<PAGE>
As filed with the Securities and Exchange Commission
on July 31, 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. 48 [x]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 49 [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)
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 48 (the "Amendment") to the Registration
Statement of Stagecoach Funds, Inc. (the "Company") is being filed to add to
the Company's Registration Statement audited financial statements and certain
other financial information for the year ended March 31, 1998, for all retail
and institutional class shares, as applicable, for the Company's Arizona
Tax-Free, Asset Allocation, Balanced, California Tax-Free Income, California
Tax-Free Money Market, California Tax-Free Money Market Trust, Corporate Bond,
Diversified Equity Income, Equity Index, Equity Value, Government Money Market,
Growth, Index Allocation, International Equity, Money Market, Money Market
Trust, National Tax-Free, National Tax-Free Money Market, National Tax-Free
Money Market Trust, Oregan Tax-Free, Prime Money Market, Short-Intermediate U.S.
Government Income, Small Cap, Strategic Income, Treasury Plus Money Market, and
U.S. Government Allocation Funds, and to make certain non-material changes to
the prospectuses and statements of additional information for all Funds of the
Company, except the Short-Term Government-Corporate Income and Short-Term
Municipal Income Funds.
The Amendment does not affect the Registration Statement for the Company's
Short-Term Government Corporate Income Fund or Short-Term Municipal Income Fund
prospectuses or SAIs.
<PAGE>
STAGECOACH FUNDS, INC.
---------------------
Cross Reference Sheet
---------------------
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 Fund
(Name of) Fund
5 Organization and Management of the Fund
Summary of Expenses
6 Additional Services and Other Information
7 Additional Services and Other Information
Exchanges
Your Account
8 Additional Services and Other Information
Exchanges
Your Account
9 Not Applicable
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
18 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.
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Tax-Free Income Funds
Prospectus
Arizona Tax-Free Please read this Prospectus and keep it for
Fund future reference. It is designed to provide
you with important information and to help you
California Tax-Free decide if a Fund's goals match your own.
Bond Fund
These securities have not been approved or
California Tax-Free disapproved by the U.S. Securities and
Income Fund Exchange Commission ("SEC"), any state
securities commission or any other regulatory
National Tax-Free authority, nor have any of these authorities
Fund passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary
Oregon Tax-Free is a criminal offense.
Fund
Fund shares are NOT deposits or other
Institutional Class obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Investment Advisor Fargo Bank"), or any of its affiliates. Fund
and Administrator: shares are NOT insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance
Wells Fargo Bank Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
Investment INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
Sub-Advisor: INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Wells Capital
Management
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 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 the key risk factors for the 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 about 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. The Statement of Additional Information and
other information for the Funds is also available on the SEC's web site
(http://www.sec.gov).
<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 California Tax-Free Income Fund 16
Funds.
National Tax-Free Fund 20
Oregon Tax-Free Fund 24
General Investment Risks 28
- --------------------------------------------------------------------------------
Your Account Your Fund Account 32
Turn to this section How to Buy Shares 33
for information on how
to open and maintain How to Sell Shares 34
your account, including
how to buy, sell and Exchanges 35
exchange Fund shares.
Other Information 36
- --------------------------------------------------------------------------------
Reference Organization and
Look here for details Management of the Funds 40
on organization
of the Funds and How to Read the Financial Highlights 44
term definitions.
Glossary 46
<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 the risk that you may lose the money you invest;
. 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 Funds 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. ("Stagecoach").
Tax-Free Funds
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 U. S. The term "instruments" is
used to describe a negotiable contract or promise to pay money, such as a
Certificates of Deposit or a Banker's Acceptance.
Dividends
We pay dividends, if any, monthly; and distribute capital gains, if any, at
least annually.
Stagecoach Tax-Free Income Funds Prospectus 5
<PAGE>
Tax-Free 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.
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) 0.15% 0.50% 0.15% 0.15% 0.15%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or
reimbursements) 0.57% 0.27% 0.57% 0.61% 0.57%
- --------------------------------------------------------------------------------
Total Fund Operating
Expenses
(after waivers or
reimbursements) 0.72% 0.77% 0.72% 0.76% 0.72%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or
reimbursements) 1.05% 0.42% 0.67% 1.42% 0.77%
- --------------------------------------------------------------------------------
Total Fund Operating
Expenses
(before waivers or
reimbursements) 1.55% 0.92% 1.17% 1.92% 1.27%
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Tax-Free 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 Arizona California California National Oregon
assuming a 5% annual Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
return and that you Bond Income
redeem your shares
at the end of each
period.
