, not to
exceed 0.20%, on an annualized basis, of the average daily net assets of the
class of shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. The Servicing
Plans
20
<PAGE>
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 National Association of
Securities Dealers, Inc. ("NASD").
For the periods indicated below, the dollar amounts of shareholder
servicing fees paid, after waivers, by the Funds (on behalf of the Institutional
Class shares) to Wells Fargo Bank or its affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended Year Ended
Fund 3/31/97 9/30/96
---- ------------ ----------
<S> <C> <C>
Prime Money Market Mutual $ 0 $ 0
Treasury Money Market Mutual $ 0 $ 0
</TABLE>
Prime Money Market Mutual and Treasury Money Market Mutual Funds. For
-----------------------------------------------------------------
the period begun October 1, 1995 and ended September 5, 1996, and under similar
service agreements with certain institutions, including affiliates of FICM,
shareholder servicing fees were paid to various institutions for the Funds. For
the period begun September 6, 1996 and ended September 30, 1996, shareholder
servicing fees were paid to Wells Fargo Bank or its affiliates.
General. Each Servicing Plan will continue in effect from year to year
--------
if such continuance is approved by a majority vote of both the Directors of the
Company, 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 the 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.
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 will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
21
<PAGE>
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>
National Tax-Free Money Market Mutual $ 0
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
</TABLE>
National Tax-Free Money Market Mutual Fund. For the nine-month period
-------------------------------------------
ended September 30, 1996, the Money Market Mutual and National Tax-Free Money
Market Mutual Fund did not pay any custody fees to Wells Fargo Bank.
Prime Money Market Mutual and Treasury Money Market Mutual Funds.
-----------------------------------------------------------------
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017, acted as
Custodian of the Pacifica Prime Money Market and Treasury Money Market 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:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Prime Money Market Mutual $ 73,023/*/
Treasury Money Market Mutual $252,183
</TABLE>
_________________
* The amount reflects fee waivers.
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 0.02% of each Fund's average daily net assets of Institutional Class
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>
National Tax-Free Money Market Mutual $ 0
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
</TABLE>
22
<PAGE>
National Tax-Free Money Market Mutual Fund. Under the prior transfer
-------------------------------------------
agency agreement for the National Tax-Free Money Market Fund, Wells Fargo Bank
was entitled to receive monthly payments at the annual rate of 0.10% of the
Fund's average daily net assets plus reimbursement for all reasonable out-of-
pocket expenses.
For the nine-month period ended September 30, 1996, the National
Tax-Free Money Market Mutual Fund did not pay any compensation for transfer and
dividend disbursing agency services.
Prime Money Market Mutual and Treasury Money Market Mutual Funds.
-----------------------------------------------------------------
Under the prior transfer agency agreement for the Institutional Class shares of
the Prime Money Market and Treasury Money Market Mutual Funds in effect prior to
February 1, 1997, Wells Fargo Bank was entitled to receive monthly payments at
the annual rate of 0.02% of the average daily net assets of the Institutional
Class shares of each Fund, as well as reimbursement for all reasonable out-of-
pocket expenses. Furman Selz acted as Transfer Agent for the predecessor
portfolios. Pacifica compensated Furman Selz for providing personnel and
facilities to perform transfer agency related services for Pacifica at a rate
intended to represent the cost of providing such services.
UNDERWRITING COMMISSIONS. Front-end sales loads and
--------------------------
contingent-deferred sales charges are not assessed in connection with the
purchase and redemption of Institutional Class shares. Therefore no underwriting
commissions are paid to Stephens as the Funds' Distributor.
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Institutional Class shares of
the National Tax-Free Money Market Mutual Fund for periods prior to December 15,
1997, reflects the performance of the Fund's Class A shares, which commenced
operations on April 2, 1996.
23
<PAGE>
Performance shown or advertised for the Institutional Class shares of
the Prime Money Market Mutual and Treasury Money Market Mutual Funds for periods
prior to September 6, 1996, reflects the performance of the Institutional Class
shares of the Pacifica predecessor portfolio, and for periods prior to August
11, 1995, reflects the performance of the Service Class shares of the
corresponding Pacifica predecessor portfolio.
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total
---------------------------
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula:
P(1+T)n=ERV.
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable
Period Ended September 30, 1997
----------------------------------------------
Institutional Five Three One
Class Inception Year Year Year
------------- --------- ---- ----- ----
<S> <C> <C> <C> <C>
National Tax-Free Money Market Mutual 3.15% N/A N/A 3.24%
Prime Money Market Mutual 7.27% 4.55% 5.47% 5.46%
Treasury Money Market Mutual 5.72% 4.41% 5.31% 5.30%
</TABLE>
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.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable
Period Ended September 30, 1997
------------------------------------------
Institutional Five Three
Class Inception Year Year
------------- --------- ---- -----
<S> <C> <C> <C>
National Tax-Free Money Market Mutual 4.77% N/A N/A
Prime Money Market Mutual 218.46% 24.94% 17.32%
Treasury Money Market Mutual 94.62% 24.06% 16.78%
</TABLE>
YIELD CALCULATIONS: The Funds may, from time to time, include their
-------------------
yields, tax-equivalent yields (if applicable) 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
24
<PAGE>
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.
TAX-EQUIVALENT YIELD: Quotations of tax-equivalent yield for a
---------------------
Tax-Free Fund are calculated according the following formula:
TAX EQUIVALENT YIELD = ( E ) + t
---
1 - p
E = Tax-exempt yield
p = stated income tax rate
t = taxable yield
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 seven-day (or 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 365/7 (or
365/30 for thirty-day yield), 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 Seven-Day Yield = [(Base Period Return +1)365/7]-1.
<TABLE>
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
Seven-Day Seven-Day Seven-Day Thirty-Day
Seven-Day Effective Tax-Equivalent Tax-Equivalent Thirty-Day Tax-Equivalent
Fund Yield Yield Yield/1/ Effective Yield/1/ Yield Yield/1/
- ---- --------- --------- -------------- ------------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
National Tax-Free Money
Market Mutual 3.23% 3.28% 4.49% 4.56% 3.00% 4.17%
Prime Money Market
Mutual 5.46% 5.61% N/A N/A 5.44% N/A
Treasury Money Market
Mutual 5.16% 5.30% N/A 9.86% 5.26% N/A
</TABLE>
____________________
/1/ Based on a combined state and federal income tax rate of 28.00%.
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
25
<PAGE>
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 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
26
<PAGE>
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, Inc.
(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 advisor. 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 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 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 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
27
<PAGE>
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 the Institutional Class shares of the
Prime Money Market Mutual and Treasury Money Market Mutual Funds is determined
as of 12:00 noon and 1:00 p.m. (Pacific time) on each day the Fund is open for
business. Net asset value per share for the Institutional shares of the National
Tax-Free Money Market Mutual Fund is determined as of 9:00 a.m. and 1:00 p.m.
(Pacific time) on each day the Fund 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.
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Funds would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Funds' portfolio on a particular
day, a
28
<PAGE>
prospective investor in the Funds would be able to obtain a somewhat higher
yield than would result from investment in a fund using solely market values,
and existing Fund shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (as
defined in Rule 2a-7) of thirteen months or less and invest only in those high-
quality securities that are determined by the Board of Directors to present
minimal credit risks. The maturity of an instrument is generally deemed to be
the period remaining until the date when the principal amount thereof is due or
the date on which the instrument is to be redeemed. However, Rule 2a-7 provides
that the maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. It is the intention of the Funds to maintain
a per share net asset value of $1.00, but there can be no assurance that each
Fund will do so.
Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
29
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business (a
"Business Day"). The Funds are open Monday through Friday and are closed on
federal bank holidays. Currently, those holidays are New Year's Day, President's
Day, Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
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 Funds for any
losses sustained by reason of the failure of a shareholders to make full payment
for shares purchased or to collect any charge relating to a transaction effected
for the benefit of a shareholder which is applicable to shares of a Fund.
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 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
30
<PAGE>
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 Commission or an exemption is otherwise available. The Funds 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 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.
Brokerage Commissions. The Funds did not pay any brokerage commissions
----------------------
on portfolio transactions for the nine-month period ended September 30, 1996 and
the six-month period ended March 31, 1997.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Funds
-------------------------------------
owned securities of their "regular brokers or dealers" or their parents, as
defined in the Act as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- ---- -------------- ------
<S> <C> <C>
Money Market Mutual Fund Goldman Sachs & Co. $324,580,500
Merrill Lynch $244,186,473
J.P. Morgan Securities $ 56,309,000
Morgan Stanley $ 24,466,000
National Tax-Free Money None None
Market Mutual Fund
Prime Money Market Mutual Goldman Sachs & Co. $ 72,419,000
J.P. Morgan Securities $ 15,000,000
Morgan Stanley $ 15,000,000
Treasury Money Market Goldman Sachs & Co. $172,575,000
Mutual Fund J.P. Morgan Securities $232,766,000
Morgan Stanley $156,530,000
</TABLE>
31
<PAGE>
Portfolio Turnover. The portfolio turnover rate is not a limiting
-------------------
factor when Wells Fargo Bank deems portfolio changes appropriate. Changes may be
made in the portfolios consistent with the investment objectives and policies of
the 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 Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of a Fund; expenses
of shareholders' meetings; expenses relating to the issuance, registration and
qualification of a Fund's shares; pricing services, and any extraordinary
expenses. Expenses attributable to a Fund are charged against a Fund assets.
General expenses of the Company are allocated among all of the funds of the
Company, including a Fund, in a manner proportionate to the net assets of each
Fund, on a transactional basis, or on such other basis as the Company's Board of
Directors deems equitable.
FEDERAL INCOME TAXES
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
32
<PAGE>
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.
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
33
<PAGE>
(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.
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%.
Other Distributions. Although dividends will be declared daily based on
-------------------
each Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year a Fund's declared dividends (as declared daily throughout
the year) exceed the Fund's net income (as determined at the end of the year),
only that portion of the year's distributions which equals the year's earnings
and profits will be deemed to have constituted a dividend. It is expected that
each Fund's net income, on an annual basis, will equal the dividends declared
during the year.
34
<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. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations had been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do 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
35
<PAGE>
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 (except the National Tax-
------------------
Free Money Market Mutual 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.
Special Tax Considerations for National Tax Free Money Market Mutual
--------------------------------------------------------------------
Fund. The National Tax-Free Money Market Mutual Fund intends that at least 50%
- ----
of the value of its total assets at the close of each quarter of its taxable
years will consist of obligations, the interest on which is exempt from federal
income tax, so that it will qualify under the Code to pay "exempt-interest
dividends." The portion of total dividends paid by the National Tax-Free Money
Market Mutual Fund with respect to any taxable year that constitutes exempt-
interest dividends will be the same for all shareholders receiving dividends
during such year. Long-term and/or short-term capital gain distributions will
not constitute exempt-interest dividends and will be taxed as capital gain or
ordinary income dividends, respectively. The exemption of interest income
derived from investments in tax-exempt obligations for federal income tax
purposes may not result in a similar exemption under the laws of a particular
state or local taxing authority.
36
<PAGE>
Not later than 60 days after the close of its taxable year, the National
Tax-Free Money Market Mutual Fund will notify its shareholders of the portion of
the dividends paid with respect to such taxable year which constitutes exempt-
interest dividends. The aggregate amount of dividends so designated cannot
exceed the excess of the amount of interest excludable from gross income under
Section 103 of the Code received by the Fund during the taxable year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred to purchase or carry shares of the National
Tax-Free Money Market Mutual Fund will not be deductible to the extent that the
Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that the National Tax-Free Money Market
Mutual Fund invests in private activity bonds, its shareholders who pay AMT will
be required to report that portion of Fund dividends attributable to income from
the bonds as a tax preference item in determining their AMT. Shareholders will
be notified of the tax status of distributions made by the National Tax-Free
Money Market Mutual Fund. Persons who may be "substantial users" (or "related
persons" of substantial users) of facilities financed by private activity bonds
should consult their tax advisors before purchasing National Tax-Free Money
Market Mutual Fund shares. Furthermore, shareholders will not be permitted to
deduct any of their share of the Fund's expenses in computing their AMT. With
respect to a corporate shareholder of the National Tax-Free Money Market Mutual
Fund, exempt-interest dividends paid by the Fund is included in the corporate
shareholder's "adjusted current earnings" as part of its AMT calculation, and
may also affect its federal "environmental tax" liability. As of the printing of
this SAI, individuals are subject to an AMT at a maximum rate of 28% and
corporations at a maximum rate of 20%. Shareholders with questions or concerns
about AMT should consult their own tax advisors.
Shares of the National Tax-Free Money Market Mutual Fund would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such
plans and accounts are generally tax-exempt and, therefore, would not benefit
from the exempt status of dividends from the Fund. Such dividends would be
ultimately taxable to the beneficiaries when distributed to them.
Investors are advised to consult their tax advisors concerning the
application of state and local taxes, which may have different consequences from
those under federal income tax law.
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.
37
<PAGE>
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the federal income tax
considerations generally affecting investments in 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 1-800-260-5969 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 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 each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other Series to approve the proposal as to
those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. 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.
38
<PAGE>
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
or class are entitled to receive the assets attributable to the Fund or class
that are available for distribution, and a distribution of any general assets
not attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of January 2, 1998, is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of the Institutional Class shares of each Fund or 5% or
more of the voting securities of each 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.
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
Class; Type Percentage Percentages
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NATIONAL TAX- Wells Fargo Bank Class A
FREE MONEY FBO Money Market Checking Beneficially Owned 86.40% 29.14%
MARKET MUTUAL Omnibus Acct.
FUND P.O. Box 7066
San Francisco, CA 94120
PRIME MONEY Wells Fargo Bank Institutional Class 12.28% N/A
MARKET MUTUAL Attn: Investment Sweep T-15 Record Holder
FUND 1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg & Co. Institutional Class 40.44% 8.87%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Institutional Class 13.79% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Dailey Petroleum Service Corp. Institutional Class 6.06% N/A
P.O. Box 1863 Record Holder
Conroe, TX 77305
Virg. & Co. Class A 27.05% 8.18%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Class; Type Percentage Percentages
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Hare & Co. Class A 34.78% 10.52%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Omnibus Account 2 Class A
Attn: Zoe Hines Record Holder 26.93% 8.15%
c/o Stephens Inc.
P.O. Box 3507
Little Rock, AR 72203
Virg & Co. Service Class
Attn: MF Dept. A88-4 Record Holder 30.28% 5.08%
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co Service Class
Bank of New York Record Holder 48.58% 8.15%
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
TREASURY Wells Fargo Bank Institutional Class 33.23% 7.28%
MONEY MARKET Attn: Investment Sweep T-15 Record Holder
MUTUAL FUND 1300 S.W. Fifth Avenue
Portland, OR 97201-5688
VIRG & Co. Institutional Class 34.83% 7.63%
Attn: MF Dept. ABB-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Castle Tower Holding Corporation Institutional Class 9.92% N/A
510 Bering Drive, STE 310 Record Holder
Houston, TX 77057
Hare & Co Institutional Class 8.79% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Virg & Co. Class A 36.06% 6.22%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800-
WFB-Wholesale Sweep Class A 30.18% 5.21%
155 Fifth St. MAC 0106-066 Record Holder
San Francisco, CA 94103
Hare & Co Class E 100.00% 32.54%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Class; Type Percentage Percentages
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Hare & Co Service Class 66.94% 13.47%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund) or is identified as the holder of
record or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (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 ("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
six-month period ended September 30, 1997, are hereby incorporated by reference
to the Company's Semi-Annual Reports as filed with the SEC on December 5, 1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the six-month period ended
March 31, 1997, are hereby incorporated by reference to the Company's Annual
Reports as filed with the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-
5969.
41
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
- ---------------
S&P: The two highest ratings for corporate notes are "SP-1" and "SP-2."
The "SP-1" rating reflects a "very strong or strong capacity to pay principal
and interest." Notes issued with "overwhelming safety characteristics" will be
rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to pay
principal and interest.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
MONEY MARKET MUTUAL FUND
Class S
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
information about one Fund in the Stagecoach Family of Funds -- the Money Market
Mutual Fund (the "Fund"). This SAI relates to the Class S shares of the
Fund.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated February 1, 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 calling 1-800-222-8222 or by
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
Historical Fund Information............................................. 1
Investment Restrictions................................................. 1
Additional Permitted Investment Activities.............................. 3
Risk Factors............................................................ 8
Management.............................................................. 10
Performance Calculations................................................ 17
Determination of Net Asset Value........................................ 23
Additional Purchase and Redemption Information.......................... 24
Portfolio Transactions.................................................. 25
Fund Expenses........................................................... 26
Federal Income Taxes.................................................... 27
Capital Stock........................................................... 31
Other................................................................... 33
Independent Auditors.................................................... 33
Financial Information................................................... 33
Appendix................................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Money Market Mutual Fund was originally organized as a fund of the
Company. The Fund commenced operations on July 1, 1992. The Class S shares of
the Fund commenced operations on May 25, 1995.
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 (the "1940 Act") of the outstanding voting securities of the Fund.
The Money Market Mutual Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in (i) the obligations of the United
States Government, its agencies or instrumentalities, and (ii) the obligations
of domestic banks (for the purpose of this restriction, domestic bank
obligations do not include obligations of U.S. branches of foreign banks or
obligations of foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited partnerships
(other than money market securities or other securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein), commodities or commodity contracts (including
futures contracts);
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets
1
<PAGE>
(but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets);
(7) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Funds may purchase securities with put
rights in order to maintain liquidity; nor
In addition, the Fund may not make loans of portfolio securities or other
assets, except that loans for purposes of this restriction will not include the
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in public or private offerings.
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of such Fund's shareholders.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Fund's investment in such securities currently is
limited to , subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to any
one investment company, and (iii) 10% of the Fund's net assets in the aggregate.
Other investment companies in which the Fund invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by the Fund.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign branches of U.S. Banks and U.S. Branches of foreign banks that are
denominated in and pay interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios 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.
2
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Bank Obligations
----------------
The Fund may invest in bank obligations, including certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, the Fund may
be subject to additional investment risks that are different in some respects
from those incurred by the Fund which invests only in debt obligations of U.S.
domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on
income (including interest, distributions and disposition proceeds), the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities and the possible seizure or nationalization of
foreign deposits. In addition, foreign branches of U.S. banks and foreign banks
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. 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 Fund may invest in commercial paper. Commercial paper includes short-
term unsecured promissory notes, variable rate demand notes and variable rate
master demand notes issued by domestic and foreign bank holding companies,
corporations and financial institutions as well as similar taxable instruments
issued by government agencies and instrumentalities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Fund may purchase floating- and variable-rate obligations. The Fund
may purchase floating- and variable-rate demand notes and bonds. These
obligations may have stated
3
<PAGE>
maturities in excess of thirteen months, but they permit the holder to demand
payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable-rate demand notes include master demand notes that are
obligations that permit the Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these notes may fluctuate from
time to time. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Fund may invest. Wells Fargo Bank, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and variable-
rate demand obligations in such Fund's portfolio. The Fund will not invest more
than 10% of the value of its total net assets in floating- or variable-rate
demand obligations whose demand feature is not exercisable within seven days.
Such obligations may be treated as liquid, provided that an active secondary
market exists.
Foreign Obligations
-------------------
The Fund may invest up to 25% of its assets in high-quality, short-term
(thirteen months or less) debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign income tax laws and
there is a possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments that could affect adversely
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those
countries.
4
<PAGE>
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
------------
The Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Fund will generally purchase securities with the intention of acquiring them,
the Fund may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
adviser.
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.
Illiquid Securities
-------------------
The Fund may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to the Fund. The Fund may hold up to 10% of
its assets in net illiquid securities.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.
Loans of Portfolio Securities
-----------------------------
The Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and obtain the return of the securities loaned within five business
days; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one third of the total assets of the Fund.
5
<PAGE>
The Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Fund may pay reasonable
finders, administrative and custodial fees. The Fund will not enter into any
security lending arrangement having a duration longer than one year. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. In either case, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. When the Fund lends its securities,
it continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the collateral received from the borrower or
from the investment of cash collateral in readily marketable, high-quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by the Fund if a material
event affecting the investment is to occur. The Fund may pay a portion of the
interest and fees earned from securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with Wells Fargo Bank, Stephens Inc. or any of their
affiliates.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund invest can be expected to charge fees for
operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Fund.
Repurchase Agreements
---------------------
The Fund may enter into repurchase agreements, wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. The Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, the Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% 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
6
<PAGE>
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors and that are not affiliated with the investment adviser. The
Fund may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Unrated and Downgraded Investments
----------------------------------
The Fund may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank the investment adviser, such obligations are of comparable
quality to other rated investments that are permitted to be purchased by the
Fund. The Fund may purchase unrated instruments only if they are purchased in
accordance with the Fund's procedures adopted by Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by the Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. In the event that a portfolio security
ceases to be an "Eligible Security" or no longer "presents minimal credit
risks," immediate sale of such security is not required, provided that the Board
of Directors has determined that disposal of the portfolio security would not be
in the best interests of the Fund. To the extent the ratings given by Moody's
or S&P may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies. The ratings of Moody's
and S&P are more fully described in the Appendix.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Fund may invest in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). Payment of principal and
interest on U.S. Government obligations (i) may be backed by the full faith and
credit of the United States (as with U.S. Treasury bills and GNMA certificates)
or (ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
7
<PAGE>
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc., Thomson
Bank Watch and IBCA Inc. represent their opinions as to the quality of debt
securities. It should be emphasized, however, that ratings are general and not
absolute standards of quality, and debt securities with the same maturity,
interest rate and rating may have different yields while debt securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase by the Fund, an issue of debt securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The adviser will consider such an event in determining
whether the Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC") and
are not insured or guaranteed against loss of principal. Therefore, you should
be willing to accept some risk with money you invest in the Fund. Although the
Fund seeks to maintain a stable net asset value of $1.00 per share, there is no
assurance that it will be able to do so. The Fund may not achieve as high a
level of current income as other mutual funds that do not limit their investment
to the high credit quality instruments in which the Fund invests. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days (13 months).
In addition, any security that the Fund purchases must present minimal credit
risks and be of "high quality." "High quality" means to be rated in the top two
rating categories and "highest quality" means to be rated only in the top rating
category, by the requisite NRSROs or,
8
<PAGE>
if unrated, determined to be of comparable quality to such rated securities by
Wells Fargo Bank, as the Fund's investment adviser, under guidelines adopted by
the Board of Directors of the Company.
The Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Fund is considered to be diversified for purposes
of the 1940 Act. In addition, the Fund emphasizes safety of principal and high
credit quality. In particular, the internal investment policies of the
investment adviser prohibit the purchase of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates move
above a certain level);
. leveraged floaters (whose interest rate reset provisions are based on
a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
. inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Fund may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The portfolio debt instruments of the Fund are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Fund invests may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which the Fund
invests and hence the value of your investment in the Fund.
Generally, securities in which the Fund invests will not earn as high a
yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. The Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that
the Fund will always be able to do so.
9
<PAGE>
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
10
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
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 Vice President of Stephens Inc.; Director of
Operating Stephens Sports Management Inc.; and Director
Officer, of Capo Inc.
Secretary and
Treasurer
</TABLE>
11
<PAGE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $ 11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $ 11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes
Director $ 9,250 $27,750
Robert M. Joses
Director $ 11,250 $33,750
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 the 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 The 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
12
<PAGE>
Directors do not receive any retirement benefits or deferred compensation from
the Company or any other member of the Fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Adviser. Wells Fargo Bank provides investment advisory services
------------------
to the Fund. As investment adviser, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of the Fund. Wells
Fargo Bank provides the Fund with, among other things, money market security and
fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.40% of the Fund's average daily
net assets.
For the periods indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six-Month Nine-Month
Period Ended Period Ended Year Ended Year Ended
3/31/97 9/30/96 12/31/95 12/31/94
--------- --------- ---------- ----------
Fees Fees Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived Waived Paid
---- ------ ---- ------ ---- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
$8,856,102 $979,244 $12,729,506 $0 $11,593,678 $0 $2,073,686 $2,008,946
</TABLE>
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Administrator and Co-Administrator. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Fund's operations, including coordination of the services performed by
the Fund's investment adviser, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the
13
<PAGE>
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 0.03% and 0.04% respectively, of the average daily net assets
of the Fund. Prior to February 1, 1998, the Administrator and Co-Administrator
were entitled to receive a monthly fee at the annual rate of 0.04% and 0.02%,
respectively, of the Fund's average daily net assets. In connection with the
change in fees, the responsibility for performing various administration
services was shifted to the Co-Administrator.
Prior to February 1, 1997, Stephens served as sole Administrator and
performed substantially the same services now provided by Stephens and Wells
Fargo Bank. Stephens was entitled to receive for its services a fee, payable
monthly, at the annual rate of 0.03% of the Fund's average daily net
assets.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
<TABLE>
<CAPTION>
Six-Month Period Ended 3/31/97
------------------------------
Total Wells Fargo Stephens
----- ----------- --------
<S> <C> <C>
$980,282 $196,056 $784,226
</TABLE>
For the nine-month period ended September 30, 1996 and the fiscal years
ended December 31, 1995 and 1994, the Fund paid to Stephens the dollar amounts
of administration fees indicated below.
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
------------- ----------- -----------
<S> <C> <C>
$872,577 $954,713 $306,209
</TABLE>
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 the Class S shares. The Plan was adopted
by the Company's Board of Directors, including a majority of the Directors who
were not "interested persons" (as defined in the 1940 Act) of the Fund and who
had no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the related Distribution Agreement, the Fund
may pay Stephens, as compensation for distribution-related services or as
reimbursement for distribution-related expenses, a monthly fee at an annual rate
of up to 0.75% of the Fund's average daily net assets attributable to Class S
shares.
14
<PAGE>
The actual fee payable to the Distributor by the Fund is determined, within
such limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD") under the Conduct Rules of the NASD. The Distributor may enter into
selling agreements with one or more selling agents (which may include Wells
Fargo Bank and its affiliates) under which such agents may receive compensation
for distribution-related services from the Distributor, including, but not
limited to, commissions or other payments to such agents based on the average
daily net assets of Fund shares attributable to their customers. The
Distributor may retain any portion of the total distribution fee payable
thereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
For the six month period ended March 31, 1997, the nine month period
ended September 30, 1996 the Fund's distributor received the following amounts
of 12b-1 fees for the specified purposes set forth below under the Fund's Plan
for Class S shares.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
For The Period Ended: Total Prospectus Brochures Underwriters
- ---------------------------------- ----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
March 31, 1997 $2,678,807 N/A N/A $2,678,807
September 30, 1996 $3,587,118 N/A N/A $3,587,118
</TABLE>
For the periods indicated above, WFSI and its registered representatives
received no compensation under the Fund's Plan.
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plan also must be approved by such vote of the majority 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 Class S
shares of the Fund or by vote of a majority of the Non-Interested Directors on
not more than 60 days' written notice. The Plan may not be amended to increase
materially the amounts payable thereunder without the approval of a majority of
the outstanding voting securities of the Fund, and no material amendment to the
Plan may be made except by a majority of both the Directors of the Company and
the Non-Interested Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
15
<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 Fund's
Class S shares pursuant to selling agreements with Stephens authorized under the
Plan. As a selling agent, Wells Fargo Bank has an indirect financial interest
in the operation of the Plan. The Board of Directors has concluded that the
Plan is reasonably likely to benefit the Fund and its shareholders because the
Plan authorizes the relationships with selling agents, including Wells Fargo
Bank, that have previously developed distribution channels and relationships
with the customers that the Class S shares of the Fund are designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
Shareholder Servicing Agent. The Fund has approved a Servicing Plan and
---------------------------
has entered into a related shareholder servicing agreement, on behalf of Class S
shares, with financial institutions, including Wells Fargo Bank. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the Fund, not to exceed 0.25%, on an
annualized basis, of the average daily net assets of the class of shares owned
of record or beneficially by the customers of the Servicing Agent during the
period for which payment is being made. The Servicing Plan and related form of
Shareholder Servicing Agreement were approved by the Company's Board of
Directors and provide that the Fund shall not be obligated to make any payments
under such Plan or related Agreements that exceed the maximum amounts payable
under the Conduct Rules of the NASD.
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Fund paid $892,936 and $1,176,803, respectively,
on behalf of its Class S shares in shareholder servicing fees to Wells Fargo
Bank or its affiliates.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreement may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
16
<PAGE>
Custodian. Wells Fargo Bank acts as Custodian for the Fund. The
---------
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund, receives and delivers all assets for the Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of the Fund, and pays all expenses of
the Fund. For its services as Custodian, Wells Fargo Bank receives fees as
follows: a net asset charge at the annual rate of 0.0167%, payable monthly,
plus specified transaction charges. Wells Fargo Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.200% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Fund did not pay any custody fees to Wells Fargo
Bank.
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 0.10%
of the average daily net assets of the Class S shares.
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Fund did not pay any compensation for transfer and
dividend disbursing agency services to Wells Fargo Bank.
Under the prior transfer agency agreement, Wells Fargo Bank was entitled to
receive a per account fee plus transaction fees and reimbursement of out-of-
pocket expenses, with a minimum of $3,000 per month, unless net assets of the
Fund were under $20 million. For as long as the Fund's assets remained under
$20 million, the Fund was not charged any transfer agency fees.
Underwriting Commissions. Front-end sales loads and contingent-deferred
------------------------
sales charges are not assessed in connection with the purchase and redemption of
its shares, and therefore pays no underwriting commissions to the Distributor.
PERFORMANCE CALCULATIONS
The Fund may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the Fund or class of shares during the particular
time period shown. Yield and total return vary based on changes in the market
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
17
<PAGE>
Performance information for the Fund or Class of shares may be useful in
reviewing its performance and for providing a basis for comparison with
investment alternatives. The performance of the Fund and the performance of the
Class S shares, however, may not be comparable to the performance from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate performance.
Average Annual Total Return: The Fund may advertise certain total return
---------------------------
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") 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.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Fund. The
inception date of the Class S shares of the Fund was May 25, 1995.
Average Annual Total Return for the Applicable Period Ended September 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception One Year
---- --------- --------
<S> <C> <C>
Money Market Mutual - Class S 4.14% 4.22%
</TABLE>
Cumulative Total Return: In addition to the above performance information,
-----------------------
the Fund also may advertise its cumulative total return. Cumulative total
return is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception
---- ---------
<S> <C>
Money Market Mutual - Class S 10.30%
</TABLE>
Yield Calculations: The Fund may, from time to time, include its yield and
------------------
effective yield in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Fund 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
18
<PAGE>
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.
Effective Yield: Effective yield for the Fund is based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period, less a pro-rata share of the Fund's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized multiplying by 365/7 (or
365/30 for thirty-day yield), with the resulting yield figure carried to at
least the nearest hundredth of one percent. "Effective yield" for the Fund
assumes that all dividends received during the period have been reinvested.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Seven-Day Yield = [(Base Period Return + 1)365/7]-1.
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- --------- --------- ----------
<S> <C> <C> <C>
Money Market Mutual - Class S 4.30% 4.39% 4.29%
</TABLE>
From time to time and only to the extent the comparison is appropriate for
the Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of the Fund or 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 Fund or the Class S shares also may be compared to that of other mutual
funds having similar
19
<PAGE>
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The Fund's performance will be
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains distributions and dividends paid, at the end of the period. The Fund's
comparative performance will be based on a comparison of yields, 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 Fund or the Class S shares with that of competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate the Fund's historical performance or current
or potential value with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
20
<PAGE>
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 Fund's 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, Inc.
(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 the 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 Fund 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.
21
<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 the Class S shares of the Money Market Mutual
Fund is determined as of 12:00 noon and 1:00 p.m. (Pacific time) on each day the
Fund 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.
The Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Fund's portfolio on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in the Fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, the Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to
22
<PAGE>
present minimal credit risks. The maturity of an instrument is generally deemed
to be the period remaining until the date when the principal amount thereof is
due or the date on which the instrument is to be redeemed. However, Rule 2a-7
provides that the maturity of an instrument may be deemed shorter in the case of
certain instruments, including certain variable and floating rate instruments
subject to demand features. Pursuant to the Rule, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible,
the Fund's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the Fund's portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Directors. If such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. It is the intention of the Fund to maintain a
per share net asset value of $1.00, but there can be no assurance that the Fund
will do so.
Instruments having variable or floating interest rates or demand features
may be deemed to have remaining maturities as follows: (a) a government security
with a variable rate of interest readjusted no less frequently than every
thirteen months may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) an instrument with a
variable rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in thirteen months or less, may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business (a
"Business Day"). The Fund is open Monday through Friday and is closed on
federal bank holidays. Currently, those holidays are New Year's Day,
President's Day, Martin Luther King Jr. Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
23
<PAGE>
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Fund will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make
payment for redemption in securities or other property if it appears appropriate
to do so in light of the Company's responsibilities under the 1940 Act. In
addition, the Company may redeem shares involuntarily to reimburse the Fund for
any losses sustained by reason of the failure of a 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.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the Commission or an exemption is otherwise available. The Fund may
purchase securities from underwriting syndicates of which Stephens or Wells
Fargo Bank is
24
<PAGE>
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Directors.
Wells Fargo Bank, as the Investment Adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for the Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for the Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the six month period ended March 31, 1997 or the
nine-month period ended September 30, 1996.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Fund owned
------------------------------------
securities of its "regular brokers or dealers" or their parents, as defined in
the 1940 Act as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- ---- -------------- ------
<S> <C> <C>
Money Market Mutual Fund Goldman Sachs & Co. $324,580,500
Merrill Lynch $244,186,473
J.P. Morgan Securities $ 56,309,000
Morgan Stanley $ 24,466,000
</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
Fund whenever such changes are believed to be in the best interests of the Fund
and its shareholders. The portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities by the average monthly
value of the Fund's portfolio securities. For purposes of this calculation,
portfolio securities exclude all securities having a maturity when purchased of
one year or less. Portfolio turnover generally involves some expenses to the
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover also can generate short-term capital gain tax consequences.
Portfolio turnover rate is not a limiting factor when Wells Fargo Bank deems
portfolio changes appropriate.
25
<PAGE>
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 the Fund's shares; pricing services, and any
extraordinary expenses. Expenses attributable to the Fund are charged against
the Fund assets. General expenses of the Company are allocated among all of the
funds of the Company, including the Fund, in a manner proportionate to the net
assets of the Fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes generally
the federal income tax treatment of distributions by the Fund. This section of
the SAI includes additional information concerning federal income taxes.
General. The Fund intends to qualify 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 federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund. As a
regulated investment company, the Fund will not be subject to federal income tax
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
26
<PAGE>
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 (which, for this purpose,
includes net short-term capital gains) earned in each taxable year. Although the
Fund must ordinarily make such distributions during the taxable year in which it
realized the net investment income, in certain circumstances, the Fund may make
such distributions in the following taxable year. Furthermore, distributions
declared to a shareholder of record in a day in October, November or December of
one taxable year and paid by January 31 of the following taxable year will be
treated as paid by December 31 of the first 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
----------
to the extent it does not meet certain minimum distribution requirements by the
end of each calendar year. The Fund intends to actually or be deemed to
distribute substantially all of its net investment income and net capital gains
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains
and losses if the securities have been held by the Fund for more than one year
at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations purchased after April 30, 1993) purchased by the Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the 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.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
27
<PAGE>
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 IRS
has published a notice applying the reduced capital gains rates to pass-through
entities until the regulations are issued. According to the notice, a Fund may
designate the portion of its capital gain distributions, if any, to which the
28% and 20% rates described in the preceding paragraph apply, based on the net
amount of each class of capital gain realized by the Fund, determined as if the
Fund were an individual subject to a marginal tax rate of 28%. Noncorporate
shareholders of the Fund may therefore qualify for the reduced rate of tax on
any capital gains paid by the Fund.
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
28
<PAGE>
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. 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
29
<PAGE>
authority to control substantial decisions of that trust), foreign estate (i.e.,
an estate the income of which is not subject to U.S. federal income 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 to a foreign shareholder
are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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 other funds.
30
<PAGE>
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 1-800-260-5969 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 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 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 of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders are not entitled to
any preemptive rights. All shares, when issued, will be fully paid and non-
assessable by the Company.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect directors under the 1940 Act.
Each share of a class of the Fund represents an equal proportional interest
in the Fund with each other share 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 or class
are entitled to receive the assets attributable to the Fund or class that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are
31
<PAGE>
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 Class S shares of the Fund or 5% or more of the
voting securities of the Fund as a whole.
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
MONEY Wells Fargo Bank Class S 100.00% 13.60%
MARKET P.O. Box 7066 Beneficially
MUTUAL San Francisco, CA 94120 Owned
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund) or is identified as the holder of
record or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Fund and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission ("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.
32
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
six-month period ended September 30, 1997, are hereby incorporated by reference
to the Company's Semi-Annual Reports as filed with the SEC on December 5, 1997.
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the fiscal period ended March 31, 1997 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
33
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
S&P: The two highest ratings for corporate notes are "SP-1" and "SP-2."
The "SP-1" rating reflects a "very strong or strong capacity to pay principal
and interest." Notes issued with "overwhelming safety characteristics" will be
rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to pay
principal and interest.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
MONEY MARKET TRUST
-----------------------------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about shares offered in one of the funds of the
Stagecoach Family of Funds -- MONEY MARKET TRUST (the "Fund"). The Fund offers
a single class of shares.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus also dated February 1, 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 calling
1-800-260-5969 or by writing to Stagecoach Funds, P.O. Box 7066, San
Francisco, CA 94120-7066.
---------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information..................... 1
Investment Restrictions......................... 1
Additional Permitted Investment Activities...... 3
Management...................................... 7
Performance Calculations........................ 16
Determination of Net Asset Value................ 20
Additional Purchase and Redemption Information.. 21
Portfolio Transactions.......................... 22
Fund Expenses................................... 24
Federal Income Tax.............................. 25
Capital Stock................................... 29
Other........................................... 31
Independent Auditors............................ 31
Financial Information........................... 31
Appendix........................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
Prior to the Reorganization (defined below), the Fund was an investment
portfolio (the "Predecessor Portfolio") of the predecessor company, Pacifica
Funds Trust ("Pacifica"), an open-end management investment company. Pacifica
was organized on July 17, 1984 under the name "Fund Source." Pacifica changed
its name to "Pacifica Funds Trust" on February 9, 1993. The Fund originally
commenced operations on September 17, 1990 as a separate investment portfolio of
Westcore Trust called the "Prime Money Market Fund." On October 1, 1995, the
Fund was reorganized as a portfolio of Pacifica.
On April 25, 1996, the Agreement and Plan of Reorganization and the creation
of the Predecessor Portfolio as a new fund of the Company were approved by the
Company's Board of Directors. On May 17, 1996, the Reorganization was approved
by Pacifica's Board of Trustees. The Reorganization of Pacifica with Stagecoach
became effective on September 6, 1996 (the "Reorganization"). The Predecessor
Portfolio of Pacifica was reorganized as the Company's Money Market Trust.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. In addition to the investment limitations
--------------------------------
disclosed in the Prospectus, the Fund is subject to the following investment
limitations which may be changed only by a vote of the holders of a majority of
the outstanding shares of the Fund (as defined in "Other Information").
The Fund may not:
-----------------
1. Purchase securities of any one issuer, other than obligations of the
U.S. Government, its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of the Fund's total assets would
be invested in such issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5% limitation.
2. Purchase or sell real estate, except that the Fund may, to the extent
appropriate to its investment objective, purchase securities issued by
companies which invest in real estate or interests therein.
3. Purchase securities on margin, make short sales of securities or
maintain a short position.
4. Underwrite the securities of other issuers.
5. Purchase or sell commodity contracts (including futures contracts), or
invest in oil, gas or mineral exploration or development programs.
1
<PAGE>
6. Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
7. Write or purchase put or call options.
The Fund is not permitted to engage in securities lending in accordance with a
fundamental policy prohibiting loans as described in the prospectus. In the
event that this fundamental policy is changed, the Fund has a nonfundamental
operating policy to engage in securities lending only in compliance with the
requirements and limitations of the Securities and Exchange Commission (the
"SEC").
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Fund's investment in such securities currently is
limited to , subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to any
one investment company, and (iii) 10% of the Fund's net assets in the aggregate.
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.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of its 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.
2
<PAGE>
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's investments will not constitute a violation of such limitation,
however, the Fund will not at any time hold more than 10% of its net assets in
illiquid securities. Otherwise, the Fund may continue to hold a security even
though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve that objective. This section contains supplemental
information concerning certain types of securities and other instruments in
which the Fund may invest, the investment policies and portfolio strategies that
the Fund may utilize, and certain risks attendant to such investments, policies
and strategies.
General. The assets of the Fund consist only of obligations maturing within
--------
thirteen months from the date of acquisition (as determined in accordance with
the regulations of the SEC), and the dollar-weighted average maturity of the
Fund may not exceed 90 days.
The securities in which the Fund may invest will not yield as high a level of
current income as may be achieved from securities with less liquidity and less
safety. There can be no assurance that the Fund's investment objective will be
realized as described in the Prospectus.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Fund. The Board of Directors or the Adviser, pursuant to guidelines
established by the Board, will consider such an event in determining whether the
Fund should continue to hold the security in accordance with the interests of
the Fund and applicable regulations of the SEC.
Subject to the general supervision and approval of the Board of Directors, the
Adviser makes decisions with respect to and places orders for all purchases and
sales of securities for the Fund. Securities are generally purchased and sold
either directly from the issuer or from dealers who specialize in money market
instruments. Such purchases are usually effected as principal transactions and
therefore do not involve the payment of brokerage commissions.
Floating and Variable-Rate Obligations. The Fund may purchase floating- and
---------------------------------------
variable-rate obligations as described in the prospectuses. The Fund may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of thirteen months,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding thirteen months. Variable rate demand notes
include master demand notes which are obligations that permit the Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to
3
<PAGE>
direct arrangements between the Fund, as lender, and the borrower. The interest
rates on these notes fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and the fund may
invest in obligations which are not so rated only if Wells Fargo Bank determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which the Fund may invest. Wells Fargo Bank, on behalf of
the Fund, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in the Fund's portfolio. The
Fund will not invest more than 10% of the value of its total net assets in
floating- or variable-rate demand obligations whose demand feature is not
exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
----------------------------------------------------------------------------
The Fund may purchase securities on a when-issued or forward commitment
(sometimes called a delayed-delivery) basis, which means that the price is fixed
at the time of commitment, but delivery and payment ordinarily take place a
number of days after the date of the commitment to purchase. The Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and certain
other securities held in the Fund's investment portfolio are subject to changes
in value (both generally changing in the same way, i.e., appreciating when
---
interest rates decline and depreciating when interest rates rise) based upon the
public's perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a when-
issued or forward commitment basis may expose the relevant Fund to risk because
they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction itself.
A segregated
4
<PAGE>
account of the Fund consisting of cash or U.S. Government securities or other
high quality liquid debt securities at least equal at all times to the amount of
the when-issued or forward commitments will be established and maintained at the
Fund's custodian bank. Purchasing securities on a forward commitment basis when
the Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's total net assets and its net asset value
per share. In addition, because the Fund will set aside cash and other high
quality liquid debt securities as described above the liquidity of the Fund's
investment portfolio may decrease as the proportion of securities in the Fund's
portfolio purchased on a when-issued or forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Fund's net asset value
starting on the day the Fund agrees to purchase the securities. The Fund does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Foreign Obligations. The Fund may invest up to 25% of its assets in high-
-------------------
quality, short-term debt obligations of foreign branches of U.S. banks or U.S.
branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Illiquid Securities. The Fund may invest in securities not registered under
-------------------
the 1933 Act and other securities subject to legal or other restrictions on
resale. Because such securities may be less liquid than other investments, they
may be difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund. The Fund may
hold up to 10% of its net assets in illiquid securities.
Letters of Credit. Certain of the debt obligations, certificates of
------------------
participation, commercial paper and other short-term obligations which the Fund
is permitted to purchase may be backed by an unconditional and irrevocable
letter of credit of a bank, savings and loan association or insurance company
which assumes the obligation for payment of principal and interest in the event
of default by the issuer. Letter of credit-backed investments must, in the
opinion of Wells Fargo Bank, be of investment quality comparable to other
permitted investments of the Fund.
Other Investment Companies. The Fund may invest in shares of other open-end,
---------------------------
management investment companies provided that any such investments will be
limited to temporary investments in shares of unaffiliated investment companies.
Wells Fargo Bank will waive its advisory fees for that portion of the Fund's
assets so invested, except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition. The Fund also may purchase shares
of exchange-listed, closed-end funds.
Repurchase Agreements. The Fund may engage in a repurchase agreement with
----------------------
respect to any security in which the Fund is authorized to invest, including
U.S. Treasury STRIPS, although the underlying security may mature in more than
thirteen months. The Fund may enter into repurchase agreements wherein the
seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed-upon time and price which involve the acquisition by
the Fund of an underlying debt instrument, subject to the seller's obligation to
repurchase, and the Fund's obligation to resell, the instrument at a fixed price
usually not more than one week after its purchase. The Fund's custodian has
custody of, and holds in a segregated account, securities acquired as collateral
by the Fund under a repurchase agreement. Repurchase agreements are considered
by the staff of the Securities and Exchange Commission to be loans by the Fund.
The Fund may enter into repurchase agreements only with respect to securities of
the type in which the Fund may invest, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the value
of the securities purchased should decrease below resale price. Wells Fargo
Bank monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Fund in
connection with insolvency proceedings), it is the policy of the Fund to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. The Fund considers on an
ongoing basis
5
<PAGE>
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered to be loans by the Fund under
the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
-----------------------------
purposes by entering into reverse repurchase agreements with financial
institutions such as banks and broker-dealers in accordance with the investment
limitations described in the Prospectus. Pursuant to such an agreement, the Fund
would sell portfolio securities and agree to repurchase them at a mutually
agreed upon date and price. The Fund intends to enter into reverse repurchase
agreements to avoid otherwise having to sell securities during unfavorable
market conditions in order to meet redemptions. At the time the Fund enters into
a reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as U.S. Government securities or other liquid high-quality
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund may decline
below the price of the securities the Fund is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Fund under the 1940
Act.
Rule 144A. It is possible that unregistered securities purchased by the Fund
----------
in reliance upon Rule 144A under the Securities Act of 1933, could have the
effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
Short-Term Trading. The Fund may attempt to increase yields by trading to
------------------
take advantage of short-term market variations. This policy could result in high
portfolio turnover but should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
U.S. Government Obligations. The Fund may invest in obligations issued or
----------------------------
guaranteed by the U.S. Government, its agencies or instrumentalities. Payment of
principal and interest on U.S. Government Obligations (i) may be backed by the
full faith and credit of the United States (as with U.S. Treasury bills and GNMA
certificates) or (ii) may be backed solely by the issuing or guaranteeing agency
or instrumentality itself (as with FNMA notes). In the latter case 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.
6
<PAGE>
MANAGEMENT
The following information supplements, and should be read in conjunction with,
the section in the prospectus entitled "The Fund and Management." The principal
occupations during the past five years of the Directors and principal executive
Officer of the Company are listed below. The address of each, unless otherwise
indicated, is 111 Center Street, Little Rock, Arkansas 72201. Directors deemed
to be "interested persons" of the Company for purposes of the 1940 Act are
indicated by an asterisk.
7
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of
Chairman and Stephens Inc; President of Stephens
President Insurance Services Inc.; Senior
Vice President of Stephens Sports
Management Inc.; and President of
Investor Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of
321 Beechcliff Court the School of Business and
Winston-Salem, NC 27104 Accounting at Wake Forest
University since 1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since 1971;
Valhalla, N.Y. 10595 Adjunct Professor of Columbia
University Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter G. Gordon, 54 Director Chairman and Co-Founder of
Crystal Geiser Water Co. Crystal Geyser Water Company and
55 Francisco Street President of Crystal Geyser
San Francisco, CA 94133 Roxane Water Company since 1977.
(As of 1/1/98)
*J. Tucker Morse, 53 Director Private Investor; Chairman of
4 Beaufain Street Home Account Network, Inc. Real
Charleston, SC 29401 Estate Developer; Chairman of
Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Vice President of Stephens Inc.;
Operating Director of Stephens Sports
Officer, Management Inc.; and Director of
Secretary Capo Inc.
and Treasurer
</TABLE>
8
<PAGE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ------------------------------ --------------------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 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 the 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 The
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
9
<PAGE>
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 the Fund complex.
As of the date of this SAI, Directors and Officers of the Company as a group
beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISER. The Fund is advised by Wells Fargo Bank pursuant to an
-------------------
advisory contract under which Wells Fargo Bank has agreed to furnish investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. On behalf of the Fund, the Company's Board of Directors approved
the advisory contract with Wells Fargo Bank for an initial two-year period.
Pursuant to the advisory contract, Wells Fargo Bank also has agreed to furnish
to the Board of Directors periodic reports on the investment strategy and
performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other things, money
market and fixed-income research, analysis and statistical and economic data and
information concerning interest-rate and security market trends, portfolio
composition, credit conditions and, average maturity of the Fund. As
compensation for its advisory services, Well Fargo Bank is entitled to receive a
monthly fee at the annual rate of 0.25%.
Prior to the Reorganization, Wells Fargo Investment Management, Inc. ("WFIM")
and its predecessor, First Interstate Capital Management, Inc. ("FICM") served
as adviser to the Predecessor Portfolios of Pacifica. As of the date of the
Reorganization (September 6, 1996), Wells Fargo Bank became the adviser to the
Fund. For the six-month period ended March 31, 1997 and the year ended
September 30, 1996 the Fund paid to FICM, WFIM and Wells Fargo Bank, the
advisory fees indicated below and the indicated amount was waived:
<TABLE>
<CAPTION>
Six Months Ended 3/31/97 Year Ended 9/30/96 /1/
- ------------------------------------- -----------------------------------------
Fees Paid Fees Waived Fees Paid Fees Waived
- ---------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
$-0- $1,044,401 $151,546 $2,021,955
</TABLE>
- -----------------------------
/1/ For the period begun October 1, 1995 and ended March 31, 1996 the
Predecessor Portfolio paid advisory fees to FICM, for the period begun April 1,
1996 and ended September 5, 1996 the Predecessor Portfolio paid advisory fees to
WFIM, and for the period begun September 6, 1996 and ended September 30, 1996
the Fund paid advisory fees to Wells Fargo Bank, and each such investment
adviser waived varying amounts of such fees. The advisory fees did not change
from investment adviser to investment adviser during the year ended September
30, 1996, and were as follows: computed daily and paid monthly, at an annual
rate of 0.30% of the first $500 million of the average daily net assets of the
Fund, 0.25% of the next $500 million of the Fund's average daily net assets, and
0.20% of the Fund's average daily net assets in excess of $1 billion.
10
<PAGE>
The advisory contract continues in effect for more than two years provided the
continuance is approved annually (i) by the holders of a majority of the Fund's
outstanding voting securities or (ii) by the Company's Board of Directors and
by a majority of the Directors of the Company who are not parties to the
advisory contracts or "interested persons" (as defined in the 1940 Act) of any
such party. The advisory contracts may be terminated on 60 days' written notice
by either party and will terminate automatically if assigned.
Prior to October 1, 1995, First Interstate of Oregon, N.A. (the "Predecessor
Adviser") served as the investment adviser to the Fund. For the four-month
period ended September 30, 1995, and fiscal years ended May 31, 1995, 1994 and
1993, the Predecessor Adviser was entitled to receive and waived or reimbursed
advisory fees paid by the Fund as follows:
<TABLE>
<CAPTION>
Investment Advisory Fees
- --------------------------
Fees Waived and
Fiscal Period Fees Earned Expenses Reimbursed
- -------------------------- ------------ -------------------
<S> <C> <C>
Four-Month Period Ended
September 30, 1995 $ 662,983 $ 662,983
Year Ended May 31, 1995 $1,932,733 $2,120,794
Year Ended May 31, 1994 $1,193,856 $1,104,228
Year Ended May 31, 1993 $ 570,505 $ 387,505
</TABLE>
The advisory contracts and administration agreement for the Fund provide that
if, in any fiscal year, the total expenses of the Fund incurred by, or allocated
to, the Fund (excluding taxes, interest, brokerage commissions and other
portfolio transaction expenses, expenditures that are capitalized in accordance
with generally accepted accounting principles, extraordinary expenses and
amounts accrued or paid under the Plan but including the fees provided for in
the applicable advisory contract and the administration agreement) exceed the
most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the advisory contract and the administration agreement,
respectively, for the Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
advisory contracts and the administration agreement for the Fund further provide
that the Fund's total expenses shall be reviewed monthly so that, to the extent
the annualized expenses for such month exceed the most restrictive applicable
annual expense limitation, the monthly fees under the contract and the agreement
shall be reduced as necessary. Currently, California is the only state imposing
limitations on Fund expenses. Those expense limitations are 2 1/2 percent of the
first $30 million of the Fund's average
11
<PAGE>
net assets, 2 percent of the next $70 million and 11/2 percent of the Fund's
remaining average net assets.
Expenses incurred in the organization and operation of the Fund, including
taxes, interest, penalties, brokerage and other fees and commissions, if any,
fees and expenses of Directors, SEC fees and related expenses, state Blue Sky
qualification fees, advisory fees, administration fees, charges of custodians,
costs of transfer and dividend disbursing agents, certain insurance premiums,
outside auditing and legal expenses, costs of maintenance of Company existence,
costs of independent pricing services, investor services, preparation and
printing of prospectuses for regulatory purposes and for distribution to
shareholders, shareholders' reports and shareholders' meetings, and
extraordinary expenses, are borne by the Fund.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, (a)
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any bank or non-bank
affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from underwriting securities, but (b) do not
prohibit such a bank holding company or affiliate generally from acting as
investment adviser, transfer agent, or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of a
customer. In some states, banks or other institutions through which transactions
in Fund shares are effected, may be required to register as dealers pursuant to
state law.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
The Administration Agreement between Wells Fargo Bank and the Fund, and the Co-
Administration Agreement among Wells Fargo Bank, Stephens and the Fund, state
that Wells Fargo and Stephens shall provide as administration services, among
other things: (i) general supervision of the operation of the Fund, including
coordination of the services performed by the Fund's investment adviser,
transfer agent, custodian, shareholder servicing agent(s), independent public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Company's officers and Board of Directors. Wells Fargo Bank and Stephens
also furnish office space and certain facilities required for conducting the
business of the Fund together with ordinary clerical and bookkeeping services.
Stephens pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens. The Administrator and Co-
Administrator are entitled to receive a monthly fee of 0.03% and 0.04%,
respectively, of the average daily net assets of the Fund. Prior to February
1, 1998, the Administrator and Co-Administrator were entitled to receive a
monthly fee at the annual rate of 0.04% and 0.02%, respectively, of the Fund's
average daily net assets. In connection with the change in fees, the
responsibility for performing various adminsitration services was shifted to
the Co-Administrator.
12
<PAGE>
Prior to September 6, 1996, the administrator of the Pacifica Predecessor
Portfolio (Furman Selz LLC) provided management and administration services
necessary for the operation of such Portfolio, pursuant to an Administrative
Services Contract. For these services, the former administrator was entitled to
receive a fee, payable monthly, at the annual rate of 0.15% of the average daily
net assets of the Predecessor Portfolio. For the periods from September 6, 1996
to September 30, 1996 and October 1, to February 1, 1997, Stephens served as
sole administrator to the Fund and performed substantially the same services now
provided by Stephens and Wells Fargo Bank, and was entitled to receive a fee,
payable monthly, at the annual rate of 0.05% of the Fund's average daily net
assets.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
<TABLE>
<CAPTION>
Six-Month Period Ended 3/31/97
- -----------------------------------------------------------------------
Total Wells Fargo Stephens
- -------------------- ------------------------- ----------------------
<S> <C> <C>
$217,710 $43,542 $174,168
</TABLE>
The net administration fee (after waivers) paid to Furman Selz LLC and
Stephens during the year ended September 30, 1996, was $715,853.
Prior to October 1, 1995, ALPS Mutual Funds Services, Inc. ("ALPS") served as
the administrator to the Fund. For the four-month period ended September 30,
1995 and the fiscal years ended May 31, 1995 and 1994, ALPS received
administration fees from the Fund as follows:
<TABLE>
<CAPTION>
Four-Month Period Ended Year Ended Year Ended
Sept. 30, 1995 May 31, 1995 May 31, 1994
- ------------------------ ----------------------- -------------------------
<S> <C> <C>
$132,597 $387,803 $241,778
</TABLE>
DISTRIBUTOR. As discussed in the Fund's prospectus under the heading
-----------
"Management and Servicing Fees," Stephens serves as the Fund's distributor.
Prior to September 6, 1996, Pacifica had retained Pacifica Funds Distributor,
Inc., a subsidiary of Furman Selz, to serve as principal underwriter for the
shares of the Fund pursuant to a Distribution Contract. The Distribution
Contract provided that the distributor was not entitled to any payments from the
Fund for its distribution services.
Prior to October 1, 1995, ALPS served as distributor for the Fund. ALPS was
not entitled to any compensation for its services as distributor.
13
<PAGE>
SHAREHOLDER SERVICING AGENT. The Fund has approved a Servicing Plan and has
----------------------------
entered into related shareholder servicing agreements with financial
institutions, including Wells Fargo Bank. Under the agreement, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for purchases, exchanges
and redemptions; maintaining shareholder accounts and records; and providing
such other related services as the Company or a shareholder may reasonably
request. For providing shareholder services, a Servicing Agent is entitled to
receive a fee from the Fund, not to exceed 0.20% on an annualized basis, of the
average daily net assets of the shares owned of record or beneficially by the
customers of the Servicing Agent during the period for which payment is being
made. The Servicing Plan and related shareholder servicing agreements were
approved by the Company's Board of Directors and provide that the Fund shall not
be obligated to make any payments under such Plan or related Agreements that
exceed the maximum amounts payable under the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD Rules").
For the six-month period ended March 31, 1997, the Fund paid $535,144 in
shareholder servicing fees to Wells Fargo Bank or its affiliates pursuant to the
Plan.
For the year ended September 30, 1996, the Fund paid no shareholder servicing
fees to First Interstate Bancorp or Wells Fargo Bank or its affiliates pursuant
to the Plan.
General. The Servicing Plan will continue in effect from year to year if such
--------
continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund ("Non-Interested Directors"). Any form of
servicing agreement related to 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 vote of a majority
of the Directors, including a majority of the Non-Interested Directors. No
material amendment to the Servicing Plans may be made except by a majority of
both the Directors of the Company and the Non-Interested Directors. The
Servicing Plan requires that the administrator shall provide to the Directors,
and the Directors shall review, at least quarterly, a written report of the
amounts expended (and purposes therefor) under the Servicing Plan.
CUSTODIAN. Wells Fargo Bank has been retained to act as custodian for the
----------
Fund, pursuant to a Custody Agreement with the Company on behalf of the Fund.
The custodian, among other things, maintains a custody account or accounts in
the name of the Fund, receives and delivers all assets for the Fund upon
purchase and upon sale or maturity, collects and receives all income and other
payments and distributions on account of the assets of the Fund and pays all
expenses of the Fund. For its services as custodian, Wells Fargo Bank is
entitled to receive fees as follows: a net asset charge at the annual rate of
0.0167%, payable monthly, plus specified transaction charges. Wells Fargo Bank
also will provide portfolio accounting services under the Custody Agreement as
follows: a monthly base fee of $2,000 plus a net asset fee at the annual rate of
0.070% of the first $50,000,000 of 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.
Prior to April 1, 1996, FICAL acted as custodian of the Predecessor Portfolio,
but played no role in making decisions as to the purchase or sale of portfolio
securities for the Predecessor Portfolio. FICAL was entitled to receive a fee
from Pacifica, computed daily and payable monthly, at the annual rate of 0.02%
of the first $5 billion in aggregate average daily net assets of the Fund;
0.0175% of the next $5 billion in aggregate average daily net assets of the
Fund; and 0.015% of the aggregate average daily net assets of the Fund in excess
of $10 billion, as well as certain transaction charges.
For the six-months ended March 31, 1997 and the year ended September 30, 1996,
the Fund paid no custody fees to FICAL or Wells Fargo Bank.
14
<PAGE>
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been retained
---------------------------------------
to act as transfer and dividend disbursing agent for the Fund, pursuant to an
Agency Agreement with the Company on behalf of the Fund. For its services as
transfer and dividend disbursing agent for the Fund, Wells Fargo Bank is
entitled to receive monthly payments at the annual rate of 0.02% of the Fund's
average daily net assets. Prior to February 1, 1997, under the prior agency
agreement for the Fund, Wells Fargo Bank was entitled to receive monthly
payments at the annual rate of 0.07% of the Fund's average daily net assets, and
reimbursement for any reasonable out-of-pocket expenses. Prior to the
Reorganization, Furman Selz acted as transfer agent for the Predecessor
Portfolio. Pacifica compensated Furman Selz for providing personnel and
facilities to perform transfer agency related services for Pacifica at a rate
intended to represent the cost of providing such services.
For the six-month period ended March 31, 1997 and the year ended September 30,
1996, the Fund paid no transfer and dividend disbursing agency fees to Wells
Fargo Bank.
UNDERWRITING COMMISSIONS. The Fund does not charge any front-end sales loads
------------------------
or contingent deferred sales charges in connection with the purchase and
redemption of its shares, and therefore pays no underwriting commissions to the
Distributor.
15
<PAGE>
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction with
the sections in each prospectus entitled "Determination of Net Asset Value" and
"Performance Data."
The Fund may, from time to time, include its yield or effective yield in
advertisements or reports to shareholders or prospective investors.
"Yield" for the Fund will be based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular seven-
day period, less a pro-rata share of the Fund's expenses accrued over that
period (the "base period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure carried
to at least the nearest hundredth of one percent.
"Effective Yield" for the Fund assumes that all dividends received during an
annual period have been reinvested. Calculation of "effective yield" begins with
the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return +1)365/7]-1.
Yield For The Applicable Period Ended March 31, 1997 /1/
--------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Yield Seven-Day Effective Yield
--------------- -------------------------
<S> <C>
5.51% 5.66%
</TABLE>
____________________________________
/1/ The Fund does not assess sales charges.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated period
of time. Yields for the Fund are calculated on the same basis as other money
market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Quotations of yield reflect only the performance of a hypothetical investment
in the Fund during the particular time period shown. Yield varies based on
changes in market
16
<PAGE>
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
Investors should recognize that in periods of declining interest rates, the
Fund's yields will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yields will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Fund, thereby
reducing the current yields of the Fund. In periods of rising interest rates,
the opposite can be expected to occur.
In connection with communicating its yields to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
From time to time and only to the extent the comparison is appropriate for the
Fund, the Company may quote performance or price-earning ratios in advertising
and other types of literature as compared with the performance of the Lehman
Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Years Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, IBC/Donoghue's Money Fund Averages,
Real Estate Investment Averages (as reported by the National Association of Real
Estate Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), Ten Year U.S.
Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices.
The performance of the Fund also may be compared to the performance of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services that monitor the performance of mutual funds. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results. The Company also may include, from time to time,
a reference to certain marketing approaches of the Distributor, including,
for
17
<PAGE>
example, a reference to a potential shareholder being contacted by a selected
broker or dealer. General mutual fund statistics provided by the Investment
Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and other
types of literature, only to the extent the information is appropriate for the
Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund or a class of shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or current or potential value with respect to
the particular industry or sector.
The Company also may discuss in advertising and other types of literature that
the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold any class of the Fund's
shares since the rating would not comment on the market price of the Fund's
shares or the suitability of the Fund for a particular investor. In addition,
the assigned rating would be subject to change, suspension or withdrawal as a
result of changes in, or unavailability of, information relating to the Fund or
its investments. The Company may compare the Fund's performance with other
investments that are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with other
rated investments.
From time to time the Company may reprint, reference or otherwise use material
from magazines, newsletters, newspapers and books including, but not limited to
the Wall Street Journal, Money Magazine, Barrons, Kiplingers, Business Week,
Fortune, Forbes, the San Francisco Chronicle, the San Jose Mercury News, The New
York Times, the Los Angeles Times, the Boston Globe, the Washington Post, the
Chicago Sun-Times, Investor Business
18
<PAGE>
Daily, Worth, Bank Investor, American Banker, Smart Money, the 100 Best Mutual
Funds (Adams Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on
the Fund's shares. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management, Inc. (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 and the total amount of assets and mutual fund assets
managed by Wells Fargo Bank. As of December 31, 1997, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $62 billion
of assets of individuals, trusts, estates and institutions and $23 billion of
mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
19
<PAGE>
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with
the prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of the Fund's
shares.
Net asset value per share for the Fund is determined as of 12:00 noon Pacific
time on each Business Day as described in the prospectus.
The Fund's instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on Fund shares computed as described
above may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its instruments. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund utilizing
solely market values and existing investors in the Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The valuation of the Fund's instruments, based upon their amortized cost and
the concomitant maintenance by the Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which the Fund
must adhere to certain conditions. The Fund must maintain a dollar-weighted
average maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days (thirteen months) or less, and invest only in securities
that are determined to present minimal credit risks pursuant to guidelines
adopted by the Directors or the adviser under guidelines approved by the
Directors. Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period
20
<PAGE>
remaining until the principal amount can be recovered through demand; and (e) a
repurchase agreement may be deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the underlying securities is
scheduled to occur or, where no date is specified but the agreement is subject
to demand, the notice period applicable to a demand for the repurchase of the
securities.
The Company's Board of Directors has established valuation procedures designed
to stabilize, to the extent reasonably possible, the Fund's price per share as
computed for the purpose of sales and redemptions. Such procedures include the
determination, at such intervals as the Directors deem appropriate, of the
extent to which the Fund's NAV as calculated by using available market
quotations deviates from $1.00 per share, such deviation may result in material
dilution or other unfair results to existing shareholders or investors. In the
event the Directors determine that such a material deviation exists, they have
agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Fund to maintain a per share net
asset value of $1.00, but there can be no assurance that the Fund will do
so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Fund shares may be purchased on any day the Fund is open (a "Business Day").
The Fund is open on any day that either the New York Stock Exchange or Wells
Fargo Bank is open. Currently the holidays observed by both the New York Stock
Exchange and Wells Fargo Bank are New Year's Day, Presidents' Day, Martin Luther
King's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day (each, a "Holiday"). When any
Holiday falls on a weekend, the Fund typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the form
of securities that are permissible investments for the Fund as described in the
Prospectus. For further information about this form of payment please contact
Stephens. In connection with an in-kind securities payment, the Fund will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed (other than customary weekend and holiday closings, or during which
trading is restricted, or
21
<PAGE>
during which as determined by the SEC by rule or regulation) an emergency exists
as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such periods as the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Company may also redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the Fund
for any losses sustained by reason of the failure of a shareholders to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When Wells Fargo Bank determines that a particular security
should be bought or sold for the Fund and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank undertakes to allocate those transactions among the
participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Fund also purchases
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing the Fund's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Company are prohibited from dealing with
the Company as a principal in the purchase and sale of securities unless an
exemptive order
22
<PAGE>
allowing such transactions is obtained from the SEC or an exemption is otherwise
available.
The Fund may purchase certain obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Fund's investment adviser, may, in circumstances in
which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received is in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the advisory contracts, and the expenses of
Wells Fargo Bank are not necessarily reduced as a result of the receipt of this
supplemental research information. Furthermore, research services furnished by
dealers through which Wells Fargo Bank places securities transactions for the
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Fund.
Consistent with the Rules of Fair Practice of the NASD, and subject to seeking
the most favorable price and execution available and such other policies as the
Directors may determine, the adviser may consider sales of Fund shares as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Fund.
Brokerage Commissions. Subject to the general supervision and approval of
----------------------
the Board of Directors, the adviser makes decisions with respect to and places
orders for all purchases and sales of securities for the Fund. Securities are
generally purchased and sold either directly from the issuer or from dealers who
specialize in money market instruments. Such purchases are usually effected as
principal transactions and therefore do not involve the payment of brokerage
commissions.
During the fiscal periods ended March 31, 1997, September 30 ,1996, September
30, 1995, May 31, 1995, and May 31, 1994, the Fund and the Predecessor Portfolio
did not pay any brokerage commissions, because all of its portfolio transactions
occurred in the over-the-counter market.
Securities of Regular Broker Dealers. The Fund may from time to time
-------------------------------------
purchase securities issued by its regular broker/dealers. As of March 31, 1997,
the Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:
23
<PAGE>
<TABLE>
<CAPTION>
AMOUNT REGULAR BROKER/DEALER
------ ---------------------
<S> <C> <C>
$58,029,333 Goldman Sachs & Co.
$35,000,000 Merrill Lynch
$10,000,000 J P Morgan Securities Inc.
$ 7,000,000 Morgan Stanley & Co.
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Services, Inc. ("ALPS") served as
administrator/distributor for the Fund, and reported no holdings of securities
by the Fund of its regular broker/dealers or of their parents that derive more
than 15% of gross revenues from securities-related activities.
Portfolio Turnover Rate. The portfolio turnover rate is not a limiting factor
-----------------------
when Wells Fargo Bank deems portfolio changes appropriate. Because the Fund's
portfolio consists of securities with relatively short-term maturities, it can
expect to experience high portfolio turnovers. A high portfolio turnover rate
should not adversely affect the Fund, however, because portfolio transactions
ordinarily will be made directly with principals on a net basis and,
consequently, the Fund usually will not incur brokerage expenses.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of the Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
24
<PAGE>
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes
generally the federal income tax treatment of distributions by the Fund. This
section of the SAI includes additional information concerning federal income
taxes.
General. The Fund intends to qualify 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 federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to the Fund, rather
than to the Company as a whole. 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 subject to federal income
tax 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 also must distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income (which, for this
purpose, includes net short-term capital gain) earned in each taxable year.
Although the Fund must ordinarily make such distributions during the taxable
year in which it realized the net investment income, in certain
circumstances, the fund may make such distributions in the following taxable
year. Furthermore, distributions declared to a shareholder of record in a day
in October, November or December of one taxable year and paid by January 31 of
the following taxable year will be treated as paid by December 31 of the first
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
25
<PAGE>
held for less than three months. However, this restriction has been repealed
with respect to a regulated investment company's taxable years beginning after
August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise
tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains
and losses if the securities have been held by the Fund for more than one year
at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations purchased after April 30, 1993) purchased by the Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the 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.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The
IRS has published a notice applying the reduced capital gains rates to
pass-through entities until the regulations are issued. According to the notice,
a Fund may designate the portion of its capital gain distributions, if any, to
which the 28% and 20% rates described in the preceding paragraph apply, based on
the net amount of each class of capital gain realized by the Fund, determined as
if the Fund were an individual subject to a marginal tax rate of 28%.
Noncorporate shareholders of the Fund may therefore qualify for the reduced rate
of tax on any capital gains paid by the Fund.
26
<PAGE>
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. This loss disallowance rule does not apply to losses realized
under a periodic redemption plan.
27
<PAGE>
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., an estate the income of which
is not subject to U.S. federal income 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.
28
<PAGE>
residents will apply. Distributions of net capital gain to foreign
shareholders are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
CAPITAL STOCK
The following information supplements and should be read in conjunction with
the section in the Prospectus entitled "The Fund and Management."
The Fund is one of the 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.
The Fund offers one class of shares. Most of the Company's funds are
authorized to issue multiple classes of shares, one class generally subject to a
front-end sales charge and, in some cases, a class subject to a contingent-
deferred sales charge, that are offered to retail investors. Certain of the
Company's funds also are authorized to issue other classes of shares, which are
sold primarily to institutional investors. Each class of shares in a fund
represents an equal, proportionate interest in a fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of the
fund's operating expenses, except for certain class-specific expenses (e.g., any
state securities registration fees, shareholder servicing fees or distribution
fees that may be paid under Rule 12b-1) that are allocated to a particular
class. Please contact Stagecoach Shareholder Services at 1-800-260-5969 if you
would like additional information about other funds or classes of shares
offered.
Pacifica was a Massachusetts business trust established under a Declaration of
Trust dated July 17, 1984, consisting of series of separately managed
portfolios. The capitalization of Pacifica consisted solely of an unlimited
number of shares of beneficial interest with a par value of $0.001 each.
Voting. On any matter submitted to a vote of shareholders, all shares then
-------
entitled to vote are voted separately by series unless otherwise required by the
Act, in which case all shares are voted in the aggregate. For example, a change
in a series' fundamental investment policy affects only one series and are voted
upon only by shareholders of the
29
<PAGE>
series and not by shareholders of the Company's other series. Additionally,
approval of an advisory contract is a matter to be determined separately by each
series. Approval by the shareholders of one series is effective as to that
series whether or not sufficient votes are received from the shareholders of the
other series to approve the proposal as to those series. As used in the
prospectus and in this SAI, the term "majority" when referring to approvals to
be obtained from shareholders of the Fund, means the vote of the lesser of
(i) 67% of the Fund shares represented at a meeting if the holders of more than
50% of the outstanding Fund shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held. The Company may
dispense with an annual meeting of shareholders in any year in which it is not
required to elect directors under the 1940 Act.
The fund share represents an equal proportional interest in the Fund with each
other share and is entitled to such dividends and distributions out of the
income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of the Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a distribution
of any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when issued for
the consideration described in the prospectus, are fully paid and non-assessable
by the Company.
Set forth below as of January 2, 1998 is the name, address and share ownership
of each person known by the Company to have beneficial or record ownership of 5%
or more of the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
<TABLE>
<CAPTION>
Name and Address Type of Ownership Percentageof Fund
- ---------------- ----------------- -----------------
<S> <C> <C>
Virg & Co. Record Holder 91.18%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Name and Address Type of Ownership Percentage of Fund
- ---------------- ----------------- ------------------
<S> <C> <C>
Hare & Co. Record Holder 8.82%
Bank of New York
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund) or is identified as the holder of
record or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class.
OTHER
This Registration Statement, including the prospectus for the fund, the SAI
and the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in a prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the six-
month period ended September 30, 1997, are hereby incorporated by reference to
the Company's Semi-Annual Reports as filed with the SEC on December 5,
1997.
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the fiscal period ended March 31, 1997 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
31
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term obligations
are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the
case of an issue having a variable rate demand feature). Notes rated "MIG 1" or
"VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2" or "VMIG
2" are of "high quality," with margins of protections "ample although not as
large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper indicates
that the "degree of safety regarding timely payment is either overwhelming or
very strong." Commercial paper with "overwhelming safety characteristics" will
be rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
OVERLAND EXPRESS SWEEP FUND
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about a fund in the Stagecoach Family of Funds (the
"Fund") -- the OVERLAND EXPRESS SWEEP FUND.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated February 1, 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 calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information...................... 1
Investment Restrictions.......................... 1
Additional Permitted Investment Activities....... 3
Risk Factors..................................... 6
Management....................................... 7
Performance Calculations......................... 14
Determination of Net Asset Value................. 18
Additional Purchase and Redemption Information... 20
Portfolio Transactions........................... 21
Fund Expenses.................................... 22
Federal Income Taxes............................. 23
Capital Stock.................................... 27
Other............................................ 28
Independent Auditors............................. 29
Financial Information............................ 29
Appendix......................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Overland Express Sweep Fund was originally organized on October 1,
1991, as the Overland Sweep Fund (the "predecessor portfolio") of Overland
Express Funds, Inc. ("Overland"), another open-end management investment company
advised by Wells Fargo Bank. 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 a newly created Fund of the
Company named the "Overland Express Sweep Fund." Prior to December 12, 1997, the
effective date of the Consolidation, the Company's Fund had only minimal assets
and liabilities. Upon completion of the Consolidation, the Company's Fund
assumed the assets and stated liabilities of the predecessor Overland portfolio.
Prior to the Consolidation, the predecessor portfolio pursued its investment
objective by investing all of its assets in the Cash Investment Trust Master
Portfolio (the "Master Portfolio") of Master Investment Trust ("MIT"). The Fund
now invests directly in a portfolio of securities and does not invest in a
corresponding Master Portfolio.
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 a
vote of the holders of a majority (defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of the
Fund.
The Overland Express Sweep 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 respective total assets, provided that
there is no limitation with respect to investments in (i) obligations of the
United States Government, its agencies or instrumentalities, and (ii)
obligations of domestic banks (for the purpose of this restriction, domestic
bank obligations do not include obligations of U.S. branches of foreign banks or
obligations of foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited partnership
interests (other than money market 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;
(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
1
<PAGE>
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 their respective 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 their respective net assets
(but investments may not be purchased while any such borrowing in excess of 5%
of their respective net assets exists);
(7) 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; nor
(8) make loans of portfolio securities or other assets, except that
loans for purposes of this restriction will not include the purchase of fixed
time deposits, repurchase agreements, commercial paper and other short-term
obligations, and other types of debt instruments commonly sold in a public or
private offering.
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Fund's investment in such securities currently is
limited to , subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to any
one investment company, and (iii) 10% of the Fund's net assets in the aggregate.
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.
(2) The Fund may not invest or hold more than 10% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of the Fund's
2
<PAGE>
total assets. Any such loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Floating- and Variable-Rate Instruments
---------------------------------------
Certain of the debt instruments in which the Fund may invest may bear
interest rates that are periodically adjusted at specified intervals or whenever
a benchmark rate or index changes. These adjustments generally limit the
increase or decrease in the amount of interest received on the debt instruments.
The floating- and variable-rate instruments that the Fund may purchase include
certificates of participation in pools of floating- and variable-rate
instruments. Floating- and variable-rate instruments are subject to interest
rate risk and credit risk.
Foreign Obligations
-------------------
The Fund may invest a portion of its assets (no more than 5%) in
obligations of foreign branches of U.S. banks or U.S. branches of foreign banks
that are denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not subject to the same accounting, auditing and financial reporting
standards or governmental supervision as domestic issuers. In addition, with
respect to certain foreign countries, taxes may be withheld at the source under
foreign income tax laws, and there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Illiquid Securities
-------------------
The Fund may hold up to 10% of its assets in securities not registered
under the Securities Act of 1933 and other securities subject to legal or other
restrictions on resale. Because such securities may be less liquid than other
investments, they may be difficult to sell promptly at an acceptable price.
Delay or difficulty in selling securities may result in a loss or be costly to
the Fund.
Letters of Credit
-----------------
Certain of the debt obligations, certificates of participation,
commercial paper and other short-term obligations in which the Fund is permitted
to invest may be backed by an unconditional and irrevocable letter of credit of
a bank, savings and loan association or insurance company that assumes the
obligation for payment of principal and interest in
3
<PAGE>
the event of default by the issuer. Letter of credit-backed investments must, in
the opinion of Wells Fargo Bank, be of investment quality comparable to other
permitted high-quality investments of the Fund.
Money Market Instruments
------------------------
Money market instruments consist of: (a) short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises) (U.S. Government obligations"); (b) negotiable
certificates of deposit, bankers' acceptances and fixed time deposits and other
short-term obligations of domestic banks (including foreign branches) that have
more than $1 billion in total assets at the time of the 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; (c) 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, by comparable qualify as determined by Wells Fargo Bank; (d) certain
repurchase agreements; and (e) 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 largest foreign banks in the world as determined on the basis
of assets; and (iii) have branches or agencies in the United States.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund invest can be expected to charge fees for
operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Fund.
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 period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to U.S.
Government obligations and other securities that are permissible investments for
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. However, the term of any repurchase agreement on behalf of the Fund will
always be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of
more than seven days if, as a result, more than 10% of the market value of it's
total net assets would be invested in
4
<PAGE>
repurchase agreements with maturities of more than seven days, restricted
securities and/or illiquid securities. The Fund will enter into repurchase
agreements only with primary broker/dealers and commercial banks that meet
guidelines established by the Board of Directors of the Company and that are not
affiliated with Wells Fargo Bank. The Fund, subject to the conditions described
above, may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Unrated Investments
-------------------
The Fund may purchase instruments that are not rated if, in the opinion
of Wells Fargo Bank as investment Advisor, such obligations are of comparable
quality to other high-quality 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 requires an immediate sale of such security by the Fund. To the
extent the ratings given by Moody's Investors Service ("Moody's") or Standard
and Poor's Rating Group ("S&P") may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in the Prospectus and in this SAI. The ratings of Moody's and S&P are
more fully described in the Appendix to this SAI.
U.S. Government Obligations
---------------------------
U.S. Government obligations include securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. Payment of principal and
interest on U.S. Government obligations may be backed by the full faith and
credit of the United States, as with Treasury bills, or may be backed solely by
the issuing or guaranteeing agency or instrumentality itself. In the latter case
investors must look principally to the agency or instrumentality itself. 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 increase rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield, duration or value due to their
structure or contract terms.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells
Fargo Bank, are not insured by the FDIC and are not insured or guaranteed
against loss of principal. Therefore, you should be willing to accept some risk
with money you invest in the Fund. Although the Fund seeks to maintain a stable
net asset value of $1.00 per share, there is no assurance that it will be able
to do so. As with all mutual funds, there is no assurance that the Fund will
achieve its investment objective.
5
<PAGE>
The Fund, under the 1940 Act, must comply with certain investment
criteria designed to provide liquidity, reduce risk and allow the Fund to
maintain a stable net asset value of $1.00 per share. The Fund seeks to reduce
risk by investing in securities of various issuers and will comply with 1940 Act
and Internal Revenue Code of 1986 (the "Code") diversification requirements.
Since its inception, the Fund has emphasized safety of principal and
high credit quality. In particular, the internal investment policies of the
Fund's investment policies of the Fund's investment Advisor, Wells Fargo, have
always prohibited the purchase of many types of floating rate instruments
commonly referred to as "derivatives" that are considered potentially volatile.
The following types of derivative securities ARE NOT permitted investments for
the Fund:
o capped floaters (on which interest is not paid when market rates
move above a certain level);
o leveraged floaters (whose interest-rate reset provisions are
based on a formula that magnifies changes in interest rates);
o range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
o dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the relationship
between these indices may result in the value of the instrument
falling below face value); and
o inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Fund may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may only invest in
floating rate instruments that bear interest at a rate that resets quarterly or
more frequently, and which resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates floaters or JJ Kenney index floaters.
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.
6
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<C> <C> <S>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman President of Stephens Insurance Services Inc.;
and President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School of Business
321 Beechcliff Court and Accounting at Wake Forest University since 1982.
Winston-Salem, NC 27104
Joseph N. Hankin, 57 Director President of Westchester Community College since 1971;
75 Grasslands Road Adjunct Professor of Columbia University Teachers College
Valhalla, N.Y. 10595 since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter 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 Inc.; Director of Stephens
Officer, Sports Management Inc.; and Director of Capo Inc.
Secretary and
Treasurer
</TABLE>
7
<PAGE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 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 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
15, 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.
8
<PAGE>
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory
------------------
services to the Fund. As investment Advisor, Wells Fargo Bank furnishes
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Wells Fargo Bank furnishes to the Company's Board of
Directors periodic reports on the investment strategy and performance of the
Fund. Wells Fargo Bank provides the Fund with, among other things, money market
security and fixed-income research, analysis and statistical and economic data
and information concerning interest rate and securities markets trends,
portfolio composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled
to receive a monthly fee at the annual rate of 0.25% of the Fund's average daily
net assets.
Prior to the Consolidation, the predecessor portfolio invested all of
its assets in the Master Portfolio of MIT and did not retain an investment
Advisor. Wells Fargo Bank served as investment Advisor to the Master Portfolio
in which the predecessor portfolio invested and was entitled to receive a
monthly fee at the annual rate of 0.25% of the Master Portfolio's average daily
net assets. For the years ended December 31, 1994, 1995 and 1996, the Master
Portfolio paid to Wells Fargo Bank the following advisory fees and Wells Fargo
Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- --------- ----------- --------- ----------- --------- -----------
$3,310,083 $0 $1,902,572 $255,082 $1,426,685 $0
</TABLE>
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Fund's operations, including coordination of the services performed by
the Fund's investment Advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the Fund's business
9
<PAGE>
together with ordinary clerical and bookkeeping services. Stephens pays the
compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled to
receive a monthly fee of 0.03% and 0.04%, respectively, of the average daily net
assets of the Fund. Prior to February 1, 1998, the Administrator and Co-
Administrator received 0.04% and 0.02% of the average daily net assets of each
Fund for performing administration services. In connection with the change in
fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
Prior to the Consolidation, Wells Fargo Bank and Stephens served as
Administrator and Co-Administrator, respectively, to the Overland predecessor
portfolio under substantially similar terms as those described above.
Prior to February 1, 1997, Stephens served as the sole Administrator and
performed substantially the same services now provided by Stephens and Wells
Fargo Bank. Stephens was entitled to receive for its services a fee, payable
monthly, at the annual rate of 0.05% of the Fund's average daily net assets.
For the periods indicated below, the predecessor portfolio paid the
following dollar amounts to Stephens for administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------- -------- --------
<S> <C> <C>
$317,668 $215,624 $142,613
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the distributor for the Fund. The Fund
has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule") for its shares. The Plan was adopted by
the Company's Board of Directors, including a majority of the Directors who were
not "interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the Distribution Agreement, the Fund may
pay Stephens, as compensation for distribution-related services or as
reimbursement for distribution-related expenses, a monthly fee at the annual
rate of up to 0.30% of the Fund's average daily net assets attributable to its
shares.
The actual fee payable to the Distributor is determined, within such
limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the 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
10
<PAGE>
for distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
Prior to the Consolidation, the predecessor portfolio had adopted a
Distribution Plan on behalf of its shares providing for payment to the
Distributor of up to 0.55% of the predecessor portfolio's average daily net
assets.
For the year ended December 31, 1996, the predecessor portfolio's
distributor received the following amount of 12b-1 fees as compensation for
distribution-related services or reimbursement of distribution-related expenses
under the Fund's Plan.
<TABLE>
<CAPTION>
Printing & Marketing Compensation
Total Mailing Prospectus Brochures to Underwriters
----- ------------------ --------- ---------------
<S> <C> <C> <C>
$7,290,299 N/A N/A $7,290,299
</TABLE>
For the year ended December 31, 1996, Wells Fargo Securities, Inc. and
its registered representatives did not receive any compensation under the Plan.
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund's shares or by vote of a
majority of the Non-Interested Directors on not more than 60 days' written
notice. The Plan may not be amended to increase materially the amounts payable
thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plan may be made except
by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Fund pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Directors has concluded that the Plan is
reasonably likely to benefit the Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
customers that the Fund's shares 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.
11
<PAGE>
SHAREHOLDER SERVICING AGENT. The Fund has approved a Servicing Plan and
---------------------------
has entered into a related Shareholder Servicing Agreement, on behalf of its
shares, with financial institutions, including Wells Fargo Bank. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the Fund, not to exceed 0.30%, on an
annualized basis, of the average daily net assets of the class of shares owned
of record or beneficially by the customers of the Servicing Agent during the
period for which payment is being made. The Servicing Plan and related form of
shareholder servicing agreement were approved by the Company's Board of
Directors and provide that the Fund shall not be obligated to make any payments
under such Plan or related Agreements that exceed the maximum amounts payable
under the Conduct Rules of the NASD.
For the year ended December 31, 1996, the predecessor portfolio did not
pay any shareholder servicing fees to Wells Fargo Bank or its affiliates.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors. No
material amendment to the Servicing Plan and related Servicing Agreement may be
made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
CUSTODIAN. Wells Fargo Bank acts as Custodian for the Fund. The
---------
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund, receives and delivers all assets for the Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of the Fund, and pays all expenses of
the Fund. For its services as Custodian, Wells Fargo Bank is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Wells Fargo Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
12
<PAGE>
Prior to the Consolidation, Wells Fargo Bank served as Custodian to the
predecessor portfolio. For the year ended December 31, 1996, the predecessor
portfolio did not pay any custody fees to Wells Fargo Bank.
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 0.10% of the Fund's average daily net assets.
Under a prior transfer agency agreement with the predecessor portfolio,
Wells Fargo Bank was entitled to receive a base fee and per-account fees. For
the year ended December 31, 1996, the predecessor portfolio paid $4,637,643 in
compensation for transfer and dividend disbursing agency services to Wells Fargo
Bank.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-deferred
------------------------
sales charges are not assessed in connection with the purchase and redemption of
the Fund's shares. Therefore no underwriting commissions are paid to Stephens as
the Fund's Distributor.
PERFORMANCE CALCULATIONS
The Fund may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the Fund during the particular time period shown.
Yield and total return vary based on changes in the market conditions and the
level of the Fund's expenses, and no reported performance figure should be
considered an indication of performance which may be expected in the future.
In connection with communicating its performance to current or
prospective shareholders, these figures may also be compared to the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Fund may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with investment
alternatives. The performance of the Fund, however, may not be comparable to the
performance from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance information shown or advertised for the Fund for periods
prior to December 15, 1997, reflects the performance of the Overland predecessor
portfolio. See "Historical Fund Information."
TOTAL RETURN: The Fund may advertise certain total return information.
------------
As and to the extent required by the SEC, an average annual compound rate of
return ("T") is
13
<PAGE>
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.
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended June 30, 1997
-------------------------------------------------------------------------
10/1/91 Five Three One
Inception Year Year Year
--------- ---- ----- ----
<S> <C> <C> <C> <C>
Overland Express Sweep Fund 3.45% 3.48% 4.39% 4.33%
</TABLE>
CUMULATIVE TOTAL RETURN: In addition to the above performance
-----------------------
information, the Fund may also advertise the cumulative total return of the
Fund. Cumulative total return is based on the overall percentage change in value
of a hypothetical investment in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested, without reflecting the effect of any
sales charge that would be paid by an investor, and is not annualized.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended June 30, 1997
---------------------------------------------------------------------
10/1/91 Five Three
Inception Year Year
--------- ---- -----
<S> <C> <C> <C>
Overland Express Sweep Fund 21.53% 18.68% 13.76%
</TABLE>
YIELD CALCULATIONS: The Fund may, from time to time, include its yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Fund 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.
EFFECTIVE YIELD: Effective yields for the Fund are based on the change
---------------
in the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period, less a pro-rata share of the Fund's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized multiplying by 365/7 (or
365/30 for thirty-day yield), with the resulting yield figure carried to at
least the nearest hundredth of one percent. "Effective yield" for the Fund
assumes that all dividends received during the period have been reinvested.
Calculation
14
<PAGE>
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 Seven-Day Yield = [(Base Period Return +1)365/7]-1.
<TABLE>
<CAPTION>
Yield for the Applicable Period Ended June 30, 1997
---------------------------------------------------
Seven-Day
Seven-Day Effective
Yield Yield
----- -----
<S> <C> <C>
Overland Express Sweep Fund 4.22% 4.31%
</TABLE>
From time to time and only to the extent the comparison is appropriate
for the Fund, the Company may quote the performance or price-earning ratio of
the Fund in advertising and other types of literature as compared to the
performance of the S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
Donoghue's Money Fund Averages, Real Estate Investment Averages (as reported by
the National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by World Gold Council), Bank Averages (which are calculated
from figures supplied by the U.S. League of Savings Institutions based on
effective annual rates of interest on both passbook and certificate accounts),
average annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged indices or performance data of
bonds, municipal securities, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of the Fund also may be compared
to that of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. The Fund's performance will be calculated by relating net asset
value per share at the beginning of a stated period to the net asset value of
the investment, assuming reinvestment of all gains distributions and dividends
paid, at the end of the period. The Fund's comparative performance will be based
on a comparison of yields, 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 Fund with that of competitors. Of course, past performance
cannot be a guarantee of future results. The Company also may include, from time
to time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer.
15
<PAGE>
General mutual fund statistics provided by the Investment Company Institute may
also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate the Fund's historical performance or current
or potential value with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and the
related "Tax Freedom Day."
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare the
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Fund. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs
16
<PAGE>
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, Inc.
(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 advisor. 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 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 individual, trusts, estates and
institutions and $23 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined as of 9:00 a.m. and
1:00 p.m. (Pacific time) on each day the Fund 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.
The Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the
17
<PAGE>
period until maturity, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which the value, as determined by
amortized cost, is higher or lower than the price that the Fund would receive if
the security were sold. During these periods the yield to a shareholder may
differ somewhat from that which could be obtained from a similar fund that uses
a method of valuation based upon market prices. Thus, during periods of
declining interest rates, if the use of the amortized cost method resulted in a
lower value of the Fund's portfolio on a particular day, a prospective investor
in the Fund would be able to obtain a somewhat higher yield than would result
from investment in a fund using solely market values, and existing Fund
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities (as defined in Rule 2a-7) of thirteen months or less and invest only
in those high-quality securities that are determined by the Board of Directors
to present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to the Rule, the Board is
required to establish procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Directors. If
such deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations. It is the intention of the
Fund to maintain a per share net asset value of $1.00, but there can be no
assurance that the Fund will do so.
Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period
18
<PAGE>
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business. The
Fund is open for business each day the NYSE is open for trading (a "Business
Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Fund will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Company's responsibilities under the 1940 Act. In addition,
the Company may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of the Fund as
provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and 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
19
<PAGE>
seeks reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 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 Act and in compliance with procedures adopted by the Board of
Directors.
Wells Fargo Bank, as the Investment Advisor of the Fund, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for the Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for the Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Fund.
Brokerage Commissions. For the year ended December 31, 1996, the
---------------------
predecessor portfolio and the Master Portfolio did not pay brokerage
commissions.
Securities of Regular Broker/Dealers. As of December 31, 1996, the Fund
------------------------------------
owned securities (pooled repurchase agreements) of its "regular brokers or
dealers" or their parents, as defined in the 1940 Act as follows:
<TABLE>
<CAPTION>
Broker/Dealers Amount
-------------- ------
<S> <C>
Goldman Sachs & Co. $45,507,000
Morgan Stanley $13,000,000
J.P. Morgan Securities $ 9,319,000
</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
Fund whenever such changes are believed to be in the
20
<PAGE>
best interests of the Fund and its shareholders. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
by the average monthly value of the Fund's portfolio securities. For purposes of
this calculation, portfolio securities exclude all securities having a maturity
when purchased of one year or less. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce the Fund's expenses and,
accordingly, have a favorable impact on it'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
auditors, legal counsel, transfer agent and dividend disbursing agent; expenses
of redeeming shares; expenses of preparing and printing Prospectuses (except the
expense of printing and mailing Prospectuses used for promotional purposes,
unless otherwise payable pursuant to a Plan), shareholders' reports, notices,
proxy statements and reports to regulatory agencies; insurance premiums and
certain expenses relating to insurance coverage; trade association membership
dues; brokerage and other expenses connected with the execution of portfolio
transactions; fees and expenses of its custodian, including those for keeping
books and accounts and calculating the NAV per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of the Fund's shares; pricing services and any extraordinary
expenses. Expenses attributable to the Fund are charged against Fund assets.
General expenses of the Company are allocated among all of the funds of the
Company, including the Fund, in a manner proportionate to the net assets of the
Fund, on a transactional basis, or on such other basis as the Company's Board of
Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes generally
the tax treatment of distributions by the Fund. This section of the SAI includes
additional information concerning income taxes.
General. The Company intends to qualify the Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interest of
the Fund's shareholders. The Fund will be treated as a separate entity for tax
purposes and thus the provisions of the Code applicable to regulated 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.
21
<PAGE>
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 their
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.
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
22
<PAGE>
recognized pursuant to an available election, during the term the Fund held the
debt obligation.
Capital Gain Distributions. Distributions which are designated by the
--------------------------
Fund as capital gain distributions will be taxed to shareholders as long-term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The Internal Revenue
Service has published a notice describing temporary Regulations to be issued
pursuant to such authority, permitting the application of the reduced capital
gains tax rates to pass-through entities such as the 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%.
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
23
<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. 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.
24
<PAGE>
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 be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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, one or more 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
25
<PAGE>
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.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
the fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the fund involved. Additionally, approval of
an advisory contract, since it affects only one fund, is a matter to be
determined separately by series. Approval by the shareholders of one series is
effective as to that series whether or not sufficient votes are received from
the shareholders of the other series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held. The Company may dispense with an annual meeting of
shareholders in any year in which it is not required to elect Directors under
the 1940 Act.
Each share represents an equal proportional interest in the Fund with
each other share of the same class and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the liquidation
or dissolution of the Company, shareholders of the Fund are entitled to receive
the assets attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when
issued for the consideration described in the Prospectus are fully paid and non-
assessable by the Company.
26
<PAGE>
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
CLASS; TYPE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF FUND
- ---- ---------------- ------------ ----------
<S> <C> <C> <C>
OVERLAND WFB-Wholesale Sweep Single Class 100.00%
EXPRESS SWEEP 155 Fifth St. MAC 0106-066 Record Holder
FUND San Francisco, CA 94103
</TABLE>
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 ("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
predecessor portfolio and Master Portfolio 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 report for the predecessor portfolio and Master Portfolio
of the Fund for the year ended December 31, 1996, are hereby incorporated by
reference to the Overland's Annual Reports as filed with the SEC on March 7,
1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-
8222.
27
<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 two highest ratings for corporate bonds are "Aaa" and "Aa."
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. Moody's applies numerical
modifiers: 1, 2 and 3 in the "Aa" category 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 two highest ratings for corporate bonds are "AAA" and "AA."
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 obligations only in small degree." The ratings in the
"AA" category may be modified by the addition of a plus or minus sign to show
relative standing within the category.
Commercial Paper
Moody's: The highest rating for corporate commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior ability for repayment of senior
short-term debt obligations."
S&P: The "A-1" rating for corporate 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-1
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
PRIME MONEY MARKET MUTUAL FUND
CLASS A
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about one fund in the Stagecoach Family of Funds -- the
PRIME MONEY MARKET MUTUAL FUND (the "Fund"). This SAI relates to the Class A
shares of the Fund.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated February 1, 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 calling 1-800-222-8222 or
by writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA
94120-7066.
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TABLE OF CONTENTS
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Page
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Historical Fund Information..................... 1
Investment Restrictions......................... 1
Additional Permitted Investment Activities...... 3
Risk Factors.................................... 10
Management...................................... 12
Performance Calculations........................ 21
Determination of Net Asset Value................ 26
Additional Purchase and Redemption Information.. 27
Portfolio Transactions.......................... 28
Fund Expenses................................... 29
Federal Income Taxes............................ 30
Capital Stock................................... 34
Other........................................... 37
Independent Auditors............................ 37
Financial Information........................... 37
Appendix........................................ A-1
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HISTORICAL FUND INFORMATION
The Prime Money Market Mutual Fund commenced operations as Pacific American
Liquid Assets, Inc. It was reorganized as the Pacific American Money Market
Portfolio, a portfolio of the Pacific American Funds, on October 1, 1985. The
Fund operated as a portfolio of Pacific American Funds through October 1, 1994,
when it was reorganized as the Pacific American Money Market Portfolio, a
portfolio of Pacifica Funds Trust ("Pacifica"). In July 1995, the Fund was
renamed the Pacifica Prime Money Market Fund. On September 6, 1996, the
Pacifica Prime Money Market Fund(the "predecessor portfolio") was reorganized as
the Company's Prime Money Market Mutual Fund.
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 (defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of the
Fund.
The Prime Money Market Mutual Fund may not:
(1) purchase common stocks and voting securities (including state,
municipal or industrial revenue bonds) except for securities of other investment
companies;
(2) borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing. The Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. As a matter of non-fundamental policy, the Fund intends to
limit its investments in reverse repurchase agreements to no more than 20% of
its total assets;
(3) mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of one-third of the value the
Fund's total assets at the time of its borrowing. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
deemed to be pledged for purposes of this investment restriction;
(4) purchase securities on margin, except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, maintain a
short position;
(5) write put or call options;
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(6) underwrite the securities of other issuers, except as the Fund may be
deemed to be an underwriter in connection with the purchase or sale of portfolio
instruments in accordance with its investment objective and portfolio management
policies;
(7) invest in companies for the purpose of exercising control;
(8) make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
loans of portfolio securities and repurchase agreements;
(9) invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation, acquisition of assets or where
otherwise permitted by the 1940 Act; nor
(10) lend its portfolio securities in excess of one-third of the value of
its total assets.
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Fund's investment in such securities currently is
limited to , subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to any
one investment company, and (iii) 10% of the Fund's net assets in the aggregate.
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.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of its 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.
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ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Asset-Backed Securities
-----------------------
The Fund may purchase asset-backed securities, which are securities
backed by installment contracts, credit-card receivables or other assets.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other reasons, an asset-
backed security's stated maturity may be shortened, and the security's total
return may be difficult to predict precisely.
Bank Obligations
----------------
The Fund may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
of domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by 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 income (including interest, distribution and disposition
proceeds), the possible establishment of exchange controls or the adoption of
other foreign governmental restrictions which might adversely affect the
payment of principal and interest on these securities and the possible seizure
or nationalization of foreign deposits. In addition, foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting and recordkeeping standards
than those applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. 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
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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 Fund may invest in commercial paper. Commercial paper includes short-
term unsecured promissory notes, variable rate demand notes and variable rate
master demand notes issued by domestic and foreign bank holding companies,
corporations and financial institutions as well as similar taxable instruments
issued by government agencies and instrumentalities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Fund may purchase floating- and variable-rate obligations. The Fund
may purchase floating- and variable-rate demand notes and bonds. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit the Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
the Fund may invest in obligations which are not so rated only if Wells Fargo
Bank determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. Wells Fargo
Bank, on behalf of the Fund, considers on an ongoing basis the creditworthiness
of the issuers of the floating- and variable-rate demand obligations in the
Fund's portfolio. The Fund will not invest more than 10% of the value of its
total net assets in floating- or variable-rate demand obligations whose demand
feature is not exercisable within seven days. Such obligations may be treated
as liquid, provided that an active secondary market exists.__
Foreign Obligations
-------------------
The Fund may invest up to 25% of its assets in high-quality, short-term
(thirteen months or less) debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve
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certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
subject to the same uniform accounting, auditing and financial reporting
standards or governmental supervision as domestic issuers. In addition, with
respect to certain foreign countries, taxes may be withheld at the source under
foreign income tax laws and there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect adversely investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Forward Commitments, When-Issued Purchases
and Delayed-Delivery Transactions
------------------------------------------
The Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Fund will generally purchase securities with the intention of acquiring them,
the Fund may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
advisor.
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.
Illiquid Securities
-------------------
The Fund may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling
securities may result in a loss or be costly to the Fund. The Fund may hold up
to 10% of its net assets in illiquid securities.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.
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Loans of Portfolio Securities
-----------------------------
The Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and obtain the return of the securities loaned within five business
days; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one third of the total assets of the Fund.
The Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Fund may pay reasonable
finders, administrative and custodial fees. The Fund will not enter into any
security lending arrangement having a duration longer than one year. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. In either case, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. When the Fund lends its securities,
it continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the collateral received from the borrower or
from the investment of cash collateral in readily marketable, high-quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by the Fund if a material
event affecting the investment is to occur. The Fund may pay a portion of the
interest and fees earned from securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with Wells Fargo Bank, Stephens Inc. or any of their
affiliates.
Mortgage-Backed Securities
--------------------------
The Fund may invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgages, such as
certificates of the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases pass-
through instruments, through which the holder receives a share of all interest
and principal payments from the mortgages underlying the certificate, net of
certain fees. The average life of a mortgage-backed security varies with the
underlying mortgage instruments, which generally have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
prepayments, mortgage refinancings or foreclosure. Mortgage prepayment rates are
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed securities. For
example, these securities are subject to a risk that default in payment will
occur on the underlying
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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
lesser or greater rate than expected. To the extent that the adviser's
assumptions about prepayments are inaccurate, these securities may expose the
Fund, to significantly greater market risks than expected.
Municipal Bonds
---------------
The Fund may invest in municipal bonds. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. Municipal
bonds are debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets, and water
and sewer works. Other purposes for which municipal bonds may be issued include
the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. The Fund may not
invest more than 20% of its assets in industrial development bonds. Assessment
bonds, wherein a specially created district or project area levies a tax
(generally on its taxable property) to pay for an improvement or project may be
considered a variant of either category. There are, of course, other variations
in the types of municipal bonds, both within a particular classification and
between classifications, depending on numerous factors.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Opinions relating
to the validity of municipal obligations and to the exemption of interest
thereon from federal income tax are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the Fund nor the adviser will review
the proceedings relating to the issuance of municipal obligations or the basis
for such opinions.
Certain of the municipal obligations held by the Fund may be insured as to
the timely payment of principal and interest. The insurance policies usually are
obtained by the issuer of the municipal obligation at the time of its original
issuance. In the event that the issuer defaults on interest or principal
payment, the insurer will be notified and will be required to make payment to
the bondholders. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance does not protect against market
fluctuations caused by changes in interest rates and other factors.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit
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risk). Such values also will change in response to changes in the interest rates
payable on new issues of municipal securities (i.e., market risk). Should such
interest rates rise, the values of outstanding securities, including those held
in the Fund's portfolio, will decline and (if purchased at par value) sell at a
discount. If interests rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) sell at a premium. Changes in
the value of municipal securities held in the Fund's portfolio arising from
these or other factors will cause changes in the net asset value per share.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund 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.
Repurchase Agreements
---------------------
The Fund may enter into repurchase agreements, wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. The Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, the Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% 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.
Borrowing and Reverse Repurchase Agreements. The Fund intends to limit
their borrowings (including reverse repurchase agreements) during the current
fiscal year to not more than 10% of their net assets. At the time the Fund
enters into a reverse repurchase agreement (an agreement under which the Fund
sells portfolio securities and agrees to repurchase them at an agreed-upon date
and price), it will place in a segregated custodial account liquid assets such
as U.S. Government securities or other liquid high-grade debt securities having
a value equal to or
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greater than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
Unrated and Downgraded Investments
----------------------------------
The Fund may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank the investment adviser, such obligations are of comparable
quality to other rated investments that are permitted to be purchased by the
Fund. The Fund may purchase unrated instruments only if they are purchased in
accordance with the Fund's procedures adopted by Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by the Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. In the event that a portfolio security
ceases to be an "Eligible Security" or no longer "presents minimal credit
risks," immediate sale of such security is not required, provided that the Board
of Directors has determined that disposal of the portfolio security would not be
in the best interests of the Fund. To the extent the ratings given by Moody's
Investors Service, Inc. ("Moody's) or Standard & Poor's Ratings Group ("S&P")
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies. The ratings of Moody's and S&P are
more fully described in the Appendix.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Fund may invest in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). Payment of principal and
interest on U.S. Government obligations (i) may be backed by the full faith and
credit of the United States (as with U.S. Treasury bills and GNMA certificates)
or (ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
The Fund may invest in obligations issued or guaranteed by the U.S.
Treasury such as bills, notes, bonds and certificates of indebtedness, and in
notes and repurchase agreements collateralized or secured by such obligations
("U.S. Treasury obligations"). U.S. Treasury notes, bills and bonds differ
mainly in the length of their maturity. The U.S. Treasury obligations in which
the Fund invests may also include "U.S. Treasury STRIPS," interests in U.S.
Treasury
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obligations reflected in the Federal Reserve-Book Entry System that represent
ownership in either the future interest payments or the future principal
payments on the U.S. Treasury obligations. U.S. Treasury Strips are "stripped
securities." Stripped securities are issued at a discount to their face value
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are paid to investors.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's, S&P, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Thomson Bank Watch and IBCA Inc. represent their
opinions as to the quality of debt securities. It should be emphasized, however,
that ratings are general and not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to purchase by a Fund, an
issue of debt securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by a Fund. The advisor will
consider such an event in determining whether the Fund involved should continue
to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC") and
are not insured or guaranteed against loss of principal. Therefore, you should
be willing to accept some risk with money you invest in the Fund. Although the
Fund seeks to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so. The Fund may not achieve as high a
level of current income as other mutual funds that do not limit their investment
to the high credit quality
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instruments in which the Fund invests. As with all mutual funds, there can be no
assurance that the Fund will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days (13 months).
In addition, any security that the Fund purchases must present minimal credit
risks and be of "high quality." High quality" means to be rated in the top two
rating categories by the requisite NRSROs or, if unrated, determined to be of
comparable quality to such rated securities by Wells Fargo Bank, as the Fund's
investment adviser, under guidelines adopted by the Board of Directors of the
Company.
The Fund seeks to reduce risk by investing its assets in securities of
various issuers and the Fund is considered to be diversified for purposes of the
1940 Act. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the investment
advisor prohibit the purchase of many types of floating-rate derivative
securities that are considered potentially volatile. The following types of
derivative securities ARE NOT permitted investments for the Fund:
o capped floaters (on which interest is not paid when market
rates move above a certain level);
o leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
o range floaters (which do not pay any interest if market
interest rates move outside of a specified range);
o dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the
relationship between these indices may result in the value of
the instrument falling below face value); and
o inverse floaters (which reset in the opposite direction of
their index).
Additionally, the Fund may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
11
<PAGE>
The portfolio debt instruments of the Fund are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Fund invests may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which the Fund
invests and hence the value of your investment in the Fund.
Generally, securities in which the Fund invests will not earn as high a
yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. The Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that
the Fund will always be able to do so.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------------- ----------------------- --------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Chairman and Executive Vice President
President of Stephens Inc.;
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting
at Wake Forest University
since 1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, NY 10595 1971; Adjunct Professor
of Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- --------------- --------------------------
<S> <C> <C>
Peter G. Gordon, 54 Director Chairman and Co-Founder
Crystal Geyser Water Co. of Crystal Geyser Water
55 Francisco Street Company and President of
San Francisco, CA 94133 Crystal Geyser Roxane
(As of 1/1/98) Water Company since 1977.
*J. Tucker Morse, 53 Director Private Investor;
4 Beaufain Street Chairman of Home Account
Charleston, SC 29401 Network, Inc. Real Estate
Developer; Chairman of
Renaissance Properties
Ltd.; President of Morse
Investment Corporation;
and Co-Managing Partner
of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of
Officer, Secretary Stephens Inc.; Director of
and Treasurer Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ------------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $ 9,250 $27,750
Director
Robert M. Joses $11,250 $33,750
Director
J. Tucker Morse $ 9,250 $27,750
Director
</TABLE>
13
<PAGE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complex as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
-------------------
to the Fund. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of the Fund. Wells
Fargo Bank provides the Fund with, among other things, money market and fixed-
income research, analysis and statistical and economic data and information
concerning interest rate and securities markets trends, portfolio composition,
and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.25% of the Fund's average daily
net assets.
For the period indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Six-Month Period Ended 3/31/97
Fund Fees Paid Fees Waived
- ------------------------------ -------------- --------------
<S> <C> <C>
Prime Money Market Mutual $1,311,073 $568,969
</TABLE>
The Pacifica Prime Money Market Fund was reorganized as the Company's Prime
Money Market Mutual Fund on September 6, 1996. Prior to September 6, 1996,
Wells Fargo Investment
14
<PAGE>
Management, Inc. ("WFIM") and its predecessor, First Interstate Capital
Management, Inc. ("FICM") served as adviser to the Pacifica Prime Money Market
Fund. As of September 6, 1996, Wells Fargo Bank became the adviser to the
Company's Prime Money Market Mutual.
For the period begun April 1, 1996, and ended September 5, 1996, the
predecessor portfolio paid to FICM/WFIM, and for the period begun September 6,
1996 and ended September 30, 1996, the Fund paid to Wells Fargo Bank, the
advisory fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Period Ended 9/30/96
Fund Fees Paid Fees Waived
- ------------------------------ ---------- -----------
<S> <C> <C>
Prime Money Market Mutual $1,845,269 $1,553,968
</TABLE>
For the periods indicated below, the advisory fees paid to the former
adviser by the predecessor portfolio of the Fund were as shown below. These
amounts reflect voluntary fee waivers and expense reimbursements by the advisor.
Prior to October 1, 1994, all of these fees were, in turn, paid by the advisor
to its affiliates which served as investment sub-advisors during the periods
indicated.
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
- --------------------------- -------- -------- --------
<S> <C> <C> <C>
Prime Money Market Mutual $693,315 $330,715 $737,811
</TABLE>
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the 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.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo 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 adviser, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy statements and shareholder
reports for the Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's
15
<PAGE>
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 at the annual rate of 0.03% and 0.04%,
respectively, of the average daily net assets of the Fund. Prior to February
1, 1998, the Administrator and Co-Administrator were entitled to receive a
monthly fee at the annual rate of 0.04% and 0.02%, respectively, of the Fund's
average daily net assets. In connection with the change in fees, the
responsibility for performing various administration services was shifted to the
Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served as
the sole Administrator to the Fund and performed substantially the same services
now provided by Stephens and Wells Fargo Bank.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
- --------------------------- -------- ----------- --------
<S> <C> <C> <C>
Prime Money Market Mutual $400,123 $80,025 $320,098
</TABLE>
The Pacifica Prime Money Market Fund was reorganized as the Company's Prime
Money Market Mutual Fund on September 6, 1996. Prior to September 6, 1996, the
Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica predecessor
portfolio provided management and administration services necessary for the
operation of such portfolio pursuant to an Administrative Services Contract.
For these services, Furman Selz was entitled to receive a fee, payable monthly,
at the annual rate of 0.15% of the average daily net assets of the predecessor
portfolio.
The predecessor portfolio of the Fund was administered through April 21 by
the Dreyfus Corporation ("Dreyfus"), at the annual rate of 0.10% of such
predecessor portfolio's average daily net assets.
For the periods begun September 6, 1996 and ended September 30, 1996 and
October 1, 1996 to January 31, 1997, Stephens served as the Fund's sole
Administrator and was entitled to receive a fee, payable monthly, at the annual
rate of 0.05% of the Fund's average daily net assets.
The following table reflects the administration fees which the respective
Administrators of the Fund and its predecessor portfolio were paid during the
fiscal year ended September 30, 1996. These amounts also reflect the net
administration fees paid to the respective former Administrator of the
predecessor portfolio during the period begun October 1, 1995 and ended
September 5, 1996.
<TABLE>
<CAPTION>
Fund Year Ended 9/30/96
- ------------------------------ ------------------
<S> <C>
Prime Money Market Mutual $1,230,872
</TABLE>
16
<PAGE>
During the fiscal year ended September 30, 1995, the six-month period ended
September 30, 1994 and the fiscal year ended March 31, 1994, the administration
fees paid to Dreyfus by the predecessor portfolio of the Fund were as
follows:
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
- --------------------------- -------- -------- --------
<S> <C> <C> <C>
Prime Money Market Mutual $577,763 $275,596 $614,901
</TABLE>
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 (the "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for its shares. The Plan was adopted by the
Company's Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the related Distribution Agreement, the Fund
may pay Stephens 0.05% of the average daily net assets attributable to the
Fund's Class A shares as compensation for distribution-related services provided
or reimbursement for distribution-related expenses incurred.
The actual fee payable to the Distributor is determined, within such
limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD") under the Conduct Rules of the NASD.
The Distributor may enter into selling agreements with one or more selling
agents (which may include Wells Fargo Bank and its affiliates) under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable to
their customers. The Distributor may retain any portion of the total
distribution fee payable thereunder to compensate it for distribution-related
services provided by it or to reimburse it for other distribution-related
expenses.
For the six-month period ended March 31, 1997, the Fund's Distributor
received the following fees for the distribution-related services, as set forth
below, under the Fund's Plan for Class A shares:
17
<PAGE>
<TABLE>
<CAPTION>
Printing & Compensation
Mailing Marketing to
Fund Total Prospectus Brochures Underwriters
- --------------------------- ----- ----------- --------- ------------
<S> <C> <C> <C> <C>
Prime Money Market
Mutual -- Class A $15,325 $7,961 $7,364 $N/A
</TABLE>
For the year ended September 30, 1996, the Fund paid the Distributor
$62,301 for distribution-related fees and expense reimbursements under the
Fund's Plan for Class A shares.
Prior to September 6, 1996, PFD, a subsidiary of Furman Selz, served as
principal underwriter for the shares of the predecessor portfolio pursuant to a
Distribution Contract as of October 1, 1995. The figures in the table above
reflect amounts paid to PFD through September 5, 1996, and amounts paid to
Stephens from September 6 to September 30, 1996.
Under the distribution plan adopted on behalf of the predecessor portfolio,
Pacifica paid directly or reimbursed PFD monthly for costs and expenses of
marketing their shares.
For the periods indicated above, WFSI and its registered representatives
received no compensation under the Fund's Plan.
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plan also must be approved by such vote of the Directors and Non-Interested
Directors. Such Agreement will terminate automatically if assigned and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund or by vote of a majority of the
Non-Interested Directors on not more than 60 days' written notice. The Plan may
not be amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Fund's
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Directors has concluded that the Plan is
reasonably likely to benefit the Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have
18
<PAGE>
previously developed distribution channels and relationships with the retail
customers that the Fund is designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Fund has approved a Servicing Plan and
----------------------------
have entered into related shareholder servicing agreements, on behalf of the
Class A shares, with financial institutions, including Wells Fargo Bank. Under
the agreements, Shareholder Servicing Agents (including Wells Fargo Bank) agree
to perform, as agents for their customers, administrative services, with respect
to Fund shares, which include aggregating and transmitting shareholder orders
for purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the Fund, not to exceed 0.30%, (0.25%
prior to September 1, 1997) on an annualized basis, of the average daily net
assets of the Class A shares owned of record or beneficially by the customers of
the Servicing Agent during the period for which payment is being made. The
Servicing Plans and related forms of shareholder servicing agreements were
approved by the Company's Board of Directors and provide that the Fund shall not
be obligated to make any payments under such Plans or related Agreements that
exceed the maximum amounts payable under the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD").
For the period indicated below, the dollar amounts of shareholder servicing
fees paid by the Fund on behalf of its Class A shares to Wells Fargo Bank or its
affiliates, were as follows:
<TABLE>
<CAPTION>
Six-Month Period
Fund Ended 3/31/97
---- ----------------
<S> <C>
Prime Money Market Mutual $353,671
</TABLE>
For the period begun October 1, 1995 and ended September 5, 1996, under
similar service agreements with certain institutions, including affiliates of
FICM, shareholder servicing fees were paid to various institutions for the Fund.
For the period begun September 6, 1996 and ended September 30, 1996, shareholder
servicing fees were paid to Wells Fargo Bank or its affiliates. The Class A
shares of the Fund paid shareholder servicing fees, after waivers, for the
fiscal year ended September 30, 1996 as indicated below:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- -------
<S> <C>
Prime Money Market Mutual $801,388
</TABLE>
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of both the Directors of the
Company, including a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund
19
<PAGE>
("Non-Interested Directors"). Any form of servicing agreement related to a
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 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.
CUSTODIAN. Wells Fargo Bank acts as Custodian for the Fund. The
---------
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund, receives and delivers all assets for the Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of the Fund and pays all expenses of
the Fund. For its services as Custodian, Wells Fargo Bank is entitled to
receive fees as follows: a net asset charge at the annual rate of 0.0167%,
payable monthly, plus specified transaction charges. Wells Fargo Bank also will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Fund did not pay any
custody fees, after waivers, to Wells Fargo Bank:
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017, acted
as Custodian of the Pacifica Prime Money Market Fund. FICAL was entitled to
receive a fee from Pacifica, computed daily and payable monthly, at the annual
rate of 0.021% of the first $5 billion in aggregate average daily net assets of
the Fund; 0.0175% of the next $5 billion in aggregate average daily net assets
of the Fund; and 0.015% of the aggregate average daily net assets of the Fund in
excess of $10 billion.
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:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Prime Money Market Mutual $73,023/*/
</TABLE>
_______________
/*/ This amount reflects fee waivers.
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 0.10%
of the Fund's average daily net
20
<PAGE>
assets of the Class A shares. Prior to February 1, 1997, Wells Fargo Bank was
entitled to receive such monthly payments at the annual rate of 0.07% as well as
reimbursement for all reasonable out-of-pocket expenses.
For the six-month period ended March 31, 1997, the Fund paid no transfer
and dividend disbursing agency fees to Wells Fargo Bank.
Furman Selz acted as Transfer Agent for the predecessor portfolio. Pacifica
compensated Furman Selz for providing personnel and facilities to perform
transfer agency related services for Pacifica at a rate intended to represent
the cost of providing such services.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-deferred
------------------------
sales charges are not assessed in connection with the purchase and redemption of
the Fund's shares. Therefore, no underwriting commissions are paid to Stephens
as the Distributor of the Fund's Class A shares.
PERFORMANCE CALCULATIONS
The Fund may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the Fund or a class of shares during the particular
time period shown. Yield and total return vary based on changes in the market
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Fund or its Class A shares may be useful in
reviewing the performance of the Fund or a class of shares and for providing a
basis for comparison with investment alternatives. The performance of the Fund
and the performance of a class of shares in the Fund, however, may not be
comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance shown or advertised for the Class A shares of the Fund prior to
September 6, 1996 reflects performance of the Investor shares of the predecessor
portfolio, which commenced operations on October 1, 1995. Performance shown or
advertised for the Class A shares of the Fund prior to October 1, 1995 reflects
performance of the Service shares of the predecessor portfolio, which commenced
operations on October 1, 1985.
AVERAGE ANNUAL TOTAL RETURN: The Fund may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV")
21
<PAGE>
of a hypothetical initial investment ("P") over a period of years ("n")
according to the following formula: P(1+T)n=ERV.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Fund.
Average Annual Total Return for the Applicable
Period Ended September 30, 1997
----------------------------------------------
<TABLE>
<CAPTION>
Fund Inception One Year ThreeYear Five Year Ten Year
- ---------------------------------------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Prime Money Market Mutual - Class A 7.05% 5.14% 5.23% 4.33% 5.53%
</TABLE>
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
-----------------------
the Fund may also advertise the cumulative total return of the Fund. Cumulative
total return is based on the overall 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>
Fund Inception ThreeYear Five Year Ten Year
- ---------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Prime Money Market Mutual - Class A 207.97% 16.54% 23.62% 71.26%
</TABLE>
YIELD CALCULATIONS: The Fund may, from time to time, include its yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Fund 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.
EFFECTIVE YIELD: Effective yield for the Fund is based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period, less a pro-rata share of the Fund's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized multiplying by 365/7 (or
365/30 for thirty-day yield), with the resulting yield figure carried to at
least the nearest hundredth of one percent.
22
<PAGE>
"Effective yield" for the Fund assumes that all dividends received during the
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Seven-Day Yield = [(Base Period Return +1)365/7]-1
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
- ---------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Prime Money Market Mutual - Class A 5.16% 5.29% 5.14%
</TABLE>
From time to time and only to the extent the comparison is appropriate for
the Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of the Fund or 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 Fund or a Class also may be compared to that of other mutual funds having
similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Fund's
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Fund's comparative performance will be based on a comparison of
yields, 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 Fund 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
23
<PAGE>
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate the Fund's historical performance or current
or potential value with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare the Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time, the Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Fund. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and
24
<PAGE>
redemption requests for shares of the Fund through ATMs and the availability of
combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(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 Fund 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 Fund through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
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
25
<PAGE>
services for accessing Electronic Channels. Such advertising or other literature
may include discussions of the advantages of establishing and maintaining a
Sweep Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Class A shares of the Fund is determined
as of 12:00 noon and 1:00 p.m. (Pacific time) on each day the Fund 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.
The Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Fund's portfolio on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, the Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to present minimal
credit risks. The maturity of an instrument is generally deemed to be the
period remaining until the date when the principal amount thereof is due or the
date on which the instrument is to be redeemed. However, Rule 2a-7 provides
that the maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board
26
<PAGE>
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, the Board will take such
corrective action as it regards as necessary and appropriate, including the sale
of portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity, withholding dividends or establishing a
net asset value per share by using available market quotations. It is the
intention of the Fund to maintain a per share net asset value of $1.00, but
there can be no assurance that the Fund will do so.
Instruments having variable or floating interest rates or demand features
may be deemed to have remaining maturities as follows: (a) a government security
with a variable rate of interest readjusted no less frequently than every
thirteen months may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) an instrument with a
variable rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in thirteen months or less, may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for byusiness (a
"Business Day"). The Fund is open Monday through Friday and are closed on
federal bank holidays. Currently, those holidays are New Year's Day,
President's Day, Martin Luther King Jr. Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
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
27
<PAGE>
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 shareholders to make full payment for shares purchased or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to shares of a Fund.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the 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.
Wells Fargo Bank, as the Investment Adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for the Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory 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
28
<PAGE>
Bank places securities transactions for the Fund may be used by Wells Fargo Bank
in servicing its other accounts, and not all of these services may be used by
Wells Fargo Bank in connection with advising the Fund.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the six-month period ended March 31, 1997 and the
nine-month period ended September 30, 1996.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Fund owned
------------------------------------
securities of its "regular brokers or dealers" or their parents, as defined in
the Act as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- --------------------------- ---------------------- -----------
<S> <C> <C>
Prime Money Market Mutual Goldman Sachs & Co. $72,419,000
J.P. Morgan Securities $15,000,000
Morgan Stanley $15,000,000
</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
Fund whenever such changes are believed to be in the best interests of the Fund
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
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover also can generate short-term capital gain tax
consequences.
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;
29
<PAGE>
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
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 federal income tax treatment of distributions by the Fund. This section of
the SAI includes additional information concerning federal income taxes.
General. The Fund intends to qualify 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 federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund. As
a regulated investment company, the Fund will not be subject to federal income
tax 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.
30
<PAGE>
The Fund also must distribute or be deemed to distribute to their
shareholders at least 90% of its net investment income (which, for this purpose,
includes short-term capital gain) earned in each taxable year. Although the Fund
must ordinarily make such distributions during the taxable year in which it
realized the net investment income, in certain circumstances, the Fund may make
such distributions in the following taxable year. Furthermore, distributions
declared to a shareholder of record in a day in October, November or December of
one taxable year and paid by January 31 of the following taxable year will be
treated as paid by December 31 of the first taxable year. However, in certain
circumstances, such distributions may be made in the 12 months following the
taxable year. The Fund 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 the Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise
tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains
and losses if the securities have been held by the Fund for more than one year
at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations purchased after April 30, 1993) purchased by the Fund at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the 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.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
31
<PAGE>
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
IRS has published a notice applying the reduced capital gains rates to
pass-through entities until the regulations are issued. According to the
notice, a Fund may designate the portion of its capital gain distributions, if
any, to which the 28% and 20% rates described in the preceding paragraph
apply, based on the net amount of each class of capital gain realized by the
Fund, determined as if the Fund were an individual subject to a marginal tax
rate of 28%. Noncorporate shareholders of the Fund may therefore qualify for
the reduced rate of tax on any capital gains paid by the Fund.
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. This loss disallowance rule does not apply to losses realized
under a periodic redemption plan.
32
<PAGE>
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., an estate the income of which is
not subject to U.S. federal income 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 to a foreign shareholder are generally not
subject to U.S. income tax withholding.
33
<PAGE>
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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 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 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.
34
<PAGE>
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 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 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 represented
at a meeting if the holders of more than 50% of the outstanding shares of such
class are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such class 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 of the Fund represents an equal proportional interest
in the Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of the Fund or a
class are entitled to receive the assets attributable to the Fund or class that
are available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
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.
35
<PAGE>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ----------------------------- ------------------------------ -------------------- ----------- -------------
<S> <C> <C> <C> <C>
PRIME MONEY MARKET MUTUAL FUND Virg & Co. Class A 27.05% 8.18%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hare & Co. Class A 34.78% 10.52%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
Omnibus Account 2 Class A 26.93% 8.15%
Attn: Zoe Hines Record Holder
C/o Stephens Inc.
P.O. BOx 3507
Little Rock, AR 72203
Omnibus Account 3 Class A 7.86% N/A
Attn: Zoe Hines Record Holder
C/o Stephens Inc.
P.O. BOx 3507
Little Rock, AR 72203
Wells Fargo Bank Institutional Class 12.28% N/A
Attn: Investment Sweep T-15 Record Holder
1300 SW Fifth Avenue
Portland, OR 97201
Hare & Co. Institutional Class 13.79% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
Virg. & Co. Institutional Class 40.44% 8.87%
Attn: MF Dept. A88-4 Re cord Holder
P.O. Box 8900
Calabasas, CA 91372
Dailey Petroleum Service Corp. Institutional Class 6.06% N/A
P.O. Box 1863 Record Holder
Conroe, TX 77305
Virg. & Co. Service Class 30.28% 5.08%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 8900
Calabasas, CA 91372
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Class; Type Percentage Percentage
Fund Name and Address of Ownership of Class of Portfolio
- ------------------------------ ---------------------------- -------------------- ------------ ------------
<S> <C> <C> <C> <C>
Hare & Co. Service Class 48.58% 8.15%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
PRIME MONEY MARKET MUTUAL FUND Wells Fargo Bank Agent Administrative Class 7.10% N/A
For on Sal 146773 Record Holder
c/o SSP MAC 0187-112
201 Third Street 11/th/ Floor
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 Fund and the exhibits filed therewith, may be examined at the office of the
U.S. 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
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.
37
<PAGE>
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the fiscal period ended March 31, 1997 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling
1-800-222-8222.
38
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
ADMINISTRATIVE CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about two funds in the Stagecoach Family of Funds (each a
"Fund" and collectively, the "Funds") -- the PRIME MONEY MARKET MUTUAL and
TREASURY MONEY MARKET MUTUAL FUNDS. This SAI relates to the Administrative
Class shares of each Fund.
This SAI is not a Prospectus and should be read in conjunction with each
Fund's Prospectus, dated February 1, 1998. All terms used in this SAI that are
defined in the Prospectus for each Fund will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by calling
1-800-260-5969 or writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA
94120-7066.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Historical Fund Information...................................... 1
Investment Restrictions.......................................... 1
Additional Permitted Investment Activities....................... 3
Risk Factors..................................................... 11
Management....................................................... 12
Performance Calculations......................................... 20
Determination of Net Asset Value................................. 25
Additional Purchase and Redemption Information................... 26
Portfolio Transactions........................................... 27
Fund Expenses.................................................... 29
Federal Income Taxes............................................. 29
Capital Stock.................................................... 33
Other............................................................ 36
Independent Auditors............................................. 37
Financial Information............................................ 37
Appendix......................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Prime Money Market Mutual Fund commenced operations on April 30,
1981, as Pacific American Liquid Assets, Inc. It was reorganized as the
Pacific American Money Market Portfolio, a portfolio of the Pacific American
Funds, on October 1, 1985. The Fund operated as a portfolio of Pacific
American Funds through October 1, 1994, when it was reorganized as the Pacific
American Money Market Portfolio, a portfolio of Pacifica Funds Trust
("Pacifica"). In July 1995, the Fund was renamed the Pacifica Prime Money
Market Fund. On September 6, 1996, the Pacifica Prime Money Market Fund was
reorganized as the Company's Prime Money Market Mutual Fund. The
Administrative Class shares commenced operations on _______, 1997. Performance
shown or advertised for the Administrative Class shares of the Funds for
periods prior to _________, 1997, the commencement of operations for such
shares, reflects the performance of the [SERVICE CLASS SHARES] of the
respective Fund.
The Treasury Money Market Mutual Fund commenced operations on October
1, 1985, as the Short-Term Government Fund of the Pacifica American Funds. The
Treasury Money Market Mutual Fund operated as a portfolio of the Pacific
American Funds through October 1, 1994, when it was reorganized as the Pacific
American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust. In July
1995, the Fund was renamed the Pacifica Treasury Money Market Fund. On
September 6, 1996, the Pacifica Treasury Money Market Fund was reorganized as
the Company's Treasury Money Market Mutual Fund. The Administrative Class
shares commenced operations on _______, 1997. Performance shown or advertised
for the Administrative Class shares of the Funds for periods prior to
_________, 1997, the commencement of operations for such shares, reflects the
performance of the [SERVICE CLASS SHARES] of the respective 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 (defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the outstanding voting
securities of such Fund.
The Prime Money Market Mutual and Treasury Money Market Mutual Funds may
not:
(1) purchase common stocks and voting securities (including state,
municipal or industrial revenue bonds) except for securities of other
investment companies;
(2) borrow money or issue senior securities, except that each Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total assets
at the time of such borrowing. None of these Funds will purchase securities
while its borrowings (including reverse repurchase agreements) in excess of 5%
of its total assets are outstanding. As a matter of non-fundamental policy,
each Fund intends to limit its investments in reverse repurchase agreements to
no more than 20% of its total assets;
1
<PAGE>
(3) mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of one-third of the value
of each such Funds' total assets at the time of its borrowing. Securities held
in escrow or separate accounts in connection with a Fund's investment
practices are not deemed to be pledged for purposes of this investment
restriction;
(4) purchase securities on margin, except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, maintain a
short position;
(5) write put or call options;
(6) underwrite the securities of other issuers, except as each such
Fund may be deemed to be an underwriter in connection with the purchase or
sale of portfolio instruments in accordance with its investment objective and
portfolio management policies;
(7) invest in companies for the purpose of exercising control;
(8) make loans, except that each such Fund may purchase or hold debt
instruments in accordance with investment objective and policies and may enter
into loans of portfolio securities and repurchase agreements;
(9) invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation, acquisition of assets
or where otherwise permitted by the 1940 Act; nor
(10) lend its portfolio securities in excess of one-third of the value
of its total assets.
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. 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 or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
2
<PAGE>
(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 portfolios to brokers,
dealers and financial institutions, in amounts not to exceed (in the aggregate)
one-third of such 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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Asset-Backed Securities
-----------------------
The Prime Money Market Mutual Fund may purchase asset-backed
securities, which are securities backed by installment contracts, credit-card
receivables or other assets. Asset-backed securities represent interests in
"pools" of assets in which payments of both interest and principal on the
securities are made monthly, thus in effect "passing through" monthly payments
made by the individual borrowers on the assets that underlie the securities, net
of any fees paid to the issuer or guarantor of the securities. The average life
of asset-backed securities varies with the maturities of the underlying
instruments and is likely to be substantially less than the original maturity of
the assets underlying the securities as a result of prepayments. For this and
other reasons, an asset-backed security's stated maturity may be shortened, and
the security's total return may be difficult to predict precisely.
Bank Obligations
----------------
The Prime Money Market Mutual Fund may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions. With respect to such securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, a Fund may be subject to additional investment risks
that are different in some respects from those incurred by a fund which invests
only in debt obligations of U.S. domestic issuers. Such risks include possible
future political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to
3
<PAGE>
repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other short-
term obligations may include uninsured, direct obligations, bearing fixed,
floating-or variable-interest rates.
Commercial Paper
----------------
The Prime Money Market Mutual Fund may invest in commercial paper.
Commercial paper includes short-term unsecured promissory notes, variable rate
demand notes and variable rate master demand notes issued by domestic and
foreign bank holding companies, corporations and financial institutions as well
as similar taxable instruments issued by government agencies and
instrumentalities.
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. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if Wells Fargo Bank determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which such Fund may invest. Wells Fargo Bank, on behalf of
each Fund, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in such Fund's portfolio. No
Fund will invest more than 10% of the value of its total net assets in floating-
or variable-rate demand obligations whose demand feature
4
<PAGE>
is not exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Foreign Obligations
-------------------
The Prime Money Market Mutual Fund may invest up to 25% of its assets
in high-quality, short-term (thirteen months or less) debt obligations of
foreign branches of U.S. banks or U.S. branches of foreign banks that are
denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not subject to the same uniform accounting, auditing and financial
reporting standards or governmental supervision as domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws and there is a possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect adversely investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
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 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.
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.
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 hold up to
10% of its net assets in illiquid securities.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the [PRIME MONEY MARKET MUTUAL] Fund may purchase may be
backed by an unconditional and irrevocable letter
5
<PAGE>
of credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of Wells Fargo Bank, are of comparable quality
to issuers of other permitted investments of each such Fund may be used for
letter of credit-backed investments.
Loans of Portfolio Securities
-----------------------------
The Funds may lend their portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Funds may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed one third of the total assets of a particular Fund.
A Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. 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 and fees earned from securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
Mortgage-Backed Securities
--------------------------
The Prime Money Market Mutual Fund may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"). These certificates are in
most cases pass-through instruments, through which the holder receives a share
of all interest and principal payments from the mortgages underlying the
certificate, net of certain fees. The average life of a mortgage-backed security
varies with the underlying mortgage instruments, which generally have maximum
maturities of 40 years. The average life is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities as the
result of prepayments, mortgage refinancings or foreclosure. Mortgage prepayment
rates are affected by factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments.
6
<PAGE>
There are risks inherent in the purchase of mortgage-backed securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lesser or greater rate than expected. To the extent
that advisor's assumptions about prepayments are inaccurate, these securities
may expose the Funds, to significantly greater market risks than expected.
Municipal Bonds
---------------
The Prime Money Market Mutual Fund may invest in municipal bonds. The
two principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. Municipal bonds are debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other purposes for
which municipal bonds may be issued include the refunding of outstanding
obligations and obtaining funds for general operating expenses or to loan to
other public institutions and facilities. Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private
user. Certain types of industrial development bonds are issued by or on behalf
of public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal. The Fund may not invest more than 20% of its
assets in industrial development bonds. Assessment bonds, wherein a specially
created district or project area levies a tax (generally on its taxable
property) to pay for an improvement or project may be considered a variant of
either category. There are, of course, other variations in the types of
municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Opinions relating
to the validity of municipal obligations and to the exemption of interest
thereon from federal income tax are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the Funds nor the advisor will review
the proceedings relating to the issuance of municipal obligations or the basis
for such opinions.
Certain of the municipal obligations held by a Fund may be insured as
to the timely payment of principal and interest. The insurance policies usually
are obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance does not protect against
market fluctuations caused by changes in interest rates and other factors.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new
7
<PAGE>
issues of municipal securities (i.e., market risk). Should such interest rates
rise, the values of outstanding securities, including those held in a Fund's
portfolio, will decline and (if purchased at par value) sell at a discount. If
interests rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) sell at a premium. Changes in the value
of municipal securities held in the Fund's portfolio arising from these or other
factors will cause changes in the net asset value per share.
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.
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 10% 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.
Borrowing and Reverse Repurchase Agreements. The Funds intend to
limit their borrowings (including reverse repurchase agreements) during the
current fiscal year to not more than 10% of their net assets. At the time a Fund
enters into a reverse repurchase agreement (an agreement under which the Fund
sells portfolio securities and agrees to repurchase them at an agreed-upon date
and price), it will place in a segregated custodial account liquid assets such
as U.S. Government securities or other liquid high-grade debt securities having
a value equal to or greater than the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements
are
8
<PAGE>
considered to be borrowings under the 1940 Act.
Unrated and Downgraded Investments
----------------------------------
The Prime Money Market Mutual Fund (but not the Treasury Money Market
Mutual Fund) may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank the investment advisor, such obligations are of comparable
quality to other rated investments that are permitted to be purchased by the
Fund. The Fund may purchase unrated instruments only if they are purchased in
accordance with the Fund's procedures adopted by Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by the Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. In the event that a portfolio security ceases
to be an "Eligible Security" or no longer "presents minimal credit risks,"
immediate sale of such security is not required, provided that the Board of
Directors has determined that disposal of the portfolio security would not be in
the best interests of the Fund. To the extent the ratings given by Moody's
Investors Service, Inc. ("Moody's) or Standard & Poor's Ratings Group ("S&P")
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies. The ratings of Moody's and S&P are more
fully described in the Appendix.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Funds may invest in obligations of agencies and instrumentalities
of the U.S. Government ("U.S. Government obligations"). The Treasury Money
Market Mutual Fund may invest only in U.S. Government obligations issued or
guaranteed by the U.S. Treasury. Payment of principal and interest on U.S.
Government obligations (i) may be backed by the full faith and credit of the
United States (as with U.S. Treasury bills and GNMA certificates) or (ii) may be
backed solely by the issuing or guaranteeing agency or instrumentality itself
(as with FNMA notes). In the latter case investors must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
The Treasury Money Market Mutual Fund may invest only in obligations
issued or guaranteed by the U.S. Treasury such as bills, notes, bonds and
certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such obligations ("U.S. Treasury obligations").
U.S. Treasury notes, bills and bonds differ mainly in the length of their
maturity. The U.S. Treasury obligations in which the Fund invests may also
include "U.S. Treasury STRIPS," interests in U.S. Treasury obligations reflected
in the Federal Reserve-Book Entry System that represent ownership in either the
future interest payments or the future principal payments on the U.S. Treasury
obligations. U.S. Treasury Strips are "stripped securities." Stripped securities
are issued at a discount to their face value and may exhibit greater price
9
<PAGE>
volatility than ordinary debt securities because of the manner in which their
principal and interest are paid to investors. The Treasury Money Market Mutual
and Government Money Market Mutual Funds may invest in U.S. Treasury
STRIPS.
The Funds may attempt to increase yields by trading to take advantage
of short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Funds since they do not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P"), Duff & Phelps Credit Rating Co., Fitch Investors
Service, Inc., Thomson Bank Watch and IBCA Inc. represent their opinions as to
the quality of debt securities. It should be emphasized, however, that ratings
are general and not absolute standards of quality, and debt securities with the
same maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by a Fund, an issue of debt
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by a Fund. The 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 Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
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 or guaranteed against loss of principal. Therefore,
you should be willing to accept some risk with money you invest in a Fund.
Although the Funds seek to maintain a stable net asset value of $1.00 per share,
there is no assurance that they will be able to do so. The Funds may not achieve
as high a level of current income as other mutual funds that do not limit their
investment to the high credit quality instruments in which the Funds invest. As
with all mutual funds, there can be no assurance that a Fund will achieve its
investment objective.
The Funds, under the 1940 Act, must comply with certain investment
criteria designed to provide liquidity, reduce risk, and allow the Funds to
maintain a stable net asset value of $1.00 per share. The Funds' dollar-weighted
average portfolio maturity must not exceed 90 days. Any
10
<PAGE>
security that a Fund purchases must have a remaining maturity of not more than
397 days (13 months). In addition, any security that a Fund purchases must
present minimal credit risks and be of "high quality," or in the case of the
Treasury Money Market Mutual Fund, be of the "highest quality." "High quality"
means to be rated in the top two rating categories and "highest quality" means
to be rated only in the top rating category, by the requisite NRSROs or, if
unrated, determined to be of comparable quality to such rated securities by
Wells Fargo Bank, as the Funds' investment advisor, under guidelines adopted by
the Board of Directors of the Company.
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers. In addition, the Funds emphasize safety of principal and high
credit quality. In particular, the internal investment policies of the
investment advisor prohibit the purchase of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Funds:
o capped floaters (on which interest is not paid when market
rates move above a certain level);
o leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
o range floaters (which do not pay any interest if market
interest rates move outside of a specified range);
o dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the
relationship between these indices may result in the value of
the instrument falling below face value); and
o inverse floaters (which reset in the opposite direction of
their index).
Additionally, the Funds may not invest in securities whose interest
rate reset provisions are tied to an index that materially lags short-term
interest rates, such as Cost of Funds Index floaters. The Funds may invest only
in variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Money Market Mutual Fund restricts its investment to U.S.
Treasury obligations that meet all of the standards described above. Obligations
issued or guaranteed by the U.S. Treasury have historically involved little risk
of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such obligations may vary during the period
a shareholder owns shares of the Fund. It should be noted that neither the
United States, nor any agency or instrumentality thereof, has guaranteed,
sponsored or approved the Fund or its shares.
The portfolio debt instruments of the Funds are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Funds invest may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Funds invest
and hence the value of your investment in a Fund.
11
<PAGE>
Generally, securities in which the Funds invest will not earn as high
a yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. Each Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that a
Fund will always be able to do so.
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 Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community
75 Grasslands Road College since 1971; Adjunct Professor of
Valhalla, NY 10595 Columbia 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
55 Francisco Street Geyser Roxane Water Company since 1977.
San Francisco, CA 94133
(As of 1/1/98)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance Properties Ltd.;
President of Morse Investment Corporation;
and Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and
Secretary and Director of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
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
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach
13
<PAGE>
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
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled
to receive a monthly fee at the annual rate of 0.25% of each Fund's average
daily net assets.
For the period indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Six-Month
Period Ended
3/31/97
------------
Fund Fees Paid Fees Waived
---- --------- -----------
Prime Money Market Mutual $1,311,073 $568,969
Treasury Money Market Mutual $1,518,347 $751,971
The Pacifica Prime Money Market and Treasury Money Market Funds were
reorganized as the Company's Prime Money Market Mutual and Treasury Money Market
Mutual Funds on September 6, 1996. Prior to September 6, 1996, Wells Fargo
Investment Management, Inc. ("WFIM") and its predecessor, First Interstate
Capital Management, Inc. ("FICM") served as advisor to the Pacifica Prime Money
Market and Treasury Money Market Funds. As of September 6, 1996, Wells Fargo
Bank became the advisor to the Company's Prime Money Market Mutual and Treasury
Money Market Mutual Funds.
14
<PAGE>
For the period begun April 1, 1996 and ended September 5, 1996, the
predecessor portfolios paid to WFIM, and for the period begun September 6, 1996
and ended September 30, 1996, the Funds paid to Wells Fargo Bank the advisory
fees indicated below and the indicated amounts were waived:
Year Ended
9/30/96
----------
Fund Fees Paid Fees Waived
---- ---------- -----------
Prime Money Market Mutual $1,845,269 $1,553,968
Treasury Money Market Mutual $2,442,922 $2,073,426
For the periods indicated below, the advisory fees paid to the former
advisor by the predecessor portfolios of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds were as shown below. These amounts reflect
voluntary fee waivers and expense reimbursements by the advisor. Prior to
October 1, 1994, all of these fees were, in turn, paid by the advisor to its
affiliates which served as investment sub-advisors during the periods
indicated.
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
---- ---------- ------------ ----------
Prime Money Market Mutual $ 693,315 $330,715 $737,811
Treasury Money Market Mutual $1,160,424 $454,029 $900,919
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.
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
15
<PAGE>
Stephens. The Administrator and Co-Administrator are entitled to receive a
monthly fee at an annual rate 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 at an annual rate of
0.04% and 0.02%, respectively, of the average daily net assets of each Fund for
performing administration services. In connection with the change in fees, the
responsibility for performing various administration services was shifted to the
Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served
as the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank, for a monthly fee at an annual rate
of 0.05% of each Fund's average daily net assets.
For the period indicated below, the Funds paid the following dollar
amounts to Wells Fargo Bank and Stephens for administration and
co-administration fees:
Six Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
Prime Money Market Mutual $400,123 $80,025 $320,098
Treasury Money Market Mutual $483,198 $96,640 $386,558
The Pacifica Prime Money Market and Treasury Money Market Funds were
reorganized as the Company's Prime Money Market Mutual and Treasury Money Market
Mutual Funds on September 6, 1996. Prior to September 6, 1996, the
Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica 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 predecessor
portfolios.
The predecessor portfolios of the Prime Money Market Mutual and
Treasury Money Market Mutual Funds were administered through April 21, 1996 and
April 14, 1996, respectively, by the Dreyfus Corporation ("Dreyfus"), at the
annual rate of 0.10% of each such Fund's average daily net assets.
For the periods begun September 6, 1996 and ended September 30, 1996
and October 1, 1996 to January 31, 1997, Stephens served as each Fund's sole
Administrator and was entitled to receive a fee, payable monthly, at the annual
rate of 0.05% of each Fund's average daily net assets.
The following table reflects the total administration fees which the
respective administrators of the Funds and their predecessor portfolios were
paid during the fiscal year ended September 30, 1996. These amounts also reflect
the net administration fees paid to the respective former Administrator of the
predecessor portfolios during the period begun October 1, 1995 and ended
September 5, 1996.
16
<PAGE>
Year Ended
Fund 9/30/96
---- ----------
Prime Money Market Mutual $1,230,872
Treasury Money Market Mutual $1,745,759
During the fiscal year ended September 30, 1995, the six-month period
ended September 30, 1994 and the fiscal year ended March 31, 1994, the
administration fees paid to Dreyfus by the predecessor portfolios of the Prime
Money Market Mutual and Treasury Money Market Mutual Funds were as follows:
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
---- ---------- ------------ ----------
Prime Money Market Mutual $577,763 $275,596 $614,901
Treasury Money Market Mutual $921,886 $347,499 $690,137
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center
------------
Street, Little Rock, Arkansas 72201, serves as the distributor for the
Funds.
SHAREHOLDER SERVICING AGENT. The Funds have approved a Servicing Plan
----------------------------
and have entered into related Shareholder Servicing Agreements, on behalf of the
Administrative Class shares, with financial institutions, including Wells Fargo
Bank. Under the agreement, Shareholder Servicing Agents (including Wells Fargo
Bank) agree to perform, as agents for their customers, administrative services,
with respect to Fund shares, which include aggregating and transmitting
shareholder orders for purchases, exchanges and redemptions; maintaining
shareholder accounts and records; and providing such other related services as
the Company or a shareholder may reasonably request. For providing shareholder
services, a Servicing Agent is entitled to a fee from the applicable Fund, not
to exceed 0.15%, on an annualized basis, of the average daily net assets of the
class of shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. The
Servicing Plans and related 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 National
Association of Securities Dealers, Inc. ("NASD").
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
17
<PAGE>
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 will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Funds paid the
following dollar amounts in custody fees, after waivers, to Wells Fargo
Bank:
Fund Custody Fees
---- ------------
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017,
acted as Custodian of the Pacifica Prime Money Market and Treasury Money Market
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:
Year Ended
Fund 9/30/96
---- ----------
Prime Money Market Mutual $ 73,023*
Treasury Money Market Mutual $252,183
_______________________________________
* This amount reflects fee waivers.
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 0.02% of each Fund's average daily net assets of the Administrative
Class 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
18
<PAGE>
Bank:
Fund Transfer Agency Fees
---- --------------------
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
Under the transfer agency agreement for the Administrative Class shares
of the Funds in effect prior to February 1, 1997, Wells Fargo Bank was entitled
to receive monthly payments at the annual rate of 0.02% of the average daily net
assets of the Administrative Class shares of each Fund, as well as reimbursement
for all reasonable out-of-pocket expenses. Furman Selz acted as Transfer Agent
for the predecessor portfolios. Pacifica compensated Furman Selz for providing
personnel and facilities to perform transfer agency related services for
Pacifica at a rate intended to represent the cost of providing such
services.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-
-------------------------
deferred sales charges are not assessed in connection with the purchase and
redemption of the Administrative Class shares. Therefore no underwriting
commissions are paid to Stephens as the Funds' Distributor.
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Administrative Class shares of
the Prime Money Market Mutual Fund for periods prior to December 15, 1997,
the commencement of operations for such shares, reflects the performance of the
Service Class shares of the Fund.
19
<PAGE>
Performance shown or advertised for the Administrative Class shares of
the Treasury Money Market Mutual Fund for periods prior to December 15, 1997,
the commencement of operations for such shares, reflects the performance of the
Service Class shares of the Fund.
See "Historical Fund Information."
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula:
P(1+T)n=ERV.
Average Annual Total Return for the Applicable Period
Ended September 30, 1997
-----------------------------------------------------
Administrative Ten Five Three One
Class Year Year Year Year
-------------- ---- ---- ----- ----
Prime Money Market Mutual l5.72% 4.50% 5.37% 5.25%
Treasury Money Market Mutual 5.51% 4.34% 5.20% 5.09%
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
-------------------------------------------------
Administrative Ten Five Three
Class Year Year Year
-------------- ---- ---- -----
Prime Money Market Mutual 74.35% 24.60% 17.00%
Treasury Money Market Mutual 70.90% 23.68% 16.43%
YIELD CALCULATIONS: The Funds may, from time to time, include their
-------------------
yields, tax-equivalent yields (if applicable) 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.
20
<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 seven-day (or 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 365/7 (or
365/30 for thirty-day yield), 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 Seven-Day Yield = [(Base Period Return +1)365/7]-1
Yield for the Applicable Period Ended December 31, 1997
--------------------------------------------------------
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- --------- --------- ----------
Prime Money Market Mutual 5.45% 5.60% 5.39%
Treasury Money Market Mutual 5.28% 5.42% 5.20%
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.
21
<PAGE>
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 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
22
<PAGE>
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, Inc.
(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 advisor. 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 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 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 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
23
<PAGE>
Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Administrative Class shares of the
Prime Money Market Mutual and Treasury Money Market Mutual Funds is determined
as of 12:00 noon and 1:00 p.m. (Pacific time) on each day the Fund 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.
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Funds would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Funds' portfolio on a particular
day, a prospective investor in the Funds would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (as
defined in Rule 2a-7) of thirteen months or less and invest only in those high-
quality securities that are determined by the Board of Directors to present
minimal credit risks. The maturity of an instrument is generally deemed to be
the period remaining until the date when the principal amount thereof is due or
the date on which the instrument is to be redeemed. However, Rule 2a-7 provides
that the maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
24
<PAGE>
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. It is the intention of the Funds to maintain
a per share net asset value of $1.00, but there can be no assurance that each
Fund will do so.
Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business (a
"Business Day"). The Funds are open Monday through Friday and are closed on
federal bank holidays. Currently, those holidays are New Year's Day, President's
Day, Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
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
25
<PAGE>
involuntarily to reimburse the Funds for any losses sustained by reason of the
failure of a shareholders to make full payment for shares purchased or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to shares of a Fund.
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 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 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.
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.
Brokerage Commissions. The Funds did not pay any brokerage commissions
----------------------
on portfolio transactions for the nine-month period ended September 30, 1996 and
the six-month period ended March 31, 1997.
26
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1997, the Funds
-------------------------------------
owned securities of their "regular brokers or dealers" or their parents, as
defined in the Act as follows:
Fund Broker/Dealers Amount
---- -------------- ------
Prime Money Market Mutual Goldman Sachs & Co. $72,419,000
J.P. Morgan Securities $15,000,000
Morgan Stanley $15,000,000
Treasury Money Market Mutual Goldman Sachs & Co. $172,575,000
J.P. Morgan Securities $232,766,000
Morgan Stanley $156,530,000
Portfolio Turnover. The portfolio turnover rate is not a limiting
-------------------
factor when Wells Fargo Bank deems portfolio changes appropriate. Changes may
be made in the portfolios consistent with the investment objectives and policies
of the 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 Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of a Fund; expenses
of shareholders' meetings; expenses relating to the issuance, registration and
qualification of a Fund's shares; pricing services, and any extraordinary
expenses. Expenses attributable to a Fund are charged against a Fund assets.
General expenses of the Company are allocated among all of the funds of the
Company, including a Fund, in a manner proportionate to the net assets of each
Fund, on a transactional basis, or on such other basis as the Company's
27
<PAGE>
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.
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
28
<PAGE>
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.
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%.
29
<PAGE>
Other Distributions. Although dividends will be declared daily based
--------------------
on each Fund's daily earnings, for federal income tax purposes, the Fund's
earnings and profits will be determined at the end of each taxable year and will
be allocated pro rata over the entire year. For federal income tax purposes,
only amounts paid out of earnings and profits will qualify as dividends. Thus,
if during a taxable year a Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that each Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
---------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations had been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do 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
30
<PAGE>
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 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
31
<PAGE>
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 two of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991, and
currently offers shares of over 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 1-800-260-5969 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 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 each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other Series to approve the proposal as to
those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders are not entitled to
any preemptive rights. All shares, when issued, will be fully paid and non-
assessable by the Company.
32
<PAGE>
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
or class are entitled to receive the assets attributable to the Fund or class
that are available for distribution, and a distribution of any general assets
not attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of January 2, 1998, is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of the Administrative Class shares 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>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ---- ---------------- ------------ --------- ------------
<C> <S> <C> <C> <C>
PRIME MONEY Wells Fargo Bank Agent Administrative Class 7.10% N/A
MARKET MUTUAL For On Sale 146773 Record Holder
FUND c/o SSP MAC 0187-112
201 Third Street 11th Fl
San Francisco, CA 94163
Virg & Co. Class A 27.05% 8.18%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 34.78% 10.52%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Omnibus Account 2 Class A 26.93% 8.15%
Attn: Zoe Hines Record Holder
c/o Stephens Inc.
P.O. Box 3507
Little Rock, AR 72203
Virg & Co. Institutional Class 40.44% 8.87%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Service Class 30.28% 5.08%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ---- ---------------- ------------ ---------- ------------
<C> <S> <C> <C> <C>
Hare & Co. Service Class 48.58% 8.15%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
TREASURY Wells Fargo Bank Agent Administrative Class 20.42% N/A
MONEY MARKET FBO Orlandi #143242 Beneficially Owned
MUTUAL FUND Mutual Funds #0187-112 AU #6971
201 Third Street 11th Fl
San Francisco, CA 94163
Wells Fargo Bank Institutional Class 33.23% 7.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg. & Co. Institutional Class 34.83% 7.63%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Virg. & Co. Class A 36.06% 6.22%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
WFB-Wholesale Sweep Class A 30.18% 5.21%
155 Fifth St. MAC 0106-066 Record Holder
San Francisco, CA 94103
Hare & Co. Class E 100.00% 32.54%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Hare & Co. Service Class 66.94% 13.47%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
</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 ("SEC") in Washington, D.C.
Statements contained in the Prospectus or
34
<PAGE>
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
six-month period ended September 30, 1997, are hereby incorporated by reference
to the Company's Semi-Annual Reports as filed with the SEC on December 5,
1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the six-month period ended
March 31, 1997, are hereby incorporated by reference to the Company's Annual
Reports as filed with the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling
1-800-260-5969.
35
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds
are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
SERVICE CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about two funds in the Stagecoach Family of Funds (each a
"Fund" and collectively, the "Funds") -- the PRIME MONEY MARKET MUTUAL and
TREASURY MONEY MARKET MUTUAL FUNDS. This SAI relates to the Service Class
shares of each Fund.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated February 1, 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 calling 1-800-260-5969 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information....................... 1
Investment Restrictions........................... 1
Additional Permitted Investment Activities........ 3
Risk Factors...................................... 11
Management........................................ 12
Performance Calculations.......................... 21
Determination of Net Asset Value.................. 26
Additional Purchase and Redemption Information.... 27
Portfolio Transactions............................ 28
Fund Expenses..................................... 29
Federal Income Taxes.............................. 30
Capital Stock..................................... 34
Other............................................. 37
Independent Auditors.............................. 38
Financial Information............................. 38
Appendix.......................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Prime Money Market Mutual Fund commenced operations on April 30,
1981, as Pacific American Liquid Assets, Inc. It was reorganized as the Pacific
American Money Market Portfolio, a portfolio of the Pacific American Funds, on
October 1, 1985. The Fund operated as a portfolio of Pacific American Funds
through October 1, 1994, when it was reorganized as the Pacific American Money
Market Portfolio, a portfolio of Pacifica Funds Trust ("Pacifica"). In July
1995, the Fund was renamed the Pacifica Prime Money Market Fund. On September 6,
1996, the Pacifica Prime Money Market Fund was reorganized as the Company's
Prime Money Market Mutual Fund.
The Treasury Money Market Mutual Fund commenced operations on October 1,
1985, as the Short-Term Government Fund of the Pacifica American Funds. The
Treasury Money Market Mutual Fund operated as a portfolio of the Pacific
American Funds through October 1, 1994, when it was reorganized as the Pacific
American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust. In July
1995, the Fund was renamed the Pacifica Treasury Money Market Fund. On September
6, 1996, the Pacifica Treasury Money Market Fund was reorganized as the
Company's Treasury Money Market Mutual 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 (defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the outstanding voting
securities of such Fund.
The Prime Money Market Mutual and Treasury Money Market Mutual Funds may not:
(1) purchase common stocks and voting securities (including state,
municipal or industrial revenue bonds) except for securities of other investment
companies;
(2) borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing. None of these Funds will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. As a matter of non-fundamental policy, each Fund
intends to limit its investments in reverse repurchase agreements to no more
than 20% of its total assets;
(3) mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of one-third of the value
of each such Fund's total assets at the time of its borrowing. Securities held
in escrow or separate accounts in connection with a Fund's investment practices
are not deemed to be pledged for purposes of this investment restriction;
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(4) purchase securities on margin, except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, maintain a
short position;
(5) write put or call options;
(6) underwrite the securities of other issuers, except as each such Fund
may be deemed to be an underwriter in connection with the purchase or sale of
portfolio instruments in accordance with its investment objective and portfolio
management policies;
(7) invest in companies for the purpose of exercising control;
(8) make loans, except that each such Fund may purchase or hold debt
instruments in accordance with its investment objective and policies and may
enter into loans of portfolio securities and repurchase agreements;
(9) invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, acquisition of assets or
where otherwise permitted by the 1940 Act; nor
(10) lend its portfolio securities in excess of one-third of the value
of its total assets.
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. 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 or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(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 portfolios to brokers,
dealers and financial institutions, in amounts not to exceed (in the aggregate)
one-third of such Fund's total assets.
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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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Asset-Backed Securities
-----------------------
The Prime Money Market Mutual Fund may purchase asset-backed securities,
which are securities backed by installment contracts, credit-card receivables or
other assets. Asset-backed securities represent interests in "pools" of assets
in which payments of both interest and principal on the securities are made
monthly, thus in effect "passing through" monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any fees
paid to the issuer or guarantor of the securities. The average life of asset-
backed securities varies with the maturities of the underlying instruments and
is likely to be substantially less than the original maturity of the assets
underlying the securities as a result of prepayments. For this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely.
Bank Obligations
----------------
The Prime Money Market Mutual Fund may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions. With respect to such securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, the Fund may be subject to additional investment
risks that are different in some respects from those incurred by a fund which
invests only in debt obligations of U.S. domestic issuers. Such risks include
possible future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities and the possible seizure or nationalization of
foreign deposits. In addition, foreign branches of U.S. banks and foreign banks
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association
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Insurance Fund administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating-or variable-interest
rates.
Commercial Paper
----------------
The Prime Money Market Mutual Fund may invest in commercial paper.
Commercial paper includes short-term unsecured promissory notes, variable rate
demand notes and variable rate master demand notes issued by domestic and
foreign bank holding companies, corporations and financial institutions as well
as similar taxable instruments issued by government agencies and
instrumentalities.
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. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if Wells Fargo Bank determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which such Fund may invest. Wells Fargo Bank, on behalf of
each Fund, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in such Fund's portfolio. No
Fund will invest more than 10% of the value of its total net assets in floating-
or variable-rate demand obligations whose demand feature is not exercisable
within seven days. Such obligations may be treated as liquid, provided that an
active secondary market exists.
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Foreign Obligations
-------------------
The Prime Money Market Mutual Fund may invest up to 25% of its assets in
high-quality, short-term (thirteen months or less) debt obligations of foreign
branches of U.S. banks or U.S. branches of foreign banks that are denominated in
and pay interest in U.S. dollars. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
subject to the same uniform accounting, auditing and financial reporting
standards or governmental supervision as domestic issuers. In addition, with
respect to certain foreign countries, taxes may be withheld at the source under
foreign income tax laws and there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect adversely investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
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 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.
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.
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 hold up to 10% of its
net assets in illiquid securities.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Prime Money Market Mutual 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.
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Loans of Portfolio Securities
-----------------------------
The Funds may lend their portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Funds may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed one third of the total assets of a particular Fund.
A Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. 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 and fees earned from securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
Mortgage-Backed Securities
--------------------------
The Prime Money Market Mutual Fund may invest in mortgage-backed
securities, including those representing an undivided ownership interest in a
pool of mortgages, such as certificates of the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"). These certificates are in
most cases pass-through instruments, through which the holder receives a share
of all interest and principal payments from the mortgages underlying the
certificate, net of certain fees. The average life of a mortgage-backed security
varies with the underlying mortgage instruments, which generally have maximum
maturities of 40 years. The average life is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities as the
result of prepayments, mortgage refinancings or foreclosure. Mortgage prepayment
rates are affected by factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lesser or greater rate than expected. To
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To the extent that advisor's assumptions about prepayments are inaccurate, these
securities may expose the Funds, to significantly greater market risks than
expected.
Municipal Bonds
---------------
The Prime Money Market Mutual Fund may invest in municipal bonds. The
two principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. Municipal bonds are debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets, and water and sewer works. Other purposes for which municipal
bonds may be issued include the refunding of outstanding obligations and
obtaining funds for general operating expenses or to loan to other public
institutions and facilities. Industrial development bonds are a specific type of
revenue bond backed by the credit and security of a private user. Certain types
of industrial development bonds are issued by or on behalf of public authorities
to obtain funds to provide privately-operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. The Fund may not invest more than 20% of its assets in industrial
development bonds. Assessment bonds, wherein a specially created district or
project area levies a tax (generally on its taxable property) to pay for an
improvement or project may be considered a variant of either category. There
are, of course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Opinions relating to
the validity of municipal obligations and to the exemption of interest thereon
from federal income tax are rendered by bond counsel to the respective issuers
at the time of issuance. Neither the Fund nor the advisor will review the
proceedings relating to the issuance of municipal obligations or the basis for
such opinions.
Certain of the municipal obligations held by the Fund may be insured as
to the timely payment of principal and interest. The insurance policies usually
are obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance does not protect against
market fluctuations caused by changes in interest rates and other factors.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium. Changes in
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the value of municipal securities held in the Fund's portfolio arising from
these or other factors will cause changes in the net asset value per share.
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.
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 10% 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.
Borrowing and Reverse Repurchase Agreements. The Funds intend to limit
their borrowings (including reverse repurchase agreements) during the current
fiscal year to not more than 10% of their net assets. At the time a Fund enters
into a reverse repurchase agreement (an agreement under which the Fund sells
portfolio securities and agrees to repurchase them at an agreed-upon date and
price), it will place in a segregated custodial account liquid assets such as
U.S. Government securities or other liquid high-grade debt securities having a
value equal to or greater than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
Unrated and Downgraded Investments
----------------------------------
The Prime Money Market Mutual Fund
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may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank the investment advisor, such obligations are of comparable
quality to other rated investments that are permitted to be purchased by the
Fund. The Fund may purchase unrated instruments only if they are purchased in
accordance with the Fund's procedures adopted by Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by the Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. In the event that a portfolio security ceases
to be an "Eligible Security" or no longer "presents minimal credit risks,"
immediate sale of such security is not required, provided that the Board of
Directors has determined that disposal of the portfolio security would not be in
the best interests of the Fund. To the extent the ratings given by Moody's
Investors Service, Inc. ("Moody's) or Standard & Poor's Ratings Group ("S&P")
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies. The ratings of Moody's and S&P are more
fully described in the Appendix.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Funds may invest in obligations of agencies and instrumentalities of
the U.S. Government ("U.S. Government obligations"). The Treasury Money Market
Mutual Fund may invest only in U.S. Government obligations issued or guaranteed
by the U.S. Treasury. Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and credit of the United States
(as with U.S. Treasury bills and GNMA certificates) or (ii) may be backed solely
by the issuing or guaranteeing agency or instrumentality itself (as with FNMA
notes). In the latter case investors must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
which agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
The Treasury Money Market Mutual Fund may invest only in obligations
issued or guaranteed by the U.S. Treasury such as bills, notes, bonds and
certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such obligations ("U.S. Treasury obligations").
U.S. Treasury notes, bills and bonds differ mainly in the length of their
maturity. The U.S. Treasury obligations in which the Fund invests may also
include "U.S. Treasury STRIPS," interests in U.S. Treasury obligations reflected
in the Federal Reserve-Book Entry System that represent ownership in either the
future interest payments or the future principal payments on the U.S. Treasury
obligations. U.S. Treasury Strips are "stripped securities." Stripped securities
are issued at a discount to their face value and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are paid to investors. The Treasury Money Market Mutual
and Government Money Market Mutual Funds may invest in U.S. Treasury STRIPS.
The Funds may attempt to increase yields by trading to take advantage of
short-term
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market variations. This policy could result in high portfolio turnover, which
should not adversely affect the Funds since they do not ordinarily pay brokerage
commissions on the purchase of short-term debt obligations.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's, S&P, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Thomson Bank Watch and IBCA Inc. represent their
opinions as to the quality of debt securities. It should be emphasized, however,
that ratings are general and not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to purchase by a Fund, an
issue of debt securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by a Fund. The 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 Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
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 or guaranteed against loss of principal. Therefore,
you should be willing to accept some risk with money you invest in a Fund.
Although the Funds seek to maintain a stable net asset value of $1.00 per share,
there is no assurance that they will be able to do so. The Funds may not achieve
as high a level of current income as other mutual funds that do not limit their
investment to the high credit quality instruments in which the Funds invest. As
with all mutual funds, there can be no assurance that a Fund will achieve its
investment objective.
The Funds, under the 1940 Act, must comply with certain investment
criteria designed to provide liquidity, reduce risk, and allow the Funds to
maintain a stable net asset value of $1.00 per share. The Funds' dollar-weighted
average portfolio maturity must not exceed 90 days. Any security that a Fund
purchases must have a remaining maturity of not more than 397 days (13 months).
In addition, any security that a Fund purchases must present minimal credit
risks and be of "high quality," or in the case of the Treasury Money Market
Mutual Fund, be of the "highest quality." "High quality" means to be rated in
the top two rating categories and "highest quality" means to be rated only in
the top rating category, by the requisite NRSROs or, if
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unrated, determined to be of comparable quality to such rated securities by
Wells Fargo Bank, as the Funds' investment advisor, under guidelines adopted by
the Board of Directors of the Company.
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers and the Funds are considered to be diversified for purposes of
the 1940 Act. In addition, the Funds emphasize safety of principal and high
credit quality. In particular, the internal investment policies of the
investment advisor prohibit the purchase of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Funds:
o capped floaters (on which interest is not paid when market
rates move above a certain level);
o leveraged floaters (whose interest rate reset
provisions are based on a formula that magnifies changes in
interest rates);
o range floaters (which do not pay any interest if market
interest rates move outside of a specified range);
o dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the
relationship between these indices may result in the value of
the instrument falling below face value); and
o inverse floaters (which reset in the opposite direction of
their index).
Additionally, the Funds may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Funds may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Money Market Mutual Fund restricts its investment to U.S.
Treasury obligations that meet all of the standards described above. Obligations
issued or guaranteed by the U.S. Treasury have historically involved little risk
of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such obligations may vary during the period
a shareholder owns shares of the Fund. It should be noted that neither the
United States, nor any agency or instrumentality thereof, has guaranteed,
sponsored or approved the Fund or its shares.
The portfolio debt instruments of the Funds are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Funds invest may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Funds invest
and hence the value of your investment in a Fund.
Generally, securities in which the Funds invest will not earn as high a
yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. Each Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that a
Fund will always be able to do so.
11
<PAGE>
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, Chairman Executive Vice President of Stephens Inc.; President of
and President Stephens Insurance Services Inc.; Senior Vice President
of Stephens Sports Management Inc.; and President of
Investor Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School of
321 Beechcliff Court Business and Accounting at Wake Forest University
Winston-Salem, NC 27104 since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser Water
Crystal Geyser Water Co. Company and President of Crystal Geyser Roxane
Water Company since 1977.
San Francisco, CA 94133
(As of 1/1/98)
Joseph N. Hankin, 57 Director President of Westchester Community College since 1971;
75 Grasslands Road Adjunct Professor of Columbia University Teachers College since 1976.
Valhalla, NY 10595
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account Network,
4 Beaufain Street Inc. Real Estate Developer; Chairman of Renaissance Properties Ltd.;
Charleston, SC 29401 President of Morse Investment Corporation; and Co-Managing Partner
of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of Capo Inc.
and Treasurer
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Year Ended March 31, 1997
-------------------------
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 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 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.
13
<PAGE>
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
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled
to receive a monthly fee at the annual rate of 0.25% of each Fund's average
daily net assets.
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
-------
Fund Fees Paid Fees Waived
- ---- --------- -----------
<S> <C> <C>
Prime Money Market Mutual $1,311,073 $ 568,969
Treasury Money Market Mutual $1,518,347 $ 751,971
</TABLE>
The Pacifica Prime Money Market and Treasury Money Market Funds were
reorganized as the Company's Prime Money Market Mutual and Treasury Money Market
Mutual Funds on September 6, 1996. Prior to September 6, 1996, Wells Fargo
Investment Management, Inc. ("WFIM") and its predecessor, First Interstate
Capital Management, Inc. ("FICM") served as advisor to the Pacifica Prime Money
Market and Treasury Money Market Funds. As of September 6, 1996, Wells Fargo
Bank became the advisor to the Company's Prime Money Market Mutual and Treasury
Money Market Mutual Funds.
For the period begun April 1, 1996, and ended September 5, 1996, the
predecessor portfolios paid to FICM/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:
Period Ended
9/30/96
-------
<TABLE>
<CAPTION>
Fund Fees Paid Fees Waived
- ---- --------- -----------
<S> <C> <C>
Prime Money Market Mutual $1,845,269 $1,553,968
Treasury Money Market Mutual $2,442,922 $2,073,426
</TABLE>
14
<PAGE>
For the periods indicated below, the advisory fees paid to the former
advisor by the predecessor portfolios of the Prime Money Market Mutual and the
Treasury Money Market Mutual Funds were as shown below. These amounts reflect
voluntary fee waivers and expense reimbursements by the advisor. Prior to
October 1, 1994, all of these fees were, in turn, paid by the advisor to its
affiliates which served as investment sub-advisors during the periods
indicated.
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Prime Money Market Mutual $ 693,315 $330,715 $737,811
Treasury Money Market Mutual $1,160,424 $454,029 $900,919
</TABLE>
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.
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 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 at an annual rate 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 received a monthly fee at an
annual rate of 0.04% and 0.02%, respectively, of the average daily net assets of
each Fund for performing administration services. In connection with the change
in fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served as
the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank, for a monthly fee at an annual rate
of 0.05% of the average daily net assets of each Fund.
15
<PAGE>
For the period indicated below, the Funds paid the following dollar
amounts to Wells Fargo Bank and Stephens for administration and co-
administration fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
-------
Fund Total Wells Fargo Stephens
- ---- ----- ----------- --------
<S> <C> <C> <C>
Prime Money Market Mutual $400,123 $80,025 $320,098
Treasury Money Market Mutual $483,198 $96,640 $386,558
</TABLE>
The Pacifica Prime Money Market and Treasury Money Market Funds were
reorganized as the Company's Prime Money Market Mutual and Treasury Money Market
Mutual Funds on September 6, 1996. Prior to September 6, 1996, the
Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica 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 predecessor
portfolios.
The predecessor portfolios of the Prime Money Market Mutual and Treasury
Money Market Mutual Funds were administered through April 21, and April 14,
1996, respectively, by the Dreyfus Corporation ("Dreyfus"), at the annual rate
of 0.10% of each such Fund's average daily net assets.
For the periods begun September 6, 1996 and ended September 30, 1996 and
October 1, 1996 to January 31, 1997, Stephens served as each Fund's sole
Administrator and was entitled to receive a fee, payable monthly, at the annual
rate of 0.05% of each Fund's average daily net assets.
The following table reflects the administration fees which the
respective Administrators of the Funds and their predecessor portfolios were
paid during the fiscal year ended September 30, 1996. These amounts also reflect
the net administration fees paid to the respective former Administrator of the
predecessor portfolios during the period begun October 1, 1995 and ended
September 5, 1996.
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
- ---- -------
<S> <C>
Prime Money Market Mutual $1,230,872
Treasury Money Market Mutual $1,745,759
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period
ended September 30, 1994 and the fiscal year ended March 31, 1994, the
administration fees paid to Dreyfus by the predecessor portfolios of the Prime
Money Market Mutual Fund and the Treasury Money Market Mutual Fund were as
follows:
16
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
Fund 9/30/95 9/30/94 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Prime Money Market Mutual $577,763 $275,596 $614,901
Treasury Money Market Mutual $921,886 $347,499 $690,137
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor") located at 111 Center Street,
-----------
Little Rock, Arkansas, 72201, serves as the distributor for the Funds.
SHAREHOLDER SERVICING AGENT. The Funds have approved a Servicing Plan
---------------------------
and have entered into related shareholder servicing agreements, on behalf of the
Service Class shares, with financial institutions, including Wells Fargo Bank.
Under the agreements, Shareholder Servicing Agents (including Wells Fargo Bank)
agree to perform, as agents for their customers, administrative services, with
respect to Fund shares, which include aggregating and transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the applicable Fund, not to exceed
0.20%, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The Servicing Plans and
related 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 National Association of Securities
Dealers, Inc. ("NASD").
For the period indicated below, the dollar amounts of shareholder
servicing fees paid by the Funds, on behalf of the Service Class shares, to
Wells Fargo Bank or its affiliates, were as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
- ---- -------
<S> <C>
Prime Money Market Mutual $ 692,898
Treasury Money Market Mutual $1,230,129
</TABLE>
For the period begun October 1, 1995 and ended September 5, 1996, under
similar service agreements with certain institutions, including affiliates of
FICM, shareholder servicing fees were paid to various institutions for the
Funds. For the period begun September 6, 1996 and ended September 30, 1996,
shareholder servicing fees were paid to Wells Fargo Bank or its affiliates. The
Service Class shares of the Funds paid shareholder servicing fees, after
waivers, for the fiscal year ended September 30, 1996 as indicated below:
17
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
- ---- -------
<S> <C>
Prime Money Market Mutual $1,355,940
Treasury Money Market Mutual $2,490,845
</TABLE>
General. Each Servicing Plan will continue in effect from year to year
-------
if such continuance is approved by a majority vote of both the Directors of the
Company, 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 the 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.
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 will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For 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>
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
</TABLE>
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017,
acted as Custodian of the Pacifica Prime Money Market and Treasury Money Market
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
18
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
- ---- -------
<S> <C>
Prime Money Market Mutual $ 73,023*
Treasury Money Market Mutual $252,183
</TABLE>
- -------------
* This amount reflects fee waivers.
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 0.10% of each Fund's average daily net assets of the Service Class
shares. Prior to September 1, 1997, Wells Fargo Bank was entitled to receive
such monthly payments at the annual rate of 0.02%.
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>
Prime Money Market Mutual $ 0
Treasury Money Market Mutual $ 0
</TABLE>
Under the transfer agency agreement for the Service Class shares of the
Funds in effect prior to February 1, 1997, Wells Fargo Bank was entitled to
receive monthly payments at the annual rate of 0.02% of the average daily net
assets of the Service Class shares of each Fund, as well as reimbursement for
all reasonable out-of-pocket expenses. Furman Selz acted as Transfer Agent for
the predecessor portfolios. Pacifica compensated Furman Selz for providing
personnel and facilities to perform transfer agency related services for
Pacifica at a rate intended to represent the cost of providing such services.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent-deferred
------------------------
sales charges are not assessed in connection with the purchase and redemption of
Service Class shares. Therefore no underwriting commissions are paid to Stephens
as the Funds' Distributor.
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
19
<PAGE>
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Service Class shares of the
Funds for periods prior to September 6, 1996, reflects the performance of the
Service Class shares of the corresponding Pacifica predecessor portfolio.
AVERAGE ANNUAL TOTAL RETURNS: The Funds may advertise certain total
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula:
P(1+T)n=ERV.
<TABLE>
<CAPTION>
Average Annual Total Return for the
-----------------------------------
Applicable Period Ended September 30, 1997
------------------------------------------
Service Ten Five Three One
Class Year Year Year Year
- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Prime Money Market Mutual 5.72% 4.50% 5.37% 5.25%
Treasury Money Market Mutual 5.51% 4.34% 5.20% 5.09%
</TABLE>
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.
<TABLE>
<CAPTION>
Cumulative Total Return for the
-------------------------------
Applicable Period Ended September 30, 1997
------------------------------------------
Service Ten Five Three
Class Year Year Year
- ----- ---- ---- ----
<S> <C> <C> <C>
Prime Money Market Mutual 74.35% 24.60% 17.00%
Treasury Money Market Mutua l70.90% 23.68% 16.43%
</TABLE>
YIELD CALCULATIONS: The Funds may, from time to time, include their
------------------
yields, tax-equivalent yields (if applicable) and effective yields in
advertisements or reports to shareholders
20
<PAGE>
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.
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 seven-day (or 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 365/7 (or
365/30 for thirty-day yield), 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 Seven-Day Yield = [(Base Period Return +1)365/7]-1
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
- ---- ----- ----- -----
<S> <C> <C> <C>
Prime Money Market Mutua l5.26% 5.40% 5.24%
Treasury Money Market Mutual 4.96% 5.09% 5.06%
</TABLE>
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
21
<PAGE>
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 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
22
<PAGE>
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, Inc.
(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 advisor. 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 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 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 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.
23
<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 the Service Class shares of the Prime
Money Market Mutual and Treasury Money Market Mutual Funds is determined as of
12:00 noon and 1:00 p.m. (Pacific time) on each day the Fund 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.
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Funds would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Funds' portfolio on a particular
day, a prospective investor in the Funds would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (as
defined in Rule 2a-7) of thirteen months or less and invest only in those high-
quality securities that are determined by the Board of Directors to
24
<PAGE>
present minimal credit risks. The maturity of an instrument is generally deemed
to be the period remaining until the date when the principal amount thereof is
due or the date on which the instrument is to be redeemed. However, Rule 2a-7
provides that the maturity of an instrument may be deemed shorter in the case of
certain instruments, including certain variable and floating rate instruments
subject to demand features. Pursuant to the Rule, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible, a
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the Fund's portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Directors. If such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. It is the intention of the Funds to maintain
a per share net asset value of $1.00, but there can be no assurance that each
Fund will do so.
Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business (a
"Business Day"). The Funds are open Monday through Friday and are closed on
federal bank holidays. Currently, those holidays are New Year's Day, President's
Day, Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
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
25
<PAGE>
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 Funds for any
losses sustained by reason of the failure of a shareholders to make full payment
for shares purchased or to collect any charge relating to a transaction effected
for the benefit of a shareholder which is applicable to shares of a Fund.
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 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 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.
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
26
<PAGE>
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.
Brokerage Commissions. The Funds did not pay any brokerage commissions
---------------------
on portfolio transactions for the nine-month period ended September 30, 1996 and
the six-month period ended March 31, 1997.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Funds
------------------------------------
owned securities of their "regular brokers or dealers" or their parents, as
defined in the Act as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- ---- -------------- ------
<S> <C> <C>
Prime Money Market Mutual Goldman Sachs & Co. $ 72,419,000
J.P. Morgan Securities $ 15,000,000
Morgan Stanley $ 15,000,000
Treasury Money Market Mutual Goldman Sachs & Co. $172,575,000
J.P. Morgan Securities $232,766,000
Morgan Stanley $156,530,000
</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.
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
27
<PAGE>
Stephens, the Company bears all costs of its operations, including the
compensation of its Directors who are not affiliated with Stephens or Wells
Fargo Bank or any of their affiliates; advisory, shareholder servicing and
administration fees; payments pursuant to any Plan; interest charges; taxes;
fees and expenses of its independent accountants, legal counsel, transfer agent
and dividend disbursing agent; expenses of redeeming shares; expenses of
preparing and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against a Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
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
28
<PAGE>
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.
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
29
<PAGE>
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%.
Other Distributions. Although dividends will be declared daily based on
-------------------
each Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year a Fund's declared dividends (as declared daily throughout
the year) exceed the Fund's net income (as determined at the end of the year),
only that portion of the year's distributions which equals the year's earnings
and profits will be deemed to have constituted a dividend. It is expected that
each Fund's net income, on an annual basis, will equal the dividends declared
during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that
30
<PAGE>
Fund share will be treated as long-term capital loss to the extent of the
designated capital gain distribution. In addition, if a shareholder holds Fund
shares for six months or less, any loss on the sale or exchange of those shares
will be disallowed to the extent of the amount of exempt-interest dividends
received with respect to the shares. The Treasury Department is authorized to
issue regulations reducing the six months holding requirement to a period of not
less than the greater of 31 days or the period between regular dividend
distributions where a Fund regularly distributes at least 90% of its net tax-
exempt interest, if any. No such regulations had been issued as of the date of
this SAI. The loss disallowance rules described in this paragraph do 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 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
31
<PAGE>
(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.
CAPITAL STOCK
The Funds are two of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991, and
currently offers shares of over 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 1-800-260-5969 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 Fund's fundamental investment
32
<PAGE>
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 each Series.
Approval by the shareholders of one Series is effective as to that Series
whether or not sufficient votes are received from the shareholders of the other
Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders are not entitled to
any preemptive rights. All shares, when issued, will be fully paid and non-
assessable by the Company.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
or class are entitled to receive the assets attributable to the Fund or class
that are available for distribution, and a distribution of any general assets
not attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of January 2, 1998 is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of the Service Class shares 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.
33
<PAGE>
<TABLE>
<CAPTION>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
Class; Type Percentage Percentage
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
PRIME MONEY MARKET Virg & Co. Service Class 30.28% 5.08%
MUTUAL FUND Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Service Class 48.58% 8.15%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10286
Virg. & Co. Class A 27.05% 8.18%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 34.78% 10.52%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Omnibus Account 2 Class A 26.93% 8.15%
Attn: Zoe Hines Record Holder
c/o Stephens Inc.
P.O. Box 3507
Little Rock, AR 72203
Virg & Co. Institutional Class 40.44% 8.87%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
TREASURY Wells Fargo Bank, TTEE Service Class 5.78% N/A
MONEY MARKET FBO Choicemaster Beneficially Owned
MUTUAL FUND Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Service Class 22.52% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Service Class 66.94% 13.47%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Virg. & Co. Class A 36.06% 6.22%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Class; Type Percentage Percentage
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
WFB-WHOLESALE SWEEP Class A 30.18% 5.21%
155 Fifth Street Mac 0106-066 Record Holder
San Francisco, CA 94103
Hare & Co. Class E 100.00% 32.54%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIFF/Master Note
New York, NY 10005-2501
Wells Fargo Bank Institutional Class 33.23% 7.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Ave.
Portland, OR 97201-5688
Virg. & Co. Institutional Class 34.83% 7.63%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25% of the voting securities of a
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 ("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
six-month period
35
<PAGE>
ended September 30, 1997, are hereby incorporated by reference to the Company's
Semi-Annual Reports as filed with the SEC on December 5, 1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the six-month period ended March
31, 1997, are hereby incorporated by reference to the Company's Annual Reports
as filed with the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-
5969.
36
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
ARIZONA TAX-FREE FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about five funds in the Stagecoach Family of Funds (each, a "Fund"
and collectively, the "Funds") -- the ARIZONA TAX-FREE, CALIFORNIA TAX-FREE
BOND, CALIFORNIA TAX-FREE INCOME, NATIONAL TAX-FREE and OREGON TAX-FREE FUNDS
(sometimes, collectively, the "Tax-Free Funds"). This SAI relates to the
Institutional Class shares for each Fund.
This SAI is not a prospectus and should be read in conjunction with the Funds'
Prospectus, dated February 1, 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 calling 1-800-260-5969 or writing
to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information......................................... 1
Investment Restrictions............................................. 1
Additional Permitted Investment Activities.......................... 6
Risk Factors........................................................ 20
Special Considerations Affecting Arizona Municipal Obligations...... 22
Special Considerations Affecting California Municipal Obligations... 24
Special Considerations Affecting Oregon Municipal Obligations....... 28
Management.......................................................... 33
Performance Calculations............................................ 44
Determination of Net Asset Value.................................... 51
Additional Purchase and Redemption Information...................... 52
Portfolio Transactions.............................................. 52
Fund Expenses....................................................... 54
Federal Income Taxes................................................ 55
Capital Stock....................................................... 62
Other............................................................... 64
Independent Auditors................................................ 64
Financial Information............................................... 64
Appendix............................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The California Tax-Free Bond and California Tax-Free Income Funds
(sometimes referred to as the "California Funds") were originally organized as
funds of the Company. The California Tax-Free Bond Fund commenced operations on
January 1, 1992 and the California Tax-Free Income Fund commenced operations on
November 18, 1992. On December 12, 1997, the California Tax-Free Bond Fund of
Overland Express Funds, Inc. ("Overland"), another investment company advised by
Wells Fargo Bank, was reorganized with and into the California Tax-Free Bond
Fund of the Company (the "Consolidation"). For accounting purposes, the Overland
Fund is considered the survivor of the Consolidation. The Overland Fund is
sometimes referred to throughout this SAI as the "predecessor portfolio" to the
Company's California Tax-Free Bond Fund.
The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds were
originally organized as investment portfolios of Westcore Trust ("Westcore")
under the names Arizona Intermediate Tax-Free, Quality Tax-Exempt Income, and
Oregon Tax-Exempt Funds, respectively. The Funds commenced operations as
follows: Arizona Tax-Free - March 2, 1992; National Tax-Free - January 15,
1993; Oregon Tax-Free - June 1, 1988. On October 1, 1995, the Funds were
reorganized as the Pacifica Arizona Tax-Exempt Fund, Oregon Tax-Exempt Fund and
National Tax-Exempt Fund, investment portfolios of Pacifica Funds Trust
("Pacifica"). On September 6, 1996, the Arizona Tax-Exempt Fund, National Tax-
Exempt Fund and Oregon Tax-Exempt Fund of Pacifica were reorganized as the
Company's National Tax-Free, Oregon Tax-Free and Arizona Tax-Free Funds.
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 (defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of such
Fund.
The Arizona Tax-Free Fund, National Tax-Free Fund and Oregon Tax-Free Fund may
not:
(1) purchase or sell commodity contracts (including futures contracts with
respect to the Arizona Tax-Free and National Tax-Free Funds), or invest in oil,
gas or mineral exploration or development programs, except that each Fund, to
the extent appropriate to its investment objective, may purchase publicly traded
securities of companies engaging in whole or in part in such activities, and
provided that the Oregon Tax-Free Fund may enter into futures contracts and
related options;
(2) purchase or sell real estate, except that each Fund may purchase
securities of issuers that deal in real estate and may purchase securities that
are secured by interests in real estate;
(3) purchase securities of companies for the purpose of exercising control;
(4) acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act;
1
<PAGE>
(5) act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Fund's investment objective, policies and limitations may be deemed to be
underwriting;
(6) write or sell put options, call options, straddles, spreads, or any
combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options;
(7) borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of a Fund's total assets at the
time of such borrowing. None of these Funds will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. Securities held in escrow or separate accounts in
connection with a Fund's investment practices described in this SAI or in its
Prospectus are not deemed to be pledged for purposes of this limitation;
(8) purchase securities on margin, make short sales of securities or
maintain a short position, except that the Funds may obtain short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities, and except that this limitation shall not apply to the Oregon Tax-
Free Fund's transactions in futures contracts and related options;
(9) invest less than 80% of its net assets in securities the interest on
which is exempt from federal income tax, except during periods of unusual market
conditions. For purposes of this investment limitation, securities the interest
on which is treated as a specific tax preference item under the federal
alternative minimum tax are considered taxable; nor
(10) make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding 30% of its total assets.
The Arizona Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the
2
<PAGE>
guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's
total assets; nor
(2) purchase any securities, except securities issued (as defined in the
preceding Investment Limitation) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political subdivisions, which
would cause 25% or more of the value of the Fund's total assets at the time of
purchase to be invested in the securities of issuers conducting their principal
business activities in the same industry.
The National Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets; nor
(2) purchase any securities that would cause 25% or more of the value of
its total assets at the time of purchase to be invested in municipal obligations
with similar characteristics (such as private activity bonds where the payment
of principal and interest is the ultimate responsibility of issuers in the same
industry, pollution control revenue bonds, housing finance agency bonds or
hospital bonds) or the securities of issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, the District
of Columbia, and their respective agencies, authorities, instrumentalities or
political subdivisions.
The Oregon Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, except that (a) up to 50% of the value of the
Fund's total assets may be invested without regard to this 5% limitation
provided that no more than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies,
authorities, instrumentalities or political subdivisions. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued
3
<PAGE>
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets; nor
(2) purchase any securities, except securities issued (as defined in the
preceding Investment Limitation) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political subdivisions, which
would cause 25% or more of the value of the Fund's total assets at the time of
purchase to be invested in the securities of issuers conducting their principal
business activities in the same industry.
The California Tax-Free Bond Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in (i) municipal securities (for the
purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers) and
(ii) obligations of the United States Government, its agencies or
instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships (other
than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts);
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions with regard to the Fund and except for margin
payments in connection with options, futures and options on futures or make
short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
nor
(7) write, purchase or sell puts, calls, options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity.
4
<PAGE>
The California Tax-Free Income Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in (i) municipal securities (for the
purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers), and
(ii) obligations of the United States Government, its agencies or
instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships (other
than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts);
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets, but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets;
(7) write, purchase or sell puts, calls, options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity;
(8) make loans of portfolio securities having a value that exceeds 50% of
the current value of its total assets provided that, for purposes of this
restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
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.
Under the 1940 Act, a
5
<PAGE>
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 or hold more than 15% 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) The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds each
may lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) the value of 30% of
such Fund's total assets. The California Tax-Free Bond and California Tax-Free
Income Funds each may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) the value of
one-third of such 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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Asset-Backed Securities
-----------------------
The Funds may purchase asset-backed securities, which are securities backed
by installment contracts, credit-card receivables or other assets. Asset-backed
securities represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in effect
"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other reasons, an asset-
backed security's stated maturity may be shortened, and the security's total
return may be difficult to predict precisely.
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
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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.
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. A bond
is an interest-bearing security issued by a company or governmental unit. The
issuer of a bond has a contractual obligation to pay interest at a stated rate
on specific dates and to repay principal (the bond's face value) periodically or
on a specified maturity date. An issuer may have the right to redeem or "call" a
bond before maturity, in which case the investor may have to reinvest the
proceeds at lower market rates. Most bonds bear interest income at a "coupon"
rate that is fixed for the life of the bond. The value of a fixed rate bond
usually rises when market interest rates fall, and falls when market interest
rates rise. Accordingly, a fixed rate bond's yield (income as a percent of the
bond's current value) may differ from its coupon rate as its value rises or
falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).
The California Tax-Free Income Fund may invest in variable-rate instruments
with a maximum final maturity of up to 30 years, provided the period remaining
until the next readjustment of the instrument's interest rate, or the period
remains until the principal amount can be recovered through demand, is less than
five years.
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Commercial Paper
----------------
The Funds may invest in commercial paper. Commercial paper includes short-
term unsecured promissory notes, variable rate demand notes and variable rate
master demand notes issued by domestic and foreign bank holding companies,
corporations and financial institutions as well as similar taxable instruments
issued by government agencies and instrumentalities.
Derivative Securities
---------------------
The Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices of financial indicators ("References") or the relative
change in two or more References. The Funds may also hold derivative instruments
that have interest rates that re-set inversely to changing current market rates
and/or have embedded interest rate floors and caps that require the issuers to
pay an adjusted interest rate if market rates fall below or rise above a
specified rate. These instruments represent relatively recent innovations in the
bond markets, and the trading market for these instruments. It is uncertain how
these instruments will perform under different economic and interest-rate
scenarios. Because certain of these instruments are leveraged, their market
value may be more volatile than other types of bonds and may present greater
potential for capital gain or loss. The embedded option features of other
derivative instruments could limit the amount of appreciation a Fund can realize
on its investment, could cause a Fund to hold a security it might otherwise sell
or could force the sale of a security at inopportune times or for prices that do
not reflect current market value. The possibility of default by the issuer or
the issuer's credit provider may be greater for these structured and derivative
instruments than for other types of instruments. In some cases it may be
difficult to determine the fair value of a structured of derivative instrument
because of a lack of reliable objective information and an established secondary
market for some instruments may not exist.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations, including
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. Accordingly, where these obligations are not secured by letters of
credit or other credit support
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<PAGE>
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 demand instruments acquired by the Arizona,
National and Oregon Tax-Free Funds may include participations in municipal
obligations purchased from and owned by financial institutions, primarily banks.
Participation interests provide these Funds with a specified undivided interest
(up to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the advisor has determined meets the
prescribed quality standards for these Funds. The bank typically retains fees
out of the interest paid on the obligation for servicing the obligation,
providing the letter of credit and issuing the repurchase commitment.
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 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 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.
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.
Illiquid Securities
-------------------
The Funds each will not knowingly invest more than 15% (10% for the
California Tax-Free Bond Fund) of the value of its net assets in securities that
are illiquid because of restrictions on transferability or other reasons.
Illiquid securities shall not include securities eligible for
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<PAGE>
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act")
that have been determined to be liquid by the advisor, pursuant to guidelines
established by the Company's Board of Directors, and commercial paper that is
sold under Section 4(2) of the 1933 Act.
Letters of Credit
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Funds
may be used for letter of credit-backed investments.
Loans of Portfolio Securities
-----------------------------
The Funds, may lend their portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Funds may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed one third of the total assets of a particular Fund.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral. In either case, a Fund could experience delays in
recovering securities or collateral or could lose all or part of the value of
the loaned securities. When a Fund lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the collateral received from the borrower or from the investment of
cash collateral in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur.
Municipal Obligations
---------------------
The Funds may invest in municipal obligations issued by governmental
entities to obtain funds for various public purposes. These purposes may include
the construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities,
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<PAGE>
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Assessment bonds, wherein a specially created district or project area
levies a tax (generally on its taxable property) to pay for an improvement or
project may be considered a variant of either category. There are, of course,
other variations in the types of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors. Each
Fund, subject to its respective investment objective and policies, is not
limited with respect to which category of municipal bonds it may acquire. Some
or all of these bonds may be considered "private activity bonds" for federal
income tax purposes.
The two principal classifications of municipal obligations that may be held
by a Fund are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the issuer of the facility being
financed. A Fund's portfolio may also include "moral obligation" securities,
which are issued normally by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
that created the issuer.
There are, of course, variations in the quality of municipal obligations
both within a particular classification and between classifications, and the
yields on municipal obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Certain of the municipal obligations held by a Fund may be insured as to
the timely payment of principal and interest. The insurance policies usually are
obtained by the issuer of the municipal obligation at the time of its original
issuance. In the event that the issuer defaults on interest or principal
payment, the insurer will be notified and will be required to make payment to
the bondholders. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance does not protect against market
fluctuations caused by changes in interest rates and other factors. The Tax-Free
Funds may, from time to time, invest more than 25% of their assets in municipal
obligations covered by insurance policies.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities, including those held in a Fund's portfolio, will decline
and (if purchased at par value) sell at a discount. If interests rates fall, the
values of outstanding securities will generally increase and (if purchased at
par value) sell at a premium. Changes in the value of municipal securities held
in the Fund's portfolio arising from these or other factors will cause changes
in the net asset value per share of the Fund.
Municipal securities may include variable- or floating-rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on
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<PAGE>
the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Private activity bonds are issued to obtain funds to provide privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid waste
disposal. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Private activity bonds include industrial development bonds, which are a
specific type of revenue bond backed by the credit and security of a private
user. The credit quality of such bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Private activity bonds
issued by or on behalf of public authorities to finance various privately
operated facilities are considered municipal obligations if the interest
received thereon is exempt from federal income tax but nevertheless subject to
the federal alternative minimum tax. Neither California Fund may invest 25% or
more of its assets in industrial development bonds. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors. Some or all of these bonds may
be considered "private activity bonds" for federal income tax purposes.
The Funds may also purchase short-term General Obligation Notes, Tax
Anticipation Notes ("TANS"), Bond Anticipation Notes ("BANs"), Revenue
Anticipation Notes ("RANs"), Tax-Exempt Commercial Paper, Construction Loan
Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues, and are usually general
obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its BANs
is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
12
<PAGE>
Municipal Lease Obligations. The Funds may invest in municipal lease
obligations. The advisor makes determinations concerning the liquidity of a
municipal lease obligation based on relevant factors. These factors may include,
among others: (1) the frequency of trades and quotes for the obligation; (2)
the number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer. In addition, the general credit quality of the
municipality and the essentiality to the municipality of the property covered by
the lease may be considered. In evaluating the credit quality of a municipal
lease obligation, the factors to be considered might include: (1) whether the
lease can be canceled; (2) what assurance there is that the assets represented
by the lease can be sold; (3) the strength of the lessee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (4) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of the
nonappropriation"); and (5) the legal recourse in the event of failure to
appropriate.
Certificates of Participation. The Funds may purchase municipal obligations
known as "certificates of participation" which represent undivided proportional
interests in lease payments by a governmental or nonprofit entity. The lease
payments and other rights under the lease provide for and secure the payments on
the certificates. Lease obligations may be limited by applicable municipal
charter provisions or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic appropriation. Lease
obligations also may be abated if the leased property is damaged or becomes
unsuitable for the lessee's purpose. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may or may not provide that the certificate trustee can
accelerate lease obligations upon default. If the trustee could not accelerate
lease obligations upon default, the trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. Certificates of participation are
generally subject to redemption by the issuing municipal entity under specified
circumstances. If a specified event occurs, a certificate is callable at par
either at any interest payment date or, in some cases, at any time. As a result,
certificates of participation are not as liquid or marketable as other types of
municipal obligations and are generally valued at par or less than par in the
open market.
Pass-Through Obligations. Certain of the debt obligations which the Funds
may purchase may be pass-through obligations that represent an ownership
interest in a pool of mortgages and the resultant cash flow from those
mortgages. Payments by homeowners on the loans in the pool flow through to
certificate holders in amounts sufficient to repay principal and to pay interest
at the pass-through rate. The stated maturities of pass-through obligations may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular pass-through obligation. Variations in the maturities
of pass-through obligations will affect the yield of the Funds. Furthermore, as
with any debt obligation, fluctuations in interest rates will inversely affect
the market value of pass-through obligations. The Funds may invest in pass-
through obligations that are supported by the full faith and credit of the U.S.
Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of the
U.S. Government (such as the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation) or bonds collateralized by any of the
foregoing.
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Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax (and to the
exemption of interest from state personal income tax) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds,
the Funds' investment advisor nor their counsel will review the proceedings
relating to the issuance of municipal obligations or the bases for such
opinions.
For a further discussion of factors affecting purchases of municipal
obligations by the State Tax-Free Funds, see "Special Considerations Affecting
Arizona Municipal Securities," "Special Considerations Affecting California
Municipal Securities" and, "Special Considerations Affecting Oregon Municipal
Securities" in this SAI.
Stand-By Commitments. The Funds may acquire stand-by commitments with
respect to municipal obligations held by such Funds. Under a stand-by
commitment, a dealer or bank agrees to purchase from a Fund, at the Fund's
option, specified municipal obligations at a specified price. The amount payable
to a Fund upon its exercise of a stand-by commitment is normally (i) the Fund's
acquisition cost of the municipal obligations (excluding any accrued interest
that the Fund paid on their acquisition), less any amortized market premium plus
any amortized market or original issue discount during the period the Fund owned
the securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Stand-by commitments may be sold,
transferred or assigned by a Fund only with the underlying instrument.
Each of the Funds expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.
Each of the Funds intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the advisor's opinion, present
minimal credit risks. Each Fund's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
municipal obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the advisor will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
Each of the Funds intends to acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying municipal
obligations, which will continue to be valued in accordance with the ordinary
method of valuation employed by the Funds. Stand-by commitments acquired by a
Fund will be valued at zero in determining net asset value.
Tax Status. From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal obligations. For example, under federal tax
legislation enacted in 1986, interest on certain private activity bonds must be
included in an investor's alternative minimum taxable income, and corporate
investors must treat all tax-exempt interest as an item of tax preference.
Moreover, with respect to Arizona, California and Oregon
14
<PAGE>
obligations, the Funds cannot predict what legislation, if any, may be proposed
in the state legislature regarding the state income tax status of interest on
such obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of municipal obligations generally, or Arizona, California and
Oregon obligations, specifically, for investment by a Fund and the liquidity and
value of the Fund's portfolio. In such an event, the Fund involved would re-
evaluate its investment objective and policies and consider possible changes in
its structure or possible dissolution.
Ratings of Municipal Securities. The Funds may invest in municipal bonds
rated at the date of purchase "Baa" or better by Moody's Investors Service, Inc.
("Moody's") or "BBB" or better by; Standard & Poor's Rating Group ("S&P"), or
unrated bonds that are considered by the investment advisor to be of comparable
quality. Bonds rated "Baa" and "BBB" have speculative characteristics and are
more likely than higher-rated bonds to have a weakened capacity to pay principal
and interest in times of adverse economic conditions; all are considered
investment grade. Municipal bonds generally have a maturity at the time of
issuance of up to 40 years.
The highest rating assigned by S&P is "AAA" for state and municipal bonds,
"SP-1" for state and municipal notes, and "A-1" for state and municipal paper.
The highest rating assigned by Moody's is "Aaa," "MIG 1," and "Prime-1" for
state and municipal bonds, notes and commercial paper, respectively. These
instruments are judged to be the best quality and present minimal risks and a
strong capacity for repayment of principal and interest. If a municipal security
ceases to be rated or is downgraded below an investment grade rating after
purchase by the Fund, it may retain or dispose of such security. A description
of ratings is contained in the Appendix to the SAI.
The Funds may invest in municipal notes rated at the date of purchase "MIG
2" (or "VMIG 2" in the case of an issue having a variable rate with a demand
feature) or better by Moody's or "SP-2" or better by S&P, or unrated notes that
are considered by the investment advisor to be of comparable quality. Municipal
notes generally have maturities at the time of issuance of three years or less.
Municipal notes are generally issued in anticipation of the receipt of tax
funds, of the proceeds of bond placements, of other revenues. The ability of an
issuer to make payments on notes is therefore especially dependent on such tax
receipts, proceeds from bond sales or other revenues, as the case may be.
The Funds may invest in municipal commercial paper rated at the date of
purchase "Prime-1" or "Prime-2" by Moody's or "A-1+," "A-1" or "A-2" by S&P, or
unrated commercial paper that is considered by the investment advisor to be of
comparable quality. Municipal commercial paper is a debt obligation with a
stated maturity of 270 days or less that is issued to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term debt.
In the event a security purchased by a Fund is downgraded below investment
grade, the Fund may retain such security, although the Fund may not have more
than 5% of its assets invested in securities rated below investment grade at any
time. A description of the ratings is contained in the Appendix to this SAI.
15
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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.
Repurchase Agreements
---------------------
The Funds may enter into repurchase agreements wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price that involves the acquisition by a Fund of
an underlying debt instrument, subject to the seller's obligation to repurchase,
and such Fund's obligation to resell, the instrument at a fixed price usually
not more than one week after its purchase. The Fund's custodian has custody of,
and holds in a segregated account, securities acquired as collateral by a Fund
under a repurchase agreement. Repurchase agreements are considered by the staff
of the U.S. Securities and Exchange Commission ("SEC") to be loans by the Fund.
The Funds may enter into repurchase agreements only with respect to securities
of the type in which such Fund may invest, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the value
of the securities purchased should decrease below resale price. Wells Fargo Bank
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred by
a Fund in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by a Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to a Fund in
connection with insolvency proceedings), it is the policy of each Fund to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. Each Fund considers on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements.
Borrowing and Reverse Repurchase Agreements. The Funds intend to limit
their borrowings (including reverse repurchase agreements) during the current
fiscal year to not more than 10% of net assets. At the time a Fund enters into a
reverse repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such as U.S.
Government securities or other liquid high-grade debt securities having a value
equal to or greater than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
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Taxable Investments
-------------------
Pending the investment of proceeds from the sale of shares of the Funds or
proceeds from sales of portfolio securities or in anticipation of redemptions or
to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank, as
investment advisor, it is advisable to do so because of market conditions, each
Fund may elect to invest temporarily up to 20% of the current value of its net
assets in cash reserves, in instruments that pay interest which is exempt from
federal income taxes, but not, from the State Tax-Free Funds, from a respective
state's personal income tax, or the following taxable high--quality money market
instruments: (i) U.S. Government obligations; (ii) negotiable certificates of
deposit, bankers' acceptance and fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC; (iii) commercial paper rated at the date of purchase
"Prime-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain repurchase
agreements; and (v) high-quality municipal obligations, the income from which
may or may not be exempt from federal income taxes.
Such temporary investments would most likely be made for cash management
purposes or when there is an unexpected or abnormal level of investor purchases
or redemptions of shares of the Fund or because of unusual market conditions.
The income from these temporary investments and investment activities may be
subject to federal income taxes. However, as stated above, Wells Fargo Bank
seeks to invest substantially all of the Fund's assets in securities exempt from
such taxes.
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of comparable quality to other rated
investments that are permitted to be purchased by such Fund. After purchase, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by these Funds. Neither event will require a sale of such
security by the Funds. To the extent the ratings given by Moody's or S&P may
change as a result of changes in such organizations or their rating systems, the
Funds will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Fund's Prospectus and
in this SAI. The ratings of Moody's and S&P are more fully described in the SAI
Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in various types of U.S. Government obligations in
accordance with the policies described in the Funds' Prospectus. U.S.
Government obligations include securities issued or guaranteed as to principal
and interest by the U.S. Government and supported by the full faith and credit
of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including government-
sponsored enterprises. Some obligations of such agencies or instrumentalities
of the U.S. Government are supported by the full faith and credit of the United
States or U.S. Treasury guarantees; others, by the right of the issuer or
guarantor to
17
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borrow from the U.S. Treasury; still others by the discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities (including government-sponsored enterprises) where
it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms. The Funds may invest in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. Examples of the types of
U.S. Government obligations that may be held by the Funds include U.S. Treasury
bonds, notes and bills and the obligations of Federal Home Loan Banks, Federal
Farm Credit Banks, Federal Land Banks, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, Federal
National Mortgage Association, General Services Administration, Student Loan
Marketing Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.
Warrants
--------
Although they have no present intention to do so, 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. The
Funds may only purchase warrants on securities in which the Funds may invest
directly.
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
Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures
18
<PAGE>
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 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 debt instruments of a Fund may be subject to credit risk.
Credit risk is the risk that the issuers of securities in which the Fund invests
may default in the payment of principal and/or interest. Interest rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which a Fund invests and hence the value of your
investment in a Fund.
The market value of a Fund's investments in fixed-income securities will
change in response to various factors, such as changes in market interest rates
and the relative financial strength of 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 price
fluctuation than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities can be reduced, but not eliminated, by variable
rate or floating rate features. In addition, some of the asset-backed securities
in which the Funds invest are subject to extension risk. This is the risk that
when interest rates rise, prepayments of the underlying obligations slow,
thereby lengthening the duration and potentially reducing the value of these
securities.
Although some of the Funds' portfolio securities are guaranteed by the U.S.
Government, its agencies or instrumentalities, such securities are subject to
interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value is based, will fluctuate. No assurance can be given
that the U.S. Government would provide financial support to its agencies or
instrumentalities where it is not obligated to do so.
Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or rate.
Some of the permissible investments described in this Prospectus, such as
floating- and variable-rate instruments, structured notes and certain U.S.
Government obligations, are considered derivatives. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms. 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.
19
<PAGE>
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.
Each Fund may invest 25% or more of its assets in municipal obligations
that are related in such a way that an economic, business or political
development or change affecting one such obligation would also affect the other
obligations; for example, a Fund may own different municipal obligations which
pay interest based on the revenues of similar types of projects. To the extent
that such a Fund's assets are concentrated in municipal obligations payable from
revenues on similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated. Furthermore, for the Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds payment of municipal obligations of certain
projects may be secured by mortgages or deeds of trust. In the event of a
default, enforcement of the mortgages or deeds of trust will be subject to
statutory enforcement procedures and limitations, including rights of redemption
and limitations on obtaining deficiency judgments. In the event of a
foreclosure, collection of the proceeds of the foreclosure may be delayed and
the amount of proceeds from the foreclosure may not be sufficient to pay the
principal of and accrued interest on the defaulted municipal obligations.
Each state Fund is classified as non-diversified under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio, and thereby subject the market-based net asset value per
share of the non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with a similar
objective may be.
The concentration of the state Funds in municipal obligations of particular
states raises additional considerations. Payment of the interest on and the
principal of these obligations is dependent upon the continuing ability of state
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors should consider the
greater risk inherent in a Fund's concentration in such obligations versus the
safety that comes with a less geographically concentrated investment portfolio
and should compare the yield available on a portfolio of state-specific issues
with the yield of a more diversified portfolio including issues of other states
before making an investment decision.
The state Funds have constitutional and/or statutory restrictions that
affect government revenues. Because of the nature of the various restrictions,
certain possible ambiguities and inconsistencies in their terms and the scope of
various exemptions and exceptions, as well as the impossibility of predicting
the level of future appropriations for state and local governmental entities, it
is not presently possible to determine the impact of these restrictions and
related measures on the ability of governmental issuers in Oregon and Arizona to
pay interest or repay principal on their obligations. There have, however, been
certain adverse developments with respect to municipal obligations of
governmental issuers in these states over the past several years.
In addition to the risk of nonpayment of state and local governmental debt,
if such debt declines in quality and is downgraded by the NRSROs, it may become
ineligible for purchase by a Fund. Since there
20
<PAGE>
are a number of buyers of such debt that may be similarly restricted, the supply
of eligible securities could become inadequate at certain times. Similarly,
there is a relatively small active market for Arizona Obligations, California
Obligations and Oregon Obligations and the market price of such bonds may
therefore be volatile. If any of the State Tax-Free Funds were forced to sell a
large volume of Arizona Obligations, California Obligations or Oregon
Obligations for any reason, such as to meet redemption requests for a large
number of shares, there is a risk that the large sale itself would adversely
affect the value of such Fund's portfolio.
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.
SPECIAL CONSIDERATIONS AFFECTING ARIZONA MUNICIPAL OBLIGATIONS
The concentration of the Arizona Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
Under its constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The State
enters into certain lease transactions that are subject to annual renewal at the
option of the State. Local governmental units in the State are also authorized
to incur indebtedness. The major source of financing for such local government
indebtedness is an ad valorem property tax. In addition, in order to finance
public projects, local governments in the State can issue revenue bonds payable
from the revenues of a utility or enterprise or from the proceeds of an excise
tax, or assessment bonds payable from special assessments. Arizona local
governments have also financed public projects through leases which are subject
to annual appropriation at the option of the local government.
There is a statutory restriction on the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions in the State without
voter approval. This restriction does not apply to taxes levied to pay general
obligation debt.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there would
be an adverse impact on State or local government financing. It is not possible
to predict whether any such proposals will be enacted in the future or what
would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, the State has, at various times in the past, utilized a combination
of spending reductions or reductions in the rate of growth in spending, and tax
increases. In recent years, the State's fiscal situation has improved even
while tax reduction measures have been enacted each year since 1992. In 1992,
Arizona voters passed a measure that requires a two-thirds vote of the
legislature to increase state revenue. Accordingly, it will be more difficult to
reverse tax reductions, which may adversely affect state fund balances and
fiscal conditions over time.
21
<PAGE>
Arizona state government general fund revenue growth in fiscal year 1997 is
forecast to increase by 7.8% over fiscal year 1996. The 4.9% adjusted projected
increase in sales tax revenue, adjusted for reductions resulting from
legislative changes, reflects continued strong economic growth in the state.
With revenue growth outpacing increased expenditures, the state general fund is
projected to end fiscal year 1997 with a total general fund balance of
approximately $756 million. The amount of this balance is approximately 15.4%
of total general fund expenditures for fiscal year 1997. Included in the total
balance is a general fund ending balance of approximately $509 million, and a
budget stabilization ("rainy day") fund balance of approximately $247 million.
The total general fund balance at the end of fiscal year 1998 is projected to be
approximately $779 million.
Additionally, the 1997 legislature enacted a $110 million income tax
reduction package, in addition to a $200 million property tax reduction package
enacted in 1996, and an income tax reduction of $200 million enacted in 1995.
There may be additional legislative activity during 1998 in the area of tax
reform and school finance, and the 1998 general election ballot may include one
or more questions related to these issues and the State's tax structure
generally. The outcomes of any legislative actions or election issues of this
nature may adversely affect State fund balances and fiscal conditions.
Arizona has a diversified economic base that is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, which was at one time a major sector,
now plays a much smaller role in the State's economy. For several decades, the
population of the State has grown at a substantially higher rate than the
population of the United States. While the State's economy flourished during the
early 80's, a substantial amount of overbuilding occurred, adversely affecting
Arizona-based financial institutions, many of which were placed under the
control of the Resolution Trust Corporation. Spillover effects produced further
weakening in the State's economy. The Arizona economy has begun to grow again,
albeit at a slower pace than experienced before the real estate collapse. The
North American Free Trade Agreement is generally viewed as beneficial to the
State. However, current and proposed reductions in federal military
expenditures may adversely affect the Arizona economy.
SPECIAL CONSIDERATIONS AFFECTING CALIFORNIA MUNICIPAL OBLIGATIONS
The concentration of the California Tax-Free Bond and California Tax-Free
Income Funds in securities issued by governmental units of only one state
exposes the Funds to risks greater than those of a more diversified portfolio
holding securities issued by governmental units of different states and
different regions of the country.
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
22
<PAGE>
The California Economy and General Information. From mid-1990 to late 1993,
----------------------------------------------
the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly that
related to defense), exports and financial services, among others, were all
severely affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health and
welfare programs. In addition, the state has been facing a structural imbalance
in its budget with the largest programs supported by the General Fund (e.g., K-
12 schools and community colleges--also known as "K-14 schools," health and
welfare, and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak on June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aaa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AAA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grown in excess of 500,000 during 1994 and 1995, and
400,000 additional jobs were created between the fourth quarter of 1996 and the
fourth quarter of 1997. This trend is projected to continue through the rest of
the decade. Because of the improving economy and California's fiscal austerity,
the state has had operating surpluses for its past five consecutive fiscal years
through 1996-97. In addition, the SFEU is projected to have a positive balance
of approximately $553 million as of June 30, 1998. Also, Standard & Poors
upgraded its rating of California municipal obligations back to "A+" on July 30,
1996.
Local Governments. On December 6, 1994, Orange County, California, became
-----------------
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real
23
<PAGE>
property owned by the county. In June 1996, the county emerged from bankruptcy.
As of October 31, 1997, the county's investment rating by S&P was "B".
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on
the Richter Scale struck Los Angeles County, California, causing significant
damage to public and private structures and facilities. While county residents
and businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the county's and California's economy is not
expected to be serious. However, Los Angeles County is experiencing financial
difficulty due in part to the severe operating deficits for the county's health
care system. In August 1995, the credit rating of the county's long-term bonds
was downgraded for the third time since 1992. Although the county has received
federal and state assistance, it is still facing a potential budget gap of
approximately $460 million in the 1997-98 fiscal year.
Even though the state has no existing obligations with respect to either
Orange County or Los Angeles County, the state may be required to intervene and
provide funding if the counties cannot maintain certain programs because of
insufficient resources.
State Finances. California tax revenues and other income are segregated
--------------
into the General Fund and approximately 600 Special Funds. The General Fund
consists of the revenues received by the state's Treasury and not required by
law to be credited to any other fund, as well as earnings from state moneys not
allocable to another fund. The General Fund is the principal operating fund for
the majority of governmental activities and is the depository of most major
revenue sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature approved by the Governor, as
well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required to
return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed, for budgeting and accounting purposes, an appropriation from the General
Fund. For year-end reporting purposes, the Controller is required to add the
balance in the SFEU to the balance in the General Fund to show the total moneys
then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1996, the General Fund had outstanding loans from the SFEU and other Special
Funds of approximately $1.5 billion.
Changes in California Constitutional and Other Laws. In 1978, California
---------------------------------------------------
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state to assist California municipal issuers to
24
<PAGE>
raise revenue to pay their bond obligations. It is unknown whether additional
revenue redistribution legislation will be enacted in the future and whether, if
enacted, such legislation will provide sufficient revenue for such California
issuers to pay their obligations. California is also subject to another
Constitutional Amendment, Article XIIIB, which may have an adverse impact on
California state and municipal issuers. Article XIIIB restricts the state from
spending certain appropriations in excess of an appropriation's limit imposed
for each state and local government entity. If revenues exceed such
appropriation's limit, such revenues must be returned either as revisions in the
tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which requires in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate, and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval. In 1996, California voters approved "Proposition 218," which added
Articles XIIIC and XIIID to the state's Constitution. Proposition 218 generally
requires voter approval of most tax or fee increases by local governments and
curtails local government use of benefit assessments to fund certain property-
related services to finance infrastructure. Proposition 218 also limits the use
of special assessments or "property-related" fees to services or infrastructure
that confer a "special benefit" to specific property; police, fire and other
services are now deemed to benefit the public at large and, therefore, could not
be funded by special assessments. Finally, the amendments enable the voters to
use their initiative power to repeal previously-authorized taxes, assessments,
fees and charges. It remains to be seen what impact these Articles will have on
the ability of obligors to make payments on existing and future California
security obligations.
Other Information. Certain debt obligations held by the Funds may be
-----------------
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
25
<PAGE>
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports nearly half of $105 billion in total
exports, will not adversely affect the market value of California municipal
securities or the ability of obligors to continue to make payments on such
securities.
* * *
The taxable securities market is a broader and more liquid market with a
greater number of investors, issuers and market makers than the market for
municipal securities. The more limited marketability of municipal securities may
make it difficult in certain circumstances to dispose of large investments
advantageously.
SPECIAL CONSIDERATIONS AFFECTING OREGON MUNICIPAL OBLIGATIONS
The concentration of the Oregon Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
State Bonds and Revenues. As of December 1, 1997, $3.06 billion (rounded)
------------------------
in general obligation bonds issued by the State of Oregon and its agencies were
outstanding, including $119.8 million (rounded) in general obligation bonds
supported by the budget for the State's general fund and $2.94 billion (rounded)
of self-supporting general obligation bonds. The State's self-supporting general
obligation bonds include $2.20 billion (rounded) of State veteran's bonds,
which, in the event of poor economic conditions resulting in an increased number
of mortgage defaults, could cease to be self-supporting. All of the existing and
outstanding general obligation bonds of the State have been issued under
specific State constitutional provisions that authorize the issuance of such
bonds and provide authority for ad valorem taxation to pay the principal of and
interest on such bonds. With the exception of the veteran's bonds, for which no
more than two mills on each dollar valuation may be levied to pay principal and
interest, the authority of the State to tax property for the payment of its
general obligation bonds is unlimited. Since at least 1950, the State has not
imposed ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various State statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State is
not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Fund or the
ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal sources of State
tax revenues are personal income and corporate income taxes. In the
legislatively adopted budget for the 1997-99 biennium, approximately 97.0% of
the State's revenues for the 1997-99 biennium were projected to come from
combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes. Since 1983 State revenues have improved
substantially, and in recent years the State has granted tax refunds because of
budget surpluses, as required
26
<PAGE>
by statute. The State's December 1, 1997 economic and revenue forecast predicts
that State General Fund revenues for the 1997-99 biennium will exceed the
legislatively approved budget forecast by approximately $252.4 million (or
approximately 3.0%).
The Economy. The following is a summary of a portion of the December 1,
-----------
1997 quarterly Economic and Revenue Forecast prepared by the State as required
by ORS 291.342.
Slowed by strikes in transportation services and health services, Oregon's
job growth rate dropped to its slowest pace in 5-1/2 years in the third quarter
of 1997. However, despite the weaker overall numbers, the state's high
technology and construction sectors continued to grow at impressive
rates.
Although Oregon's outlook has changed little from the September forecast,
downside risks have clearly increased with volatility in wordwide financial
markets and the likelihood of slower growth in important Asian markets.
Nevertheless, a very likely scenario is a continuation of the modest
deceleration that has taken place over the past year. Growth is expected to be
led by further expansion of the state's high technology manufacturing industries
and their suppliers along with additional gains in transportation equipment
manufacturing. Expansion of these manufacturing sectors is expected to translate
into job creation in the service-producing sectors. The construction sector is
expected to level off after four years of extremely rapid growth, thereby
slowing the state's overall growth rate.
A pattern of slowing growth is expected for both personal income and
employment. Total non-farm wage and salary employment is projected to increase
3.5 percent for 1997 as a whole, down from 4.0 percent in 1996. Job growth is
expected to slow further to 2.6 percent in 1998. Personal income is expected to
grow a projected 6.7 percent for 1997 and 5.6 percent for 1998.
Inflation-adjusted income is expected to increase 3.7 percent in 1998, down from
4.9 percent in 1996 and a projected 4.6 percent in 1997. The state's population
is forecast to increase 1.6 percent in 1998, up slightly from an estimated 1.5
percent in 1997.
Instability among Asian economies is likely to impact Oregon's economy for
two reasons. First, Asian markets are important for many Oregon exporters. Five
of Oregon's top six export markets in 1996 were in Asia. They include Japan
(1st), South Korea (3rd), Singapore (4th), Hong Kong (5th) and Taiwan (6th). If
weakness spreads throughout the Asian economies, Oregon will be affected across
a broad spectrum of industries. Second, high technology industries have close
links with Asia both in terms of markets and production. The large presence of
high technology manufacturing, particularly semiconductor production, makes
Oregon more sensitive to slower growth in Asia than other states.
The Western states are expected by some analysts to continue to lead the
nation in economic growth into the next decade. Oregon should benefit from the
expanding markets and overall in-migration associated with a high growth
regional environment. Although Oregon's overall growth rate over the next seven
years is expected to be slightly less than the previous seven year period, the
outlook is highly favorable compared to most similar length periods in the
state's post-World War II history.
Recent Environmental Developments. In 1991 and 1992, in response to
concerns over diminishing salmon runs, three populations of Snake River salmon
were placed on the Endangered Species list. More recently, the National Marine
Fisheries Service and the U.S. Fish and Wildlife Service have commenced
27
<PAGE>
status reviews of hundreds of additional salmon and trout populations in the
Columbia Basin and throughout Western Oregon. The Snake River salmon listings
have already had substantial economic impacts, primarily through increased
electricity rates and related impacts on rate-sensitive industries such as the
aluminum industry. Efforts to protect salmon and steelhead populations may
eventually affect a wide variety of industrial, recreational and land use
activities, with corresponding impacts on long-term economic growth; however,
the magnitude and extent of any future environmental action is impossible to
predict at this time. The State's economic forecasts do not address the
potential impact of endangered species problems on Oregon's economy.
Recent Developments Affecting Government Revenues. Ballot Measure 5.
-------------------------------------------------
Article XI, section 11b of the Oregon Constitution, adopted by Oregon's voters
in November 1990 ("Ballot Measure 5"), imposes an aggregate limit on the rate of
property taxes, including ad valorem taxes, that may be levied against any real
or personal property. The limit is subject to certain exceptions and is being
phased in over a five-year period. Beginning with the tax year that starts on
July 1, 1996, the final year of the phase-in period, not more than $15 per
$1,000 of real market value can be levied against any piece of property. Of this
amount, $5 may be used for public education, and the remaining $10 may be used
for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay
the principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution. Therefore, the ability of the State to levy
taxes to service its constitutionally authorized general obligation bonds is not
subject to the limit. In addition, because the State currently receives its
revenues from sources other than property taxes, Ballot Measure 5 has not
directly affected State revenues.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 5 has controlled the growth of local property tax revenues
since its adoption. Although the growth in local property valuations during the
period 1991 to 1997 has somewhat mitigated the potential impacts of Ballot
Measure 5, revenues of local government units in Oregon have generally been
adversely affected by the adoption of Ballot Measure 5. This appears to be
particularly true with respect to school district operating revenues.
Ballot Measure 5 required the State to replace a substantial portion of the
lost revenues of local school districts through the end of fiscal year 1995-96.
Although this obligation has now expired, the extent of revenue loss perceived
to have been incurred by local school districts indicates that the State may
continue to provide significant revenue relief to these governmental units. In
addition, the provisions of the initiative known as Ballot Measure 50, as
defined and discussed below, is expected to also result in the State making
further financial assistance available to certain units of local government as a
result of further restrictions and limitations placed upon the ability of units
of local government to generate revenues through Oregon's system of ad valorem
property taxation.
Ballot Measure 50. The 1997 Legislative Assembly referred to Oregon voters,
-----------------
and the voters approved at the May 20, 1997, special election, a constitutional
amendment ("Measure 50") that replaced the property tax limitations imposed by a
voter initiative approved at the November 5, 1996, general election ("Measure
47"). Measure 50 repealed Measure 47 and replaced it with new ad valorem
property tax limitations similar to those which would have been required to be
enacted under Measure 47. Measure
28
<PAGE>
50 limits the assessed value for the tax year 1997-98 to its 1995-96 "real
market value," less ten percent. In implementing Measure 50, the Oregon
Legislature also ordered a 17% reduction in 1997-98 in operating tax levies
(which amounts vary by government entity). Thereafter, Measure 50 limits the
valuation growth of property assessments on each unit of property to three
percent per year for future tax years. Measure 50 preserves the general
limitations on property tax rates of $5 per $1,000 for public education and $10
per $1,000 for all other governmental services. Measure 50 also requires that
any new property taxes be approved by a majority of the voters in an election
where at least 50% of eligible voters participate, except in the instance of a
general election in even numbered years. In addition, Measure 50 requires voter
approval of the use of fees, taxes, assessments or other charges as alternative
funding sources to make up for revenue reductions caused by the amended property
tax limits.
Units of local government that levy and collect property taxes are most
directly affected by Measure 50. The State does not levy or collect property
taxes, but relies instead on state income taxes as the main source of revenue
for the State's general fund. Therefore, Measure 50's main impact on the State
will likely be to increase pressure on the Legislative Assembly to use State
funds to replace revenues lost by local governments. Measure 50 requires the
Legislative Assembly to replace the estimated $428 million in revenues that the
public school system, including community colleges, is expected to lose in the
1997-99 biennium because of the property tax limitation. In this manner, Measure
50 may influence the State budgeting process.
The Oregon Legislative Revenue Office has estimated that the total
reduction in property tax revenues collected by local governments under Measure
50 will be approximately $389 million for the tax year 1997-98 and approximately
$454 million for the tax year 1998-99. The first year of implementation is
presently underway with the initial local property tax bills subject to Measure
50 being distributed in late November 1997. Until local governments and county
tax assessors and collectors have significantly more practical experience with
implementing and administering the property tax system under the guidelines and
limitations of Measure 50 and its implementing legislation, the actual short
term and long term financial effects of Measure 50 on local governments will be
uncertain.
One lawsuit has been filed challenging the process by which Measure 50 was
referred from the legislature to the people for a vote as unconstitutional. The
lawsuit was voluntarily dismissed, but the plaintiff is expected to refile an
amended complaint. In addition, the Legislative Assembly has referred a
constitutional amendment to Oregon voters for the May 1998 ballot which, if
approved, would repeal Measure 50's requirement that new property taxes must be
approved either in an election where at least 50% of eligible voters have
participated or in a general election in an even numbered year.
The Initiative Process. The Oregon Constitution reserves to the people of
----------------------
the State initiative and referendum power pursuant to which measures designed to
amend the State Constitution or enact legislation, can be placed on the
statewide general election ballot for consideration by the voters. "Referendum"
generally means measures referred to the electors by a legislative body such as
the State Legislative Assembly or the governing body of a city, county or other
political subdivision, while "initiative" generally means a measure placed
before the voters as a result of a petition circulated by one or more private
citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed
29
<PAGE>
initiative complies with a "one subject only" rule for initiative measures.
After considering any public comments, the Attorney General must either certify
or revise the draft ballot title. In general, any elector who timely submitted
written comments on the draft ballot title may petition the Oregon Supreme Court
seeking a revision of the certified ballot title.
To have an initiative placed on a general election ballot, the proponents
of the proposed initiative must submit to the Secretary of State initiative
petitions signed by the number of qualified voters equal to a specified
percentage of the total number of votes cast for all candidates for governor in
the most recent gubernatorial election. The initiative petition must be filed
with the Secretary of State not less than four months prior to the general
election at which the proposed measure is to be voted upon. State law permits
persons circulating initiative petition to pay money to persons obtaining
signatures for the petition.
Over the past decade Oregon has witnessed increasing activity in the number
of initiative petitions that have qualified for the statewide general election.
As of December 1, 1997, no initiatives had qualified to be placed on the
November 1998 general election ballot; however, a number of potential
initiatives are in some stage of the process towards attempting to qualify to be
placed on the November 1998 ballot. In recent years, a number of initiatives
involving the fiscal operations of the State were proposed and placed on the
ballot. Several of these initiatives have been approved by the voters and have
had or will have a significant impact on the fiscal operations of the State and
local governments. See "Recent Developments Affecting Government Revenues -
Ballot Measure 5 and Measure 50." Other initiatives, had they been approved by
the voters, also may have had significant impacts on the fiscal operations of
the State.
It is difficult to predict with certainty either the likelihood of a
proposed initiative measure obtaining the required number of valid initiative
petition signatures or the likelihood of an initiative that has acquired the
necessary number of valid signatures being approved by the voters. There can be
no assurance that additional initiatives that will have a material adverse
impact on the financial condition of the State or units of local government or
the State's or units of local government's ability to collect the revenues
required to repay their general obligation bonds, revenue bonds or other
obligations will not be proposed, placed on the ballot, or be approved by the
voters.
Judicial challenges seeking interpretations and clarifications of the scope
and application of Ballot Measure 5 continue to be filed. It is anticipated that
the passage of Measure 50 will also require substantial judicial interpretation
of its meaning and application. If it is judicially determined that certain
statutes adopted by the Oregon legislature to implement Ballot Measure 5 or
statutes adopted relating to Measure 50 do not adequately implement the
restrictions contained in that measure, local governments may have to seek new
funding sources for certain items which have been traditionally financed in part
through the issuance of voter approved ad valorem tax supported indebtedness.
The Oregon Bond Market. There is a relatively small active market for
----------------------
municipal bonds of Oregon issuers other than the general obligations of the
State itself, and the market price of such other bonds may therefore be
volatile. If the Oregon Tax-Free Fund were forced to sell a large volume of
Oregon Obligations owned by it for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's portfolio.
30
<PAGE>
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 Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
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
55 Francisco Street 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;
Charleston, SC 29401 Chairman of Renaissance Properties Ltd.;
President of Morse Investment Corporation;
and Co-Managing Partner of Main Street Ventures.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and
Secretary 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
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complex as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each
32
<PAGE>
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>
Arizona Tax-Free 0.50%
California Tax-Free Bond 0.50%
California Tax-Free Income 0.50%
National Tax-Free 0.50%
Oregon Tax-Free 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:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Arizona Tax-Free $ 0 $ 52,838
California Tax-Free Bond* $1,276,667 $ 0
California Tax-Free Income $ 67,449 $144,315
National Tax-Free $ 0 $ 30,284
Oregon Tax-Free $ 0 $102,775
</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.
33
<PAGE>
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. The Pacifica
-------------------------------------------------------------
Arizona Tax-Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds were
reorganized as the Company's Arizona Tax-Free, National Tax-Free and Oregon Tax-
Free Funds on September 6, 1996. Prior to September 6, 1996, Wells Fargo
Investment Management, Inc. ("WFIM") and its predecessor, First Interstate
Capital Management, Inc. ("FICM") served as advisor to the predecessor
portfolios. As of September 6, 1996, Wells Fargo Bank became the advisor to the
Company's Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds.
For the period begun April 1, 1996 and ended September 5, 1996, the
predecessor portfolios paid to WFIM, and for the period begun September 6, 1996
and ended September 30, 1996, the Funds paid to Wells Fargo Bank the advisory
fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended
9/30/96
----------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Arizona Tax-Free $ 22,457 $ 98,300
National Tax-Free $ 0 $ 67,463
Oregon Tax-Free $173,249 $ 57,377
</TABLE>
Prior to October 1, 1995, First Interstate Bank of Oregon, N.A. and First
Interstate Bank of Washington, N.A. served as co-advisors to the predecessor
portfolio of the National Tax-Free Fund; First Interstate Bank of Oregon, N.A.
served as advisor to the predecessor portfolio of the Oregon Tax-Free Fund; and
First Interstate Bank of Arizona, N.A. served as advisor to the predecessor
portfolio of the Arizona Tax-Free Fund.
For the periods indicated below, the prior advisors were entitled to
receive the following amounts in advisory fees and waived reimbursed fees in the
indicated amounts. In 1995, the Funds changed their fiscal year from May 31 to
September 30.
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended Year Ended
9/30/95 5/31/95 5/31/94
------------ ---------- ----------
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- -----
<S> <C> <C> <C> <C>
Arizona Tax-Free $41,159 $66,373 $124,904 $166,803 $128,905 $172,383
National Tax-Free $24,173 $68,667 $ 67,845 $145,244 $ 57,059 $141,590
Oregon Tax-Free $84,999 $43,995 $256,430 $ 84,770 $269,574 $104,948
</TABLE>
California Tax-Free Bond and California Tax-Free Income Funds. For the
-------------------------------------------------------------
periods indicated below, the California Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
34
<PAGE>
<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>
California Tax-Free Bond* $1,276,667 $ 0 $1,165,967 $248,047 $896,680 $748,655
California Tax-Free Income $ 281,991 $18,321 $ 236,632 $ 31,013 $ 0 $279,496
</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 nine-month 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.
PORTFOLIO MANAGERS. Mr. Stephen Galiani assumed sole responsibility for
------------------
the day-to-day portfolio management of the National Tax-Free Fund in July 1997.
Mr. Galiani is also responsible as co-manager of the Arizona Tax-Free and Oregon
Tax-Free Funds. Mr. Galiani joined Wells Capital Management in June of 1997 as
the Senior Portfolio Manager in charge of the municipal bond group. He came to
WCM from Qualivest Capital Management in Portland, Oregon, where he was the
Director of Fixed Income for two years. Prior to that, he served as President
and portfolio manager of his own investment advisory firm from 1990 to 1995.
Earlier affiliations included Keystone Custodian Funds, where he managed the
municipal bond team, and Eaton Vance Corporation. Mr. Galiani began his
investment career in 1975 after earning an M.B.A. from Boston University. He
holds a B.A. from Manhattan College.
Ms. Laura Milner assumed responsibility for the day-to-day management of
the California Tax-Free Income Fund on June 1, 1995. Ms. Milner had been a co-
manager of the California Tax-Free Income Fund since November 1992. Ms. Milner
is also co-manager of the California Tax-Free Bond Fund. Ms. Milner's current
position with Wells Fargo Bank is Senior Tax-Exempt Specialist/Portfolio
Manager. Her background includes over seven years experience specializing in
short- and long-term municipal securities with Salomon Brothers. She is a member
of the National Federation of Municipal Analysts and its California chapter.
Mr. David Klug assumed sole responsibility for the day-to-day management
of the California Tax-Free Bond Fund on June 1, 1995. Mr. Klug had been a co-
manager of the California Tax-Free Bond Fund since January 1992. Mr. Klug is
also portfolio co-manager of the California Tax-Free Income Fund. Mr. Klug's
current position with Wells Fargo Bank is Senior Tax-Exempt Specialist/Portfolio
Manager. He has managed municipal bond portfolios for Wells Fargo Bank for over
nine years. Prior to joining Wells Fargo Bank, he managed the municipal bond
portfolio for a major property and casualty insurance company. Mr. Klug holds
35
<PAGE>
an M.B.A. from the University of Chicago, and is a member of the National
Federation of Municipal Analyst and its California chapter.
Ms. Mary Gail Walton is also responsible for the day-to-day portfolio
management of the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds.
Ms. Walton joined Wells Fargo Bank in 1996 from First Interstate Capital
Management and has been portfolio co-manager of the Funds since February 1,
1997. She had worked at First Interstate Bank since 1991 specializing in tax
exempt portfolio management. She holds a B.A. from the University of Washington
and is a chartered financial analyst candidate.
ADMINISTRATOR AND CO-ADMINISTRATOR . The Company has retained Wells
----------------------------------
Fargo Bank as Administrator and Stephens Inc. ("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 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 received 0.04% and 0.02% of the average daily net assets of each
Fund for performing administration services. In connection with the change in
fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
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:
36
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
- ---- ----- ----------- --------
<S> <C> <C> <C>
Arizona Tax-Free $ 5,750 $ 1,150 $ 4,600
California Tax-Free Bond* $357,423 $ N/A $357,423
California Tax-Free Income $ 16,307 $ 3,261 $ 13,046
National Tax-Free $ 3,222 $ 644 $ 2,578
Oregon Tax-Free $ 10,907 $ 2,181 $ 8,726
</TABLE>
_______________
* Represents amounts paid by 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.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. The
-------------------------------------------------------------
Pacifica Arizona Tax-Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds
were reorganized as the Company's Arizona Tax-Free, National Tax-Free and Oregon
Tax-Free Funds on September 6, 1996. Prior to September 6, 1996, the
Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica 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 predecessor
portfolios.
For the period begun September 6, 1996 and ended September 30, 1996, the
Funds paid to Stephens the dollar amounts of administration fees indicated
below. Stephens, as sole Administrator during this period, was entitled to
receive a monthly fee at the annual rate of 0.03% of each Fund's average daily
net assets. The amount also reflects the net administration fees paid, after
waivers, by the predecessor portfolio to Furman Selz for the period begun
October 1, 1995 and ended September 5, 1996.
<TABLE>
<CAPTION>
Year Ended
9/30/96
----------
Fund Fees Paid
---- ----------
<S> <C>
Arizona Tax-Free $24,636
National Tax-Free $14,138
Oregon Tax-Free $49,627
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS")
served as the Administrator for the predecessor portfolios of the Arizona Tax-
Free, National Tax-Free and Oregon Tax-Free Funds. For its administration
services, ALPS was entitled to receive the dollar amounts indicated below for
the periods indicated below and ALPS waived the indicated amounts. In 1995, the
Funds changed their fiscal year-end from May 31 to September 30.
37
<PAGE>
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended Year Ended
9/30/95 5/31/95 5/31/94
------------ --------- ----------
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free $4,116 $ 0 $12,490 $ 0 $12,890 $ 0
National Tax-Free $2,417 $ 0 $ 6,785 $2,018 $ 5,706 $ 4,210
Oregon Tax-Free $8,500 $ 0 $25,643 $ 0 $26,957 $ 0
</TABLE>
California Tax-Free Bond and California Tax-Free Income Funds. Wells
Fargo Bank and Stephens currently serve as Administrator and Co-Administrator,
respectively, to the Funds. Prior to the Consolidation of the Overland
portfolios into the Stagecoach Funds on December 12, 1997, Wells Fargo Bank and
Stephens served as Administrator and Co-Administrator, respectively, to the
Overland California Tax-Free Bond Fund. Prior to February 1, 1997, Stephens
served as sole Administrator to both California Funds and was entitled to
receive a fee, payable monthly, at the annual rate of 0.03% of each such Fund's
average daily net assets.
For the periods indicated below, the Funds paid the following dollar
amounts to Stephens for administration fees:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
Fund 9/30/96 12/31/95 12/31/94
- ---- ------------ ---------- ----------
<S> <C> <C> <C>
California Tax-Free Bond* $357,423 $384,015 $431,734
California Tax-Free Income $ 18,371 $ 16,793 $ 0
</TABLE>
__________________
* Represents amounts paid by the Overland predecessor portfolio for the year
ended December 31, 1996, the predecessor portfolio's most recently completed
fiscal year, and not the nine-month period ended September 30, 1996.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the distributor to the Funds.
SHAREHOLDER SERVICING AGENT. The Funds have approved Servicing Plans and
---------------------------
have entered into related Shareholder Servicing Agreements, with financial
institutions, including Wells Fargo Bank on behalf of the Institutional Class
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, not to exceed 0.25%, on an annualized basis, of the average daily net
assets of the class of shares owned of record or beneficially by the customers
of the Servicing Agent during the period for which payment is being made. The
Servicing Plans and related Shareholder Servicing Agreements were approved by
the Company's Board of Directors and provide that a Fund shall not be obligated
to make any payments under such Plans or related Agreements that exceed the
maximum
38
<PAGE>
amounts payable under the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").
For the period indicated below, the dollar amounts of shareholder
servicing fees paid, after waivers, by the Institutional Class of each Fund to
Wells Fargo Bank or its affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- ------------
<S> <C>
Arizona Tax-Free $ 0
California Tax-Free Bond* $127,063
California Tax-Free Income $ 9,816
National Tax Free $ 0
Oregon Tax-Free $ 10,085
</TABLE>
__________________
* Represents amounts paid by the Institutional Class shares of the Stagecoach
Fund. The Overland predecessor portfolio did not have an Institutional Class.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. For the
-------------------------------------------------------------
period begun October 1, 1995 and ended September 5, 1996, and under similar
service agreements, payments were made to First Interstate Bancorp for the Funds
indicated below. For the period begun September 6, 1996 and ended September 30,
1996, shareholder servicing fees were paid to Wells Fargo Bank or its
affiliates. For the year ended September 30, 1996, the Institutional Class of
each Fund paid, after waivers, the following dollar amounts of shareholder
servicing fees:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Arizona Tax-Free $ 0
National Tax-Free $ 0
Oregon Tax-Free $ 1,295
</TABLE>
The California Tax-Free Income Fund. The California Tax-Free Income Fund
-----------------------------------
did not pay any shareholder servicing fees to Wells Fargo Bank or its affiliates
for the nine-month period 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 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.
39
<PAGE>
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.
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 will
provide portfolio accounting services under the Custody Agreement as follows: a
monthly base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of
the first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Funds paid to Wells
Fargo Bank the following dollar amounts in custody fees, after waivers:
<TABLE>
<CAPTION>
Funds Custody Fees
----- ------------
<S> <C>
Arizona Tax-Free $ 0
California Tax-Free Bond* $ 0
California Tax-Free Income $ 0
National Tax-Free $ 0
Oregon Tax-Free $ 0
</TABLE>
_______________
* Represents amounts paid by the Overland predecessor portfolio for the year
ended December 31, 1996, the predecessor portfolio's most recently completed
fiscal year.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. FICAL,
-------------------------------------------------------------
located at 707 Wilshire Blvd., Los Angeles, California 90017, acted as Custodian
of the Pacifica Arizona Tax-Free, National Tax-Free and Oregon Tax-Free 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.
The predecessor portfolios to the Arizona Tax-Free, National Tax-Free
and Oregon Tax-Free Funds did not pay any custody fees to FICAL, after waivers
and reimbursements, for the period begun October 1, 1995 and ended September 5,
1996, and did not pay any custody fees to Wells Fargo Bank for the period begun
September 6, 1996 and ended September 30, 1996.
California Tax-Free Income Fund. For the nine-month period ended
-------------------------------
September 30, 1996, the California Tax-Free Income Fund did not pay any custody
fees to Wells Fargo Bank.
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 0.06% of each Fund's average daily net assets of the Institutional Class
shares.
40
<PAGE>
For the six-month period ended March 31, 1997, the Funds paid to Wells
Fargo Bank the following dollar amounts in transfer and dividend disbursing
agency fees, without regard to class and after waivers:
<TABLE>
<CAPTION>
Fund Transfer Agency Fees
---- --------------------
<S> <C>
Arizona Tax-Free $ 0
California Tax-Free Bond* $ 0
California Tax-Free Income $ 0
National Tax-Free $ 0
Oregon Tax-Free $ 0
</TABLE>
_______________
* Represents amounts paid by the Overland predecessor portfolio for the year
ended December 31, 1996, the predecessor portfolio's most recently completed
fiscal year.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. Under the
-------------------------------------------------------------
prior transfer agency agreement for the Arizona Tax-Free, National Tax-Free and
Oregon Tax-Free Funds, Wells Fargo Bank was entitled to receive monthly payments
at the annual rate of 0.07% of the average daily net assets of the Institutional
Class shares of the Funds, as well as reimbursement for all reasonable out-of-
pocket expenses. Furman Selz acted as Transfer Agent for the predecessor
portfolios. Pacifica compensated Furman Selz for providing personnel and
facilities to perform transfer agency related services for Pacifica at a rate
intended to represent the cost of providing such services.
California Tax-Free Bond and California Tax-Free Income Funds. Under the
-------------------------------------------------------------
prior transfer agency agreement for the California Funds, Wells Fargo Bank was
entitled to receive a per account fee plus transaction fees and reimbursement of
out-of-pocket expenses, with a minimum of $3,000 per month per Fund, unless net
assets of the Fund were under $20 million. For as long as a California 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 California Funds
did not pay any transfer and dividend disbursing agency fees.
UNDERWRITING COMMISSIONS. Front-end sales loads and contingent deferred
------------------------
sales charges are not assessed in connection with the purchase and redemption of
Institutional Class shares. Therefore no underwriting commissions were paid to
Stephens as the Funds' Distributor.
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.
41
<PAGE>
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 performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Institutional Class shares of
the Arizona Tax-Free Fund for periods prior to September 6, 1996, reflects
performance of the Institutional Class shares and the Investor Class shares
(prior to October 1, 1995) of the Pacifica Arizona Tax-Exempt Fund, a
predecessor portfolio with the same objective and policies as the Stagecoach
Arizona Tax-Free Fund.
Performance shown or advertised for the Institutional Class shares of
the Stagecoach California Tax-Free Bond Fund for periods prior to December 15,
1997, reflects performance of the Class A shares of the Overland California Tax-
Free Fund (the accounting survivor of a merger of the Funds on December 12,
1997).
Performance shown or advertised for the Institutional Class shares of
the California Tax-Free Income Fund for periods prior to September 6, 1996,
reflects the performance of the Fund's Class A shares.
Performance shown or advertised for the Institutional Class shares of
the National Tax-Free Fund for periods prior to September 6, 1996, reflects
performance of the Institutional Class shares and the Investor Class shares
(prior to October 1, 1995) of the Pacifica National Tax-Exempt Fund, a
predecessor portfolio with the same objective and policies as the Stagecoach
National Tax-Exempt Fund.
Performance shown or advertised for the Institutional Class shares of
the Oregon Tax-Free Fund for periods prior to September 6, 1996, reflects
performance of the Institutional Class shares and the Investor Class shares
(prior to October 1, 1995) of the Pacifica Oregon Tax-Exempt Fund, a
predecessor portfolio with the same objective and policies as the Stagecoach
Oregon Tax-Free Fund.
See "Historical Fund Information."
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total
---------------------------
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)n=ERV.
42
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period
Ended September 30, 1997/1/
------------------------
Institutional Five Three One
Class Inception/2/ Year Year Year
------------- ------------ ---- ----- ----
<S> <C> <C> <C> <C>
Arizona Tax-Free 6.76% 6.36% 7.28% 8.98%
California Tax-Free Bond/3/ 8.13% 7.01% 7.32% 8.40%
California Tax-Free Income 4.81% N/A 5.41% 5.73%
National Tax-Free 5.77% N/A 7.32% 8.52%
Oregon Tax-Free 7.23% 6.30% 7.82% 8.32%
</TABLE>
____________________
1 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the California Tax-Free Income Fund reflect the
performance of the Class A shares of such Fund. For periods prior to
September 6, 1996, performance figures for the Institutional Class shares of
the Arizona, Oregon, and National Tax-Free Funds reflects the performance of
such Funds' predecessor portfolios. The performance figures for the
Institutional Class shares of the California Tax-Free Bond Fund reflect the
performance of the Class A shares of the Overland California Tax-Free Bond
Fund (the accounting survivor of the merger of the Stagecoach and Overland
Funds on December 12, 1997). Institutional Class shares do not assess a sales
charge.
2 Each Fund or its predecessor commenced operations as follows: California Tax-
Free Income - November 18, 1992; Overland California Tax- Free Bond Class A-
October 6, 1988; Arizona Tax-Free - March 2, 1992; National Tax-Free -
January 15, 1993; Oregon Tax-Free - June 1, 1988. The California Funds
Institutional class shares commenced operations on September 6, 1996.
3 Reflects the performance of the Class A shares of the predecessor portfolio
for the applicable period ended June 30, 1997.
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.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended September 30, 1997/1/
-----------------------------------------------------------------------------
Institutional Five Three
Class Inception/2/ Year Year
------------- ------------ ---- -----
<S> <C> <C> <C>
Arizona Tax-Free 44.11% 36.13% 23.46%
California Tax-Free Bond 98.62% 40.34% 23.61%
California Tax-Free Income 25.75% N/A 17.13%
National Tax-Free 29.94% N/A 23.61%
Oregon Tax-Free 91.90% 35.71% 25.34%
</TABLE>
43
<PAGE>
____________________
1 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the California Tax-Free Income Fund reflect the
performance of the Class A shares of such Fund. For periods prior to
September 6, 1996, performance figures for the Institutional Class shares of
the Arizona, Oregon, and National Tax-Free Funds reflects the performance of
such Funds' predecessor portfolios. The performance figures for the
Institutional Class shares of the California Tax-Free Bond Fund reflect the
performance of the Class A shares of the Overland Express California Tax-Free
Bond Fund (the accounting survivor of the merger of the Stagecoach and
Overland Funds on December 12, 1997). Institutional Class shares do not
assess a sales charge.
2 Each Fund or its predecessor commenced operations as follows: California Tax-
Free Income - November 18, 1992; Overland California Tax- Free Bond Class A -
October 6, 1988; Arizona Tax-Free - March 2, 1992; National Tax-Free -
January 15, 1993; Oregon Tax-Free - June 1, 1988. The California Funds
Institutional class shares commenced operations on September 6, 1996.
3 Reflects the performance of the Class A shares of the predecessor portfolio
for the applicable period ended June 30, 1997.
YIELD CALCULATIONS: The Funds may, from time to time, include their
------------------
yields, tax-equivalent yields (if applicable) 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.
TAX-EQUIVALENT YIELD: Quotations of tax-equivalent yield for a Tax-Free
--------------------
Fund are calculated according the following formula:
TAX EQUI VALENT YIELD = ( E ) + t
-----
1 - p
E = Tax-exempt yield
p = stated income tax rate
t = taxable yield
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:
44
<PAGE>
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1.
<TABLE>
<CAPTION>
Yield for the Applicable Period Ended September 30, 1997
--------------------------------------------------------
Thirty-Day Thirty-Day Tax-
Fund Yield Equivalent Yield
---- ---------- ----------------
<S> <C> <C>
Arizona Tax-Free 3.57% 6.26%
California Tax-Free Bond* 4.71% 8.76%
California Tax-Free Income 3.68% 6.85%
National Tax-Free 4.52% 6.28%
Oregon Tax-Free 4.26% 7.75%
</TABLE>
____________________
* The performance figures for the Institutional Class shares of the California
Tax-Free Bond Fund reflect the performance of the Class A shares of the
Overland Express California Tax-Free Bond Fund (the accounting survivor of
the merger of the Stagecoach and Overland Funds on December 12, 1997) for the
applicable period ended June 30, 1997.
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 a
Fund's past performance 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
45
<PAGE>
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 class of shares of a Fund: (i) the Consumer Price Index may be used to assess
the real rate of return from an investment in a class of shares of a Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of a Fund or a
class of shares or the general economic, business, investment, or financial
environment in which a Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of a Fund or a class of shares, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Fund or a class of shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or a class or current or potential value with
respect to the particular industry or sector.
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."
46
<PAGE>
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management), a 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 advisor and the total amount of assets under
management 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 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.
47
<PAGE>
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 faith in accordance with procedures adopted by the Company's Board of
Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Funds are 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 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
48
<PAGE>
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 Funds for any losses sustained by
reason of the failure of a shareholders to make full payment for shares
purchased or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to shares of a Fund as provided
from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
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 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.
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
49
<PAGE>
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.
Brokerage Commissions. For the six-month period ended March 31, 1997,
---------------------
the Funds did not pay any brokerage commissions.
During the nine-month period ended September 30, 1996 and the years
ended December 31, 1995 and 1994, the California Funds did not pay any brokerage
commissions on portfolio transactions.
During the fiscal periods ended September 30, 1996, September 30, 1995,
May 31, 1995 and May 31, 1994, the predecessor portfolios of the Arizona,
National and Oregon Tax-Free Funds did not pay any brokerage commissions.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Funds
------------------------------------
owned securities of their "regular brokers or dealers" or their parents as
defined in the 1940 Act as follows.
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
---- ------------- ------
<S> <C> <C>
Arizona Tax-Free Goldman Sachs & Co. $762,919
Oregon Tax-Free Goldman Sachs & Co. $504,001
</TABLE>
Portfolio Turnover Rate. 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 s 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 Fund 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;
50
<PAGE>
expenses of redeeming shares; expenses of preparing and printing Prospectuses
(except the expense of printing and mailing Prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of a Fund; expenses
of shareholders' meetings; expenses relating to the issuance, registration and
qualification of a Fund's shares; pricing services, and any extraordinary
expenses. Expenses attributable to a Fund are charged against a Fund assets.
General expenses of the Company are allocated among all of the funds of the
Company, including a Fund, in a manner proportionate to the net assets of each
Fund, on a transactional basis, or on such other basis as the Company's Board of
Directors deems equitable.
FEDERAL INCOME TAXES
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.
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
51
<PAGE>
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." If securities are sold by a Fund
pursuant to the exercise of a call option written by it, the Fund will add the
premium received to the sale price of the securities delivered in determining
the amount of gain or loss on the sale.
If 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.
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.
52
<PAGE>
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%.
Other Distributions. Although dividends will be declared daily based on
-------------------
each Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year a Fund's declared dividends (as declared daily throughout
the year) exceed the Fund's net income (as determined at the end of the year),
only that portion of the year's distributions which equals the year's earnings
and profits will be deemed to have constituted a dividend. It is expected that
each Fund's net income, on an annual basis, will equal the dividends declared
during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of
53
<PAGE>
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. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations had been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do 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 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
54
<PAGE>
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.
Special Tax Considerations.
--------------------------
All Funds
The Funds intend that at least 50% of the value of their total assets at
the close of each quarter of their taxable years will consist of obligations,
the interest on which is exempt from federal income tax, so that they will
qualify under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by a Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed as
capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, each Fund
will notify its shareholders of the portion of the dividends paid with respect
to such taxable year which constitutes exempt-interest dividends. The aggregate
amount of dividends so designated cannot exceed the excess of the amount of
interest excludable from gross income under Section 103 of the Code received by
the Fund during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. Interest on indebtedness incurred to
purchase or carry shares of a Fund will not be deductible to the extent that the
Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item in
determining their AMT.
55
<PAGE>
Shareholders will be notified of the tax status of distributions made by the
Fund. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax advisors before purchasing Fund shares. Furthermore,
shareholders will not be permitted to deduct any of their share of the Fund's
expenses in computing their AMT. With respect to a corporate shareholder of such
Funds, exempt-interest dividends paid by a Fund is included in the corporate
shareholder's "adjusted current earnings" as part of its AMT calculation, and
may also affect its federal "environmental tax" liability. As of the printing of
this SAI, individuals are subject to an AMT at a maximum rate of 28% and
corporations at a maximum rate of 20%. Shareholders with questions or concerns
about AMT should consult their own tax advisors.
Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs since such plans and accounts are generally tax-
exempt and, therefore, would not benefit from the exempt status of dividends
from such Funds. Such dividends would be ultimately taxable to the beneficiaries
when distributed to them.
Arizona Tax-Free Fund
Individuals, trusts and estates who are subject to Arizona income tax
will not be subject to such tax on dividends paid by the Arizona Tax-Free Fund,
to the extent that such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code and are
attributable to either (i) obligations of the State of Arizona or its political
subdivisions thereof or (ii) obligations issued by the governments of Guam,
Puerto Rico, or the Virgin Islands. In addition, dividends paid by the Arizona
Tax-Free Fund that are attributable to interest payments on direct obligations
of the U.S. government will not be subject to Arizona income tax to the extent
the Arizona Tax-Free Fund qualifies as a regulated investment company under
Subchapter M of the Code. Other distributions from the Arizona Tax-Free Fund,
however, such as distributions of short-term or long-term capital gains, will
generally not be exempt from Arizona income tax.
Because shares of the Arizona Tax-Free Fund are intangibles, they are
not subject to Arizona property tax. Shareholders of the Arizona Tax-Free Fund
should consult their tax advisors about other state and local tax consequences
of their investment in the Arizona Tax-Free Fund. The Company makes no
representations as to Arizona state and local taxes that may be imposed on a
corporate investor in the Arizona Tax-Free Fund and encourages such investors to
consult with their own tax advisors.
California Tax-Free Bond Fund and California Tax-Free Income Fund
Individuals, trusts and estates resident in California will not be
subject to California personal income tax on dividends from the California Tax-
Free Bond Fund and California Tax-Free Income Fund that represent tax-exempt
interest paid on municipal obligations of the State of California, its political
subdivisions, direct obligations of the U.S. government and certain other
issuers, including Puerto Rico, Guam, and the U.S. Virgin Islands. Such
individuals, trusts and estates will be subject to California personal income
tax on other distributions received from the California Tax-Free Bond Fund and
California Tax-Free Income Fund, including distributions of interest on
municipal obligations issued by other issuers and all capital gains.
56
<PAGE>
Except as noted above with respect to California personal income
taxation of individuals, trusts and estates resident in California, dividends
and distributions from the California Tax-Free Bond Fund and California Tax-Free
Income Fund may be taxable to investors under state or local law as dividend
income even though all or a portion of such distributions may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such income taxes.
Shareholders of the California Tax-Free Bond Fund and California Tax-
Free Income Fund should consult their own tax advisors about other state and
local tax consequences of their investments in the California Tax-Free Bond Fund
and California Tax-Free Income Fund, such as consequences to California part-
year residents, which may be different than the federal income tax consequences
of such investments. The Company makes no representations as to California state
and local taxes that may be imposed on a corporate investor in the California
Tax-Free Bond Fund or California Tax-Free Income Fund and encourages such
investors to consult with their own tax advisors.
Oregon Tax-Free Fund
So long as the Oregon Tax-Free Fund qualifies to be taxed as a separate
"regulated investment company" under the Code, individuals, trusts and estates
will not be subject to Oregon personal income tax on distributions from the
Oregon Tax-Free Fund that represent "exempt-interest dividends" of a regulated
investment company under the Code paid on municipal obligations of the State of
Oregon and its political subdivisions, the U.S. Virgin Islands, Puerto Rico and
Guam. Individuals, trusts and estates will be subject to Oregon personal income
tax on other types of distributions received from the Oregon Tax-Free Fund,
including distributions of interest on obligations issued by other issuers and
all long-term and short-term capital gains. Shares of the Oregon Tax-Free Fund
will not be subject to the Oregon property tax.
Shareholders of the Oregon Tax-Free Fund should consult their own tax
advisors about other state and local tax consequences of their investments in
the Oregon Tax-Free Fund, which may differ from the federal income tax
consequences of such investments. The Company makes no representations as to
Oregon state and local taxes that may be imposed on a corporate investor in the
Oregon Tax-Free Fund and encourages such investors to consult with their own tax
advisors.
National Tax-Free Fund
Investors are advised to consult their tax advisors concerning the
application of state and local taxes, which may have different consequences from
those under federal income tax law.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the federal income tax
considerations generally affecting
57
<PAGE>
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 five 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 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 1-800-260-5969 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 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 Fund, means the
vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
Shares have no preemptive rights or subscription. All shares, when
issued for the consideration described in the Prospectus, are fully paid and
non-assessable by the Company.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the
58
<PAGE>
assets belonging to the Fund as are declared in the discretion of the Directors.
In the event of the liquidation or dissolution of the Company, shareholders of a
Fund or class are entitled to receive the assets attributable to the Fund or
class that are available for distribution, and a distribution of any general
assets not attributable to a particular investment portfolio that are available
for distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of January 2, 1998 is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of the Institutional Class shares 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 the 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>
ARIZONA TAX- Virg & Co. Institutional Class 94.87% 62.03%
FREE FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
CALIFORNIA Dim & Co. Institutional Class 80.82% 10.03%
TAX-FREE BOND Attn: MF Dept. A88-4 Record Holder
FUND P. O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 5.63% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
MAC 9139-027
Calabasas, CA 91302
CALIFORNIA Dim & Co. Institutional Class 66.08% 6.78%
TAX-FREE INCOME Attn: MF Dept A88-4 Record Holder
FUND P. O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 30.40% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
MAC 9139-027
Calabasas, CA 91302
OREGON Dim & Co. Institutional Class 10.78% N/A
TAX-FREE FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Institutional Class 55.82% 10.84%
Attn: MF Dept A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 20.10% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800 MAC 9139-027
Calabasas, CA 91302
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stephens Inc. FBO Institutional Class 9.26% N/A
A/C 77676963 Beneficially Owned
P. O. Box 34127
Little Rock, AR 72202
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more that 25% of the voting securities of a
fund is presumed to "control" such fund. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more that 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
This 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 ("SEC") in Washington, D.C.
Statements contained in a Prospectus or the SAI as to the contents of any
contract or other document referred to herein or in the Prospectus are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
Arizona Tax-Free, California Tax-Free Income, National Tax-Free and Oregon Tax-
Free Funds for the six-month period ended September 30, 1997, are hereby
incorporated by reference to the Company's Semi-Annual Report as filed with the
SEC on December 5, 1997.
The portfolio of investments and unaudited financial statements for the
Overland California Tax-Free Bond 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' report for the Arizona Tax-Free, California Tax-Free
Income, National Tax-Free and Oregon Tax-Free Funds for the six-month period
ended March 31, 1997, are hereby incorporated by reference to the Company's
Annual Reports as filed with the SEC on June 4, 1997.
60
<PAGE>
The portfolio of investments, audited financial statements and
independent auditors' report for the Overland California Tax-Free Bond 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 1-800-260-
5969.
61
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS(R), INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1998
TREASURY MONEY MARKET MUTUAL FUND
Class E
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about a fund in the Stagecoach Family of Funds -- the
Treasury Money Market Mutual Fund (the "Fund"). This SAI relates to the Class
E shares of the Fund.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated February 1, 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 calling 1-800-260-5969 or by
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information.................................................... 1
Investment Restrictions........................................................ 1
Additional Permitted Investment Activities..................................... 3
Risk Factors................................................................... 7
Management..................................................................... 9
Performance Calculations....................................................... 18
Determination of Net Asset Value............................................... 22
Additional Purchase and Redemption Information................................. 24
Portfolio Transactions......................................................... 24
Fund Expenses.................................................................. 26
Federal Income Taxes........................................................... 26
Capital Stock.................................................................. 31
Other.......................................................................... 34
Independent Auditors........................................................... 35
Financial Information.......................................................... 35
Appendix....................................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Treasury Money Market Mutual Fund commenced operations on October 1,
1985, as the Short-Term Government Fund of the Pacifica American Funds. The
Fund operated as a portfolio of Pacific American Funds through October 1, 1994,
when it was reorganized as the Pacific American U.S. Treasury Portfolio, a
portfolio of Pacifica Funds Trust ("Pacifica"). In July 1995, the Fund was
renamed the Pacifica Treasury Money Market Fund. On September 6, 1996, the
Pacifica Treasury Money Market Fund was reorganized as the Company's Treasury
Money Market Mutual Fund. The Class E shares of the Fund commenced operations
on March 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 (defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of the
Fund.
The Treasury Money Market Mutual Fund may not:
(1) purchase common stocks and voting securities (including state,
municipal or industrial revenue bonds) except for securities of other investment
companies;
(2) borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing. The Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. As a matter of non-fundamental policy, the Fund intends to
limit its investments in reverse repurchase agreements to no more than 20% of
its total assets;
(3) mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of one-third of the value of the
Fund's total assets at the time of its borrowing. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
deemed to be pledged for purposes of this investment restriction;
(4) purchase securities on margin, except for delayed delivery or when-
issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, maintain a
short position;
(5) write put or call options;
1
<PAGE>
(6) underwrite the securities of other issuers, except as the Fund may be
deemed to be an underwriter in connection with the purchase or sale of portfolio
instruments in accordance with its investment objective and portfolio management
policies;
(7) invest in companies for the purpose of exercising control;
(8) make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
loans of portfolio securities and repurchase agreements;
(9) invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation, acquisition of assets or where
otherwise permitted by the 1940 Act; nor
(10) lend its portfolio securities in excess of one-third of the value of
its total assets.
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of the Fund's shareholders.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, the Fund's investment in such securities currently is
limited to , subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to any
one investment company, and (iii) 10% of the Fund's net assets in the aggregate.
Other investment companies in which the Fund invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by the Fund.
(2) The Fund may not invest or hold more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolios 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.
2
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Floating- and Variable-Rate Obligations
---------------------------------------
The Fund may purchase floating- and variable-rate obligations. The Fund
may purchase floating- and variable-rate demand notes and bonds. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
the Fund may invest in obligations which are not so rated only if Wells Fargo
Bank determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. Wells Fargo
Bank, on behalf of the Fund, considers on an ongoing basis the creditworthiness
of the issuers of the floating- and variable-rate demand obligations in the
Fund's portfolio. The Fund will not invest more than 10% of the
3
<PAGE>
value of its total net assets in floating- or variable-rate demand obligations
whose demand feature is not exercisable within seven days. Such obligations
may be treated as liquid, provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
The Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Fund will generally purchase securities with the intention of acquiring them,
the Fund may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
adviser.
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.
Illiquid Securities
-------------------
The Fund may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to the Fund. The Fund may hold up to 10% of
its assets in net illiquid securities.
Loans of Portfolio Securities
-----------------------------
The Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and obtain the return of the securities loaned within five business
days; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not
at any time exceed one third of the total assets of the Fund.
The Fund will earn income for lending its securities because cash
collateral pursuant to such loans will be invested in short-term money market
instruments. In connection with lending securities, the Fund may pay reasonable
finders, administrative and custodial fees. The Fund will not enter into any
security lending arrangement having a duration longer than one year. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. In either case, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. When the Fund lends its
4
<PAGE>
securities, it continues to receive interest or dividends on the securities
loaned and may simultaneously earn interest on the collateral received from the
borrower or from the investment of cash collateral in readily marketable, high-
quality, short-term obligations. Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, such loans may be called
at any time and will be called so that the securities may be voted by the Fund
if a material event affecting the investment is to occur. The Fund may pay a
portion of the interest and fees earned from securities lending to a borrower or
a placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with Wells Fargo Bank, Stephens Inc. or any of their
affiliates.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund 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.
Repurchase Agreements
---------------------
The Fund may enter into repurchase agreements, wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. The Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, the Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% 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 adviser. The
Fund may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Borrowing and Reverse Repurchase Agreements
-------------------------------------------
The Fund intends to limit its borrowings (including reverse repurchase
agreements) during the current fiscal year to not more than 10% of its net
assets. At the time the Fund enters into a reverse repurchase agreement (an
agreement under which the Fund sells portfolio securities and
5
<PAGE>
agrees to repurchase them at an agreed-upon date and price), it will place in a
segregated custodial account liquid assets such as U.S. Government securities or
other liquid high-grade debt securities having a value equal to or greater than
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the 1940 Act.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Fund may invest in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). The Fund may invest only in
U.S. Government obligations issued or guaranteed by the U.S. Treasury. Payment
of principal and interest on U.S. Government obligations (i) may be backed by
the full faith and credit of the United States (as with U.S. Treasury bills and
GNMA certificates) or (ii) may be backed solely by the issuing or guaranteeing
agency or instrumentality itself (as with FNMA notes). In the latter case
investors must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
The Fund may invest only in obligations issued or guaranteed by the U.S.
Treasury such as bills, notes, bonds and certificates of indebtedness, and in
notes and repurchase agreements collateralized or secured by such obligations
("U.S. Treasury obligations"). U.S. Treasury notes, bills and bonds differ
mainly in the length of their maturity. The U.S. Treasury obligations in which
the Fund invests may also include "U.S. Treasury STRIPS," interests in U.S.
Treasury obligations reflected in the Federal Reserve-Book Entry System that
represent ownership in either the future interest payments or the future
principal payments on the U.S. Treasury obligations. U.S. Treasury Strips are
"stripped securities." Stripped securities are issued at a discount to their
face value and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are paid
to investors. The Fund may invest in U.S. Treasury STRIPS.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
6
<PAGE>
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's, S&P, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Thomson Bank Watch and IBCA Inc. represent their
opinions as to the quality of debt securities. It should be emphasized, however,
that ratings are general and not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to purchase by the Fund,
an issue of debt securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Fund. The adviser will
consider such an event in determining whether the Fund involved should continue
to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial development
bonds which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC") and
are not insured or guaranteed against loss of principal. Therefore, you should
be willing to accept some risk with money you invest in the Fund. Although the
Fund seeks to maintain a stable net asset value of $1.00 per share, there is no
assurance that it will be able to do so. The Fund may not achieve as high a
level of current income as other mutual funds that do not limit their investment
to the high credit quality instruments in which the Fund invests. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days (13 months).
In addition, any security that the Fund purchases must present minimal credit
risks and be of the "highest quality." "Highest quality" means to be rated only
in the top rating category, by the requisite NRSROs or, if unrated, determined
to be of comparable quality to such
7
<PAGE>
rated securities by Wells Fargo Bank, as the Fund's investment adviser, under
guidelines adopted by the Board of Directors of the Company.
The Fund seeks to reduce risk by investing its assets in securities of
various issuers. In addition, the Fund emphasizes safety of principal and high
credit quality. In particular, the internal investment policies of the
investment adviser prohibit the purchase of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates
move above a certain level);
. leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the relationship
between these indices may result in the value of the instrument
falling below face value); and
. inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Fund may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Fund restricts its investment to U.S. Treasury obligations that meet
all of the standards described above. Obligations issued or guaranteed by the
U.S. Treasury have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such obligations may vary during the period a shareholder owns shares
of the Fund. It should be noted that neither the United States, nor any agency
or instrumentality thereof, has guaranteed, sponsored or approved the Fund or
its shares.
The portfolio debt instruments of the Fund are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Fund invests may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which the Fund
invests and hence the value of your investment in the Fund.
8
<PAGE>
Generally, securities in which the Fund invests will not earn as high a
yield as securities of longer maturity and/or of lesser quality that are more
subject to market volatility. The Fund attempts to maintain the value of its
shares at a constant $1.00 per share, although there can be no assurance that
the Fund will always be able to do so.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
9
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
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 Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
10
<PAGE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 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 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
11
<PAGE>
complex for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Adviser. Wells Fargo Bank provides investment advisory services
to the Fund. As investment adviser, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of the Fund. Wells
Fargo Bank provides the Fund with, among other things, money market and fixed-
income research, analysis and statistical and economic data and information
concerning interest rate and securities markets trends, portfolio composition,
and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.25% of the Fund's average daily
net assets.
For the period indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Six-Month Period Ended 3/31/97
------------------------------
Fees Paid Fees Waived
--------- -----------
$1,518,347 $751,971
The Pacifica Treasury Money Market Fund was reorganized as the Company's
Treasury Money Market Mutual Fund on September 6, 1996. Prior to September 6,
1996, Wells Fargo Investment Management, Inc. ("WFIM") and its predecessor,
First Interstate Capital Management, Inc. ("FICM") served as adviser to the
Pacifica Treasury Money Market Fund. As of September 6, 1996, Wells Fargo Bank
became the adviser to the Company's Treasury Money Market Mutual Fund.
For the period begun [April 1, 1996] and ended September 5, 1996, the
predecessor portfolios paid to WFIM, and for the period begun September 6, 1996
and ended September 30, 1996, the Fund paid to Wells Fargo Bank advisory fees of
$2,442,922 of which $2,073,426 were waived.
For the periods indicated below, the advisory fees paid to the former
adviser by the predecessor portfolio of the Treasury Money Market Mutual Fund
were as shown below. These amounts reflect voluntary fee waivers and expense
reimbursements by the adviser. Prior to October 1, 1994, all of these fees were,
in turn, paid by the adviser to its affiliates which served as investment sub-
advisers during the periods indicated.
12
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended
9/30/95 9/30/94 3/31/94
------- ------- -------
<S> <C> <C>
$1,160,424 $454,029 $900,919
</TABLE>
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Administrator and Co-Administrator. The Company has retained Wells Fargo
------------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Fund's operations, including coordination of the services performed by
the Fund's investment adviser, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy statements and shareholder
reports for the Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's officers and Board of Directors. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the Fund's
business together with ordinary clerical and bookkeeping services. Stephens pays
the compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee of 0.03% and 0.04% respectively, of the average daily
net assets of the Fund. Prior to February 1, 1998, the Administrator and
Co-Administrator were entitled to receive a monthly fee at the annual rate of
0.04% and 0.02%, respectively, of the Fund's average daily net assets. In
connection with the change in fees, the responsibility for performing various
administration services was shifted to the Co-Administrator.
Prior to February 1, 1997, Stephens served as the sole Administrator and
performed substantially the same services now provided by Stephens and Wells
Fargo Bank. Stephens was entitled to receive for its services a fee, payable
monthly, at the annual rate of 0.05% of the Fund's average daily net
assets.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
13
<PAGE>
<TABLE>
<CAPTION>
Six-Month Period
Ended 3/31/97
-------------
Total Wells Fargo Stephens
----- ----------- --------
<S> <C> <C>
$483,198 $96,640 $386,558
</TABLE>
The Pacifica Treasury Money Market Fund was reorganized as the Company's
Treasury Money Market Mutual Fund on September 6, 1996. Prior to September 6,
1996, the Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica
predecessor portfolio provided management and administration services necessary
for the operation of the Fund, pursuant to an Administrative Services Contract.
For these services, Furman Selz was entitled to receive a fee, payable monthly,
at the annual rate of 0.15% of the average daily net assets of the predecessor
portfolio.
The predecessor portfolio of the Treasury Money Market Mutual Fund was
administered through April 14, 1996 by the Dreyfus Corporation ("Dreyfus"), at
the annual rate of 0.10% of the Fund's average daily net assets.
The following table reflects the administration fees which the respective
Administrators of the Fund and its predecessor portfolio paid during the fiscal
year ended September 30, 1996. These amounts also reflect the net
administration fees paid by the respective former Administrator of the
predecessor portfolio during the period begun October 1, 1995 and ended
September 5, 1996. During the fiscal year ended September 30, 1995, the six-
month period ended September 30, 1994 and the fiscal year ended March 31, 1994,
administration fees paid to Dreyfus by the predecessor portfolio of the Treasury
Money Market Mutual Fund were as listed below.
<TABLE>
<CAPTION>
Six-Month
Year Ended Year Ended Period Ended Year Ended
9/30/96 9/30/95 9/30/94 3/31/94
------- ------- ------- -------
<S> <C> <C> <C>
$1,745,759 $921,886 $347,499 $690,137
</TABLE>
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 the Class E shares. The Plan was adopted
by the Company's Board of Directors, including a majority of the Directors who
were not "interested persons" (as defined in the 1940 Act) of the Fund and who
had no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the Distribution Agreement, the Fund may pay
Stephens, as compensation for distribution-related services or as reimbursement
for distribution-related expenses, a monthly fee at the annual rate of up to
0.10% of the Fund's average daily net assets
14
<PAGE>
attributable to Class E shares. Prior to September 1, 1997, the Distributor was
entitled to a monthly fee at the annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class E shares.
The actual fee payable to the Distributor by the Fund is determined, within
such limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD") under the Conduct Rules of the NASD. The Distributor may enter into
selling agreements with one or more selling agents (which may include Wells
Fargo Bank and its affiliates) under which such agents may receive compensation
for distribution-related services from the Distributor, including, but not
limited to, commissions or other payments to such agents based on the average
daily net assets of Fund shares attributable to their customers. The
Distributor may retain any portion of the total distribution fee payable
thereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
For the six month period ended March 31, 1997, the Fund's distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan for Class E shares.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ------------
<S> <C> <C> <C>
$46,608 N/A N/A $46,608
</TABLE>
For the six-month period ended March 31, 1997, WFSI and its registered
representatives received no compensation under the Fund's Plan.
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plan also must be approved by such vote of the Directors and 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 Class E shares of the Fund or by
vote of a majority of the Non-Interested Directors on not more than 60 days'
written notice. The Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plan may be made except
by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of
15
<PAGE>
Directors who are not "interested persons" of the Company be made by such
disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Fund's
Class E shares pursuant to selling agreements with Stephens authorized under the
Plan. As a selling agent, Wells Fargo Bank has an indirect financial interest in
the operation of the Plan. The Board of Directors has concluded that the Plan is
reasonably likely to benefit the Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
customers that the Class E shares of the Fund are designed to serve. These
relationships and distribution channels are believed by the Board to provide
potential for increased Fund assets and ultimately corresponding economic
efficiencies (i.e., lower per-share transaction costs and fixed expenses) that
are generated by increased assets under management.
Shareholder Servicing Agent. The Fund has approved a Servicing Plan and
----------------------------
has entered into a related Shareholder Servicing Agreement, on behalf of Class E
shares, with financial institutions, including Wells Fargo Bank. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the Fund, not to exceed 0.30% (0.25%
prior to September 1, 1997), on an annualized basis, of the average daily net
assets of the class of shares owned of record or beneficially by the customers
of the Servicing Agent during the period for which payment is being made. The
Servicing Plan and related form of shareholder servicing agreement were approved
by the Company's Board of Directors and provide that the Fund shall not be
obligated to make any payments under such Plan or related Agreements that exceed
the maximum amounts payable under the Conduct Rules of the NASD.
For the six-month period ended March 31, 1997, the Fund paid $46,608 in
shareholder servicing fees to Wells Fargo Bank or its affiliates.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreement may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
16
<PAGE>
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Wells Fargo Bank acts as Custodian for the Fund. The Custodian,
----------
among other things, maintains a custody account or accounts in the name of the
Fund, receives and delivers all assets for the Fund upon purchase and upon sale
or maturity, collects and receives all income and other payments and
distributions on account of the assets of the Fund, and pays all expenses of the
Fund. For its services as Custodian, Wells Fargo Bank is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Wells Fargo Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997 the Fund did not pay any
custody fees, after waivers, to Wells Fargo Bank.
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017, acted
as Custodian of the Pacifica Treasury Money Market Fund. FICAL was entitled to
receive a fee from Pacifica, computed daily and payable monthly, at the annual
rate of 0.021% of the first $5 billion in aggregate average daily net assets of
the Fund; 0.0175% of the next $5 billion in aggregate average daily net assets
of the Fund; and 0.015% of the aggregate average daily net assets of the Fund in
excess of $10 billion.
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 $252,183.
This amount reflects fee waivers.
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 0.10%
of the average daily net assets of the Class E shares. Prior to September 1,
1997, Wells Fargo Bank was entitled to receive transfer agency fees at an annual
rate of 0.02% of the average daily net assets of the Fund's Class E shares.
For the six-month period ended March 31, 1997 the Fund did not pay any
compensation for transfer and dividend disbursing agency services to Wells Fargo
Bank.
Underwriting Commissions. Front-end sales loads and contingent-deferred
-------------------------
sales charges are not assessed in connection with the purchase and redemption of
Class E shares. Therefore, no underwriting commissions are paid to Stephens as
the Distributor of the Fund's Class E shares.
17
<PAGE>
PERFORMANCE CALCULATIONS
The Fund may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the Fund or class of shares during the particular
time period shown. Yield and total return vary based on changes in the market
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information may be useful in reviewing performance and for
providing a basis for comparison with investment alternatives. The performance
of the Fund and the performance of the Class E shares, however, may not be
comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
The total return information presented below and advertised by the Fund for
the period prior to March 24, 1997, the date the Class E shares of the Fund
commenced operations, is based upon the prior performance of the Fund's Service
Class shares, which commenced operations on October 1, 1985.
Average Annual Total Return: The Fund may advertise certain total return
---------------------------
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") 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.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Average Annual Total Return for the Applicable Period Ended September 30, 1997
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception One Year Three Year Five Year Ten Year
---- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Treasury Money Market Mutual
- - Class E 5.44% 4.60% 4.87% 4.06% 5.26%
</TABLE>
Cumulative Total Return: In addition to the above performance information,
-----------------------
the Fund may also advertise the cumulative total return of the Fund. Cumulative
total return is based on the overall 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.
18
<PAGE>
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception Three Year Five Year Ten Year
---- --------- ---------- --------- --------
<S> <C> <C> <C> <C>
Treasury Money Market Mutual -
Class E 88.80% 15.34% 22.03% 66.96%
</TABLE>
Yield Calculations: The Fund may, from time to time, include its yield and
------------------
effective yield in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Fund 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.
Effective Yield: Effective yields for the Fund are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period, less a pro-rata share of the Fund's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized multiplying by 365/7 (or
365/30 for thirty-day yield), with the resulting yield figure carried to at
least the nearest hundredth of one percent. "Effective yield" for the Fund
assumes that all dividends received during the period have been reinvested.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Seven-Day Yield = [(Base Period Return +1)365/7]-1.
Yields for the Applicable Period Ended September 30, 1997
---------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Treasury Money Market Mutual - Class E 4.76% 4.88% 4.86%
</TABLE>
From time to time and only to the extent the comparison is appropriate for
the Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of the Fund or Class in advertising and other types of literature
as compared to the performance of the S&P
19
<PAGE>
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 Fund or the Class E shares also may be compared to that of
other mutual funds having similar objectives. This comparative performance could
be expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Fund's
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Fund's comparative performance will be based on a comparison of
yields, 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 Fund or the Class E shares with that of competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate the Fund's historical performance or current
or potential value with respect to the particular industry or sector.
20
<PAGE>
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 Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Fund. These services
may include access to Stagecoach Funds' account information through Automated
Teller Machines (ATMs), the placement of purchase and redemption requests for
shares of the Funds through ATMs and the availability of combined Wells Fargo
Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management), a 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 Fund may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account,
21
<PAGE>
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 Class E shares of the Fund is determined as
of 12:00 noon and 1:00 p.m. (Pacific time) on each day the Fund 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.
The Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While
22
<PAGE>
this method provides certainty in valuation, it may result in periods during
which the value, as determined by amortized cost, is higher or lower than the
price that the Funds would receive if the security were sold. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund that uses a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund using solely
market values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, the Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. It is the intention of the Fund to maintain a
per share net asset value of $1.00, but there can be no assurance that the Fund
will do so.
Instruments having variable or floating interest rates or demand features
may be deemed to have remaining maturities as follows: (a) a government security
with a variable rate of interest readjusted no less frequently than every
thirteen months may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) an instrument with a
variable rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in thirteen months or less, may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until
23
<PAGE>
the principal amount can be recovered through demand; and (e) a repurchase
agreement may be deemed to have a maturity equal to the period remaining until
the date on which the repurchase of the underlying securities is scheduled to
occur or, where no date is specified but the agreement is subject to demand, the
notice period applicable to a demand for the repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business (a
"Business Day"). The Fund is open Monday through Friday and is closed on
federal bank holidays. Currently, those holidays are New Year's Day,
President's Day, Martin Luther King Jr. Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Fund will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make
payment for redemption in securities or other property if it appears appropriate
to do so in light of the Company's responsibilities under the 1940 Act. In
addition, the Company may redeem shares involuntarily to reimburse the Fund for
any losses sustained by reason of the failure of a 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.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably
24
<PAGE>
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the 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.
Wells Fargo Bank, as the Investment Adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for the Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contract, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for the Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Fund.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the six-month period ended March 31, 1997 or the
nine-month period ended September 30, 1996.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Fund owned
------------------------------------
securities of its "regular brokers or dealers" or their parents, as defined in
the Act as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- ---- -------------- ------
<S> <C> <C>
Treasury Money Market Mutual Goldman Sachs & Co. $172,575,000
J.P. Morgan Securities $232,766,000
Morgan Stanley $156,530,000
</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
Fund whenever such changes are believed to be in the
25
<PAGE>
best interests of the Fund and its shareholders. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
by the average monthly value of the Fund's portfolio securities. For purposes of
this calculation, portfolio securities exclude all securities having a maturity
when purchased of one year or less. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce expenses and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses borne
by Wells Fargo Bank and Stephens, the Company bears all costs of its operations,
including the compensation of its Directors who are not affiliated with Stephens
or Wells Fargo Bank or any of their affiliates; advisory, shareholder servicing
and administration fees; payments pursuant to 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 the Fund assets. General expenses of the Company
are allocated among all of the funds of the Company, including the Fund, in a
manner proportionate to the net assets of the Fund, on a transactional basis, or
on such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes generally
the tax treatment of distributions by the Fund. This section of the SAI includes
additional information concerning federal income taxes.
26
<PAGE>
General. The Fund intends to qualify 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 federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund. As a
regulated investment company, the Fund will not be subject to federal income
tax 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 (which, for this purpose,
include net short-term capital gains) earned in each taxable
year. Although the Fund must ordinarily make such distributions during the
taxable year in which it realized the net investment income, in certain
circumstances, the Fund may make such distributions in the following taxable
year. Furthermore, distributions declared to a shareholder of record in a day in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
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
----------
to the extent it does not meet certain minimum distribution requirements by the
end of each calendar year. The Fund intends to actually or be deemed to
distribute substantially all of its net investment income and net capital gains
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses
27
<PAGE>
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.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The IRS has
published a notice applying the reduced capital gains rates to pass-through
entities until the regulations are issued. According to the notice, a Fund may
designate the portion of its capital gain distributions, if any, to which the
28% and 20% rates described in the preceding paragraph apply, based on the net
amount of each class of capital gain realized by the Fund, determined as if the
Fund were an individual subject to a marginal tax rate of 28%. Noncorporate
shareholders of the Fund may therefore qualify for the reduced rate of tax on
any capital gains paid by the Fund.
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends.
28
<PAGE>
Thus, if during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. 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.
29
<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 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., an estate the income of which is
not subject to U.S. federal income 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 to foreign shareholders are generally not
subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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
30
<PAGE>
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 thirty-one other funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, 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 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 each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other Series to approve the proposal as to
those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the
31
<PAGE>
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 of the Fund represents an equal proportional interest
in the Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund or class
are entitled to receive the assets attributable to the Fund or class that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
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.
32
<PAGE>
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
<TABLE>
<CAPTION>
Class; Type Percentage Percentage
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
TREASURY Virg. & Co. Class A 36.06% 6.22%
MONEY Attn: MF Dept. A88-4 Record Holder
MARKET P.O. Box 8900
MUTUAL Calabasas, CA 91372
Hare & Co. Class A 8.65% N/A
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005
Omnibus Account Class A 21.99% N/A
c/o Stephens Inc. Record Holder
Attn Zoe Hines
111 Center Street
Little Rock, AR 72201
WFB - Wholesale Sweep Class A 30.18% 5.21%
155 Fifth Street Record Holder
MAC 0106-066
San Francisco, CA 94103
Virg. & Co. Institutional Class 34.83% 7.63%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 8900
Calabasas, CA 91372
Wells Fargo Bank Institutional Class 33.23% 7.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201
Hare & Co. Institutional Class 8.79% N/A
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005
Castle Tower Holding Corp. Institutional Class 9.92% N/A
510 Bering Drive, Suite 310 Record Holder
Houston, TX 77057
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Class; Type Percentage Percentage
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Virg. & Co. Service Class 22.52% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 8900
Calabasas, CA 91372
Wells Fargo Bank Service Class 5.78% N/A
FBO Choicemaker Record Holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372
Hare & Co. Service Class 66.94% 13.47%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005
Hare & Co. Class E 100.00% 32.54%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: Stiff/Master Note
New York, NY 10005
Wells Fargo Bank Agent Administrative 20.42% N/A
Orlandi No. 143242 Class
Mutual Funds No. 0187-112 Record Holder
AU No. 6971
201 Third Street, 11th Floor
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 or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI
for the Fund and the exhibits filed therewith, may be examined at the office of
the U.S. Securities and Exchange Commission ("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
34
<PAGE>
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
six-month period ended September 30, 1997, are hereby incorporated by reference
to the Company's Semi-Annual Reports as filed with the SEC on December 5, 1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the Fund for the fiscal period ended March 31,
1997 are hereby incorporated by reference to the Company's Annual Reports as
filed with the SEC on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling
1-800-222-8222.
35
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
A-1
<PAGE>
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
S&P: The two highest ratings for corporate notes are "SP-1" and "SP-2."
The "SP-1" rating reflects a "very strong or strong capacity to pay principal
and interest." Notes issued with "overwhelming safety characteristics" will be
rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to pay
principal and interest.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
SEC Registration Nos. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
--------------------
With respect to the 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; Power 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.
27.01(c) Financial Data Schedules for the Arizona Tax-Free Fund -
Institutional Class
27.03(c) Financial Data Schedules for the Balanced Fund - Institutional
Class
27.05(b) Financial Data Schedules for the California Tax-Free Income
Fund -Institutional Class
27.10(d) Financial Data Schedules for the Equity ValueFund -
Institutional Class
27.12(d) Financial Data Schedules for the Growth Fund (formerly, Growth
and Income Fund and depicted here as such) - Institutional
Class
27.14(c) Financial Data Schedules for the Intermediate Bond Fund -
Institutional Class
27.16(b) Financial Data Schedules for the Money Market Mutual Fund -
Class S
27.17(a) Financial Data Schedules for the Money Market Trust
27.18(c) Financial Data Schedules for the National Tax-Free Fund -
Institutional Class
27.21(c) Financial Data Schedules for the Oregon Tax-Free Fund -
Institutional Class
27.22(a) Financial Data Schedules for the Overland Express Sweep Fund
(formerly, Overland Express, Inc.'s Overland Sweep Fund and
depicted here as such)
27.23(a) Financial Data Schedules for the Prime Money Market Mutual
Fund -Class A
27.23(b) Financial Data Schedules for the Prime Money Market Mutual
Fund -Institutional Class
27.23(c) Financial Data Schedules for the Prime Money Market Mutual
Fund -Service Class
C-13
<PAGE>
27.24(b) Financial Data Schedules for the Short-Intermediate U.S.
Government Income Fund - Institutional Class
27.27(c) Financial Data Schedules for the Small Cap Fund - Institutional
Class
27.29(b) Financial Data Schedules for the Treasury Money Market Mutual
Fund - Class E
27.29(c) Financial Data Schedules for the Treasury Money Market Mutual
Fund - Institutional Class
27.29(d) Financial Data Schedules for the Treasury Money Market Mutual
Fund - Service Class
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
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
</TABLE>
C-14
<PAGE>
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
* 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 nuber of Administrative Class recordholders.
Item 27. Indemnification
---------------
The following paragraphs of Article VIII of the Registrant's
Articles of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and Officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of Maryland
now or hereafter in force, including the advance
C-15
<PAGE>
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 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.
C-16
<PAGE>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
H. Jesse Arnelle Senior Partner of Arnelle, Hastie,
Director McGee, Willis & Greene
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,
Director Chief Executive Officer,
Chief Operating Officer and President
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and
Director Chief Executive Officer of
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
C-17
<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-18
<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-19
<PAGE>
Director of the California Chamber of Commerce
1201 K Street
12th Floor
Sacremento, CA 95814
Philip J. Quigley Chairman, President and Chief Executive
Director Officer of
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
Director of Teledyne, Inc.
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
C-20
<PAGE>
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
Director of Cellular One
651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Retired Chairman of the Board
Director and Chief Executive Officer of
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
Director California at Berkeley
Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025
C-21
<PAGE>
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
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 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-22
<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.
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------------------ ---------------------------------
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 since 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
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 "The Fund(s) and Management" in the
Prospectuses for the Money Market Mutual Fund (Class S), Money Market Trust,
Prime Money Market Mutual Fund (Class A), and Treasury Money Market Mutual Fund
(Class E) and "Organization and Management of the Fund(s)" in the Prospectuses
for the other Funds as well as "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.
C-23
<PAGE>
(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) 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 "The Fund(s) and
Management" in the Prospectuses for the Money Market Mutual Fund (Class S),
Money Market Trust, Prime Money Market Mutual Fund (Class A), and Treasury
Money Market Mutual Fund (Class E) and "Organization and Management of the
Fund(s)" in the Prospectuses for the other Funds as well as "Management" in
the Statement of Additional Information of such Funds, the Registrant is not a
party to any management-related service contract.
Item 32. Undertakings.
------------
(a) Not applicable.
(b) Not applicable.
C-24
<PAGE>
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current annual
report to shareholders, upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or
otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
C-25
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Little Rock, State of
Arkansas on the 29th 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:
Signature Title Date
--------- ----- ----
* Director, Chairman and President ______
-------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 1/29/98
--------------------------
(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)
*By /s/Richard H. Blank, Jr.
--------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
January 29, 1998
<PAGE>
<TABLE>
<CAPTION>
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
<S> <C>
EX-27.01(c) Financial Data Schedules - Arizona Tax-Free Fund - Institutional Class
EX-27.03(c) Financial Data Schedules - Balanced Fund - Institutional Class
EX-27.05(b) Financial Data Schedules - California Tax-Free Income Fund -Institutional Class
EX-27.10(d) Financial Data Schedules - Equity ValueFund - Institutional Class
EX-27.12(d) Financial Data Schedules - Growth Fund (formerly, Growth and Income Fund and depicted here as such) -
Institutional Class
EX-27.14(c) Financial Data Schedules - Intermediate Bond Fund - Institutional Class
EX-27.16(b) Financial Data Schedules - Money Market Mutual Fund - Class S
EX-27.17(a) Financial Data Schedules - Money Market Trust
EX-27.18(c) Financial Data Schedules - National Tax-Free Fund - Institutional Class
EX-27.21(c) Financial Data Schedules - Oregon Tax-Free Fund - Institutional Class
EX-27.22(a) Financial Data Schedules - Overland Express Sweep Fund (formerly,
Overland Express, Inc.'s Overland Sweep Fund and depicted here as such)
EX-27.23(a) Financial Data Schedules - Prime Money Market Mutual Fund - Class A
EX-27.23(b) Financial Data Schedules - Prime Money Market Mutual Fund - Institutional Class
EX-27.23(c) Financial Data Schedules - Prime Money Market Mutual Fund - Service Class
EX-27.24(b) Financial Data Schedules - Short-Intermediate U.S. Government Income Fund - Institutional Class
EX-27.27(c) Financial Data Schedules - Small Cap Fund - Institutional Class
EX-27.29(b) Financial Data Schedules - Treasury Money Market Mutual Fund - Class E
</TABLE>
<PAGE>
<TABLE>
Exhibit Number Description
-------------- -----------
<S> <C>
EX-27.29(c) Financial Data Schedules - Treasury Money Market Mutual Fund - Institutional Class
EX-27.29(d) Financial Data Schedules - Treasury Money Market Mutual Fund - Service Class
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Independent Auditor's Consent
EX-99.B19 Power of Attorney for Peter G. Gordon
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 169
<NAME> ARIZONA TAX-FREE FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 20,582,966
<INVESTMENTS-AT-VALUE> 20,641,503
<RECEIVABLES> 317,877
<ASSETS-OTHER> 1,420
<OTHER-ITEMS-ASSETS> 7,496
<TOTAL-ASSETS> 20,968,296
<PAYABLE-FOR-SECURITIES> 558,210
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135,816
<TOTAL-LIABILITIES> 694,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,136,111
<SHARES-COMMON-STOCK> 1,374,529
<SHARES-COMMON-PRIOR> 1,491,647
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 79,622
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58,537
<NET-ASSETS> 14,348,585
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 553,763
<OTHER-INCOME> 0
<EXPENSES-NET> (49,843)
<NET-INVESTMENT-INCOME> 503,920
<REALIZED-GAINS-CURRENT> 117,123
<APPREC-INCREASE-CURRENT> (97,594)
<NET-CHANGE-FROM-OPS> 523,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (358,916)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 75,496
<NUMBER-OF-SHARES-REDEEMED> 192,725
<SHARES-REINVESTED> 111
<NET-CHANGE-IN-ASSETS> (2,653,465)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 29,387
<OVERDISTRIB-NII-PRIOR> (67,269)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,838
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 164,495
<AVERAGE-NET-ASSETS> 21,642,000
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 179
<NAME> BALANCED FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 76,133,784
<INVESTMENTS-AT-VALUE> 87,967,370
<RECEIVABLES> 545,391
<ASSETS-OTHER> 1,432
<OTHER-ITEMS-ASSETS> 29,123
<TOTAL-ASSETS> 88,543,316
<PAYABLE-FOR-SECURITIES> 21,158
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,136,740
<TOTAL-LIABILITIES> 1,157,898
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,769,648
<SHARES-COMMON-STOCK> 4,622,245
<SHARES-COMMON-PRIOR> 6,314,555
<ACCUMULATED-NII-CURRENT> 168,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,613,416
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,833,586
<NET-ASSETS> 55,456,204
<DIVIDEND-INCOME> 572,621
<INTEREST-INCOME> 1,493,191
<OTHER-INCOME> 0
<EXPENSES-NET> (480,497)
<NET-INVESTMENT-INCOME> 1,585,315
<REALIZED-GAINS-CURRENT> 5,673,146
<APPREC-INCREASE-CURRENT> 957,295
<NET-CHANGE-FROM-OPS> 8,215,756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,028,637)
<DISTRIBUTIONS-OF-GAINS> (1,013,783)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 255,508
<NUMBER-OF-SHARES-REDEEMED> 2,085,655
<SHARES-REINVESTED> 137,837
<NET-CHANGE-IN-ASSETS> (17,583,024)
<ACCUMULATED-NII-PRIOR> 137,124
<ACCUMULATED-GAINS-PRIOR> 223,034
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 291,534
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 596,147
<AVERAGE-NET-ASSETS> 97,401,000
<PER-SHARE-NAV-BEGIN> 11.45
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.00
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 119
<NAME> CALIFORNIA TAX-FREE INCOME FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 73,837,694
<INVESTMENTS-AT-VALUE> 73,807,653
<RECEIVABLES> 1,269,301
<ASSETS-OTHER> 250
<OTHER-ITEMS-ASSETS> 57,404
<TOTAL-ASSETS> 75,134,608
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 426,693
<TOTAL-LIABILITIES> 426,693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,724,614
<SHARES-COMMON-STOCK> 698,686
<SHARES-COMMON-PRIOR> 996,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,342
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (30,041)
<NET-ASSETS> 7,060,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,854,315
<OTHER-INCOME> 0
<EXPENSES-NET> (273,546)
<NET-INVESTMENT-INCOME> 1,580,769
<REALIZED-GAINS-CURRENT> 248,774
<APPREC-INCREASE-CURRENT> (98,200)
<NET-CHANGE-FROM-OPS> 1,731,343
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (147,843)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,913
<NUMBER-OF-SHARES-REDEEMED> 346,660
<SHARES-REINVESTED> 2,624
<NET-CHANGE-IN-ASSETS> (17,716,914)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (235,432)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 211,764
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 494,813
<AVERAGE-NET-ASSETS> 85,061,000
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 189
<NAME> EQUITY VALUE FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 157,872,555
<INVESTMENTS-AT-VALUE> 217,553,473
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<NAME> STAGECOACH FUNDS, INC.
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<NAME> OREGON TAX-FREE FUND INSTITUTIONAL CLASS
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000819844
<NAME> OVERLAND EXPRESS FUNDS, INC.
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<NAME> PRIME MONEY MARKET MUTUAL FUND CLASS A
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<ACCUMULATED-NET-GAINS> (142,301)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 277,043,797
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,277,920
<OTHER-INCOME> 0
<EXPENSES-NET> (2,992,585)
<NET-INVESTMENT-INCOME> 38,285,335
<REALIZED-GAINS-CURRENT> (39,213)
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<NUMBER-OF-SHARES-SOLD> 332,735,076
<NUMBER-OF-SHARES-REDEEMED> 320,827,816
<SHARES-REINVESTED> 240,495
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 4,151,910
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 249
<NAME> PRIME MONEY MARKET MUTUAL FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,439,653,295
<INVESTMENTS-AT-VALUE> 1,439,653,295
<RECEIVABLES> 9,546,939
<ASSETS-OTHER> 1,043
<OTHER-ITEMS-ASSETS> 247,642
<TOTAL-ASSETS> 1,449,448,919
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 8,105,102
<TOTAL-LIABILITIES> 8,105,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,441,486,118
<SHARES-COMMON-STOCK> 538,324,527
<SHARES-COMMON-PRIOR> 424,081,756
<ACCUMULATED-NII-CURRENT> 0
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<NUMBER-OF-SHARES-SOLD> 1,593,660,723
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 24
<NAME> PRIME MONEY MARKET MUTUAL FUND SERVICE CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 129
<NAME> SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 159
<NAME> SMALL CAP FUND INSTITUTIONAL CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 255
<NAME> TREASURY MONEY MARKET MUTUAL FUND CLASS E
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 259
<NAME> TREASURY MONEY MARKET MUTUAL FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
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<PAID-IN-CAPITAL-COMMON> 1,820,190,491
<SHARES-COMMON-STOCK> 449,775,318
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<EXPENSES-NET> (3,666,995)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000894617
<NAME> STAGECOACH FUNDS, INC.
<SERIES>
<NUMBER> 25
<NAME> TREASURY MONEY MARKET MUTUAL FUND SERVICE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
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<INVESTMENTS-AT-VALUE> 1,822,127,840
<RECEIVABLES> 6,944,677
<ASSETS-OTHER> 1,484
<OTHER-ITEMS-ASSETS> 560,400
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<OTHER-ITEMS-LIABILITIES> 9,442,893
<TOTAL-LIABILITIES> 9,442,893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,820,190,491
<SHARES-COMMON-STOCK> 483,415,134
<SHARES-COMMON-PRIOR> 1,340,314,198
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<NET-ASSETS> 483,400,989
<DIVIDEND-INCOME> 0
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<DISTRIBUTIONS-OF-GAINS> (25,819)
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-DIVIDEND> (0.02)
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</TABLE>
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
January 30, 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. 41 and Amendment No. 42 to the
Registration Statement on Form N-1A (SEC File Nos. 33-42927 and 811-6419) (the
"Registration Statement") of Stagecoach Funds, Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
following Funds: Arizona Tax-Free, Balanced, California Tax-Free Bond,
California Tax-Free Income, Equity Value, Growth, Intermediate Bond, Money
Market Mutual, Money Market Trust, National Tax-Free, National Tax-Free Money
Market Mutual, Oregon Tax-Free, Overland Express Sweep, Prime Money Market
Mutual, Short-Intermediate U.S. Government Income, Small Cap, Treasury Money
Market Mutual, and U.S. Government Income (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit 10
to the Registration Statement.
We have examined documents relating to the organization of the Company and
its series and the authorization and issuance of shares of its series. We have
also verified with the Company's transfer agent the maximum number of shares
issued by the Company 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 has been duly and
validly authorized by all appropriate corporate action, and assuming delivery by
sale or in accord with the Company's dividend reinvestment plan in accordance
with the description set forth in the Funds' current prospectuses under the
Securities Act of 1933, as amended, the Shares will be legally issued, fully
paid and nonassessable by the Company.
<PAGE>
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the reference
to the description of advice rendered by our firm under the heading "The Fund(s)
and Management" in the Prospectuses for the Money Market Mutual Fund (Class S),
Money Market Trust, Prime Money Market Mutual Fund (Class A), and Treasury Money
Market Mutual Fund (Class E) and "Additional Services and Other Information -
Glass-Steagall Act" in the Prospectuses for the other Funds and Classes, 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 incorporation by reference in Stagecoach Funds, Inc.'s
Post-Effective Amendment No. 41 to the Registration Statement Number 33-42927
on Form N-1A under the Securities Act of 1933 and Amendment No. 42 to the
Registration Statement Number 811-6419 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 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 in the statements of additional information.
We also consent to incorporation by reference in Stagecoach Funds, Inc.'s
Post-Effective Amendment No. 41 to the Registration Statement Number 33-42927
on Form N-1A under the Securities Act of 1933 and Amendment No. 42 to the
Registration Statement Number 811-6419 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, 1996, and for the periods indicated
therein, which reports have been incorporated by reference into each statement
of additional information.
We also consent to incorporation by reference of our report dated February 14,
1997, on the financial statements and financial highlights of the Cash
Investment Trust Master Portfolio (one of the master portfolios comprising
Master Investment Trust) as of December 31, 1996, and for the periods
indicated therein, which report has been incorporated by reference in the
statement of additional information.
We also consent to the reference to our Firm under the heading "How to Read
the Financial Highlights" in each prospectus and "Independent Auditors" in
each statement of additional information.
January 30, 1998 KPMG Peat Marwick LLP
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Life & Annuity Trust, Stagecoach Funds,
Inc. and Stagecoach Trust, (each, a "Company") and any or all amendments
(including post-effective amendments) thereto and to file the same, with any and
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and any state securities commissions or
authorities, and (ii) to execute any and all federal or state regulatory
filings, including all applications with regulatory authorities, state charter
or organizational documents and any amendments or supplements thereto, to be
executed by, on behalf of, or for the benefit of, a Company. The undersigned
hereby grants to each Attorney-in-Fact full power and authority to do and
perform each and every act and thing contemplated above, as fully and to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that said Attorney-in-Fact may lawfully do or cause to be done by
virtue hereof.
Dated: January 29, 1998 /s/ Peter G. Gordon
---------------------------
Peter G. Gordon