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $ 7 $ 8 $ 7 $ 8 $ 7
- --------------------------------------------------------------------------------
3 years $ 23 $ 25 $ 23 $ 24 $ 23
- --------------------------------------------------------------------------------
5 years $ 40 $ 43 $ 40 $ 42 $ 40
- --------------------------------------------------------------------------------
10 years $ 89 $ 95 $ 89 $ 94 $ 89
- --------------------------------------------------------------------------------
</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 and 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 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 Arizona personal income tax; and
. 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
interests 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 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------
Mar. 31, Mar. 31, Sept. 30, Sept. 30, May 31,
For the period ended: 1998/1/ 1997/1/ 1996/2/ 1995/3/ 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 0.49 0.25 0.49 0.17 0.51
Net realized and unrealized gain (loss)
on investments 0.54 0.00 (0.10) 0.06 0.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.03 0.25 0.39 0.23 0.74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.49) (0.25) (0.49) (0.20) (0.53)
Distributions from net realized gain (0.20) 0.00 (0.17) 0.00 (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.69) (0.25) (0.66) (0.20) (0.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.78 $ 10.44 $ 10.44 $ 10.71 $ 10.68
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.99% 2.38% 3.74% 6.55%/4/ 7.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $12,029 $14,349 $15,577 $24,622 $24,581
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net assets 0.44% 0.40% 0.48% 0.45% 0.40%
Ratio of net investment income to
average net assets 4.52% 4.73% 4.63% 4.73% 4.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 127% 77% 42% 62% 14%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior
to waived fees and reimbursed expenses 1.55% 1.50% 1.20% 1.35% 1.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 3.41% 3.63% 3.91% 3.83% 4.16%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997 1996 1995
====================================================================================================================================
Returns for other share classes may vary due 8.92% 3.66% 13.77%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized
/5/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class Shares.
10 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Arizona Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------
May 31, May 31, May 31,
For the period ended: 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%/4/
- ------------------------------------------------------------------------------------------------------------------------------------
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%
- ------------------------------------------------------------------------------------------------------------------------------------
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-YEAR RETURNS 1994 1993
====================================================================================================================================
Returns for other share classes may vary due -3.30% 10.55%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized
/5/ 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 and 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; and
. 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>
California Tax-Free Bond Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
FOR A SHARE OUTSTANDING
================================================================================
INSTITUTIONAL
SHARES -- COMMENCED
ON DECEMBER 15, 1997
- --------------------------------------------------------------------------------
For the period ended: Dec. 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $ 11.32
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) 0.03
Net realized and
unrealized gain (loss)
on investments 0.03
- --------------------------------------------------------------------------------
Total from investment
operations 0.06
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.03)
Distributions from net
realized gain 0.00
- --------------------------------------------------------------------------------
Total from distributions: (0.03)
- --------------------------------------------------------------------------------
Net asset value, end of
period $ 11.35
- --------------------------------------------------------------------------------
Total return/1/ 0.49%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $84,113
- --------------------------------------------------------------------------------
Ratios to average net
assets (annualized)
Ratios of expenses to
average net assets 0.63%
- --------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 4.79%
- --------------------------------------------------------------------------------
Portfolio turnover 12%
- --------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived fees
and reimbursed expenses 0.92%
- --------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior
to waived fees and
reimbursed expenses 4.50%
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997
================================================================================
<S> <C>
Returns for other share classes may vary 0.49%
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/ Total return information is for period beginning at commencement of
operations and is not annualized.
14 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 15
<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; and
. 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 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 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 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 17
<PAGE>
California Tax-Free Income Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
FOR A SHARE OUTSTANDING
================================================================================
INSTITUTIONAL CLASS SHARES --
COMMENCED ON OCTOBER 1, 1995
----------------------------------
March 31, March 31, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.11 $10.10 $ 10.06
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.39 0.19 0.02
Net realized and unrealized gain (loss)
on investments 0.19 0.01 0.04
- --------------------------------------------------------------------------------
Total from investment operations 0.58 0.20 0.06
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.39) (0.19) (0.02)
Distributions from net realized gain (0.03) 0.00 0.00
- -------------------------------------------------------------------------------
Total from distributions (0.42) (0.19) (0.02)
- --------------------------------------------------------------------------------
Net asset value, end of period $10.27 $10.11 $ 10.10
- --------------------------------------------------------------------------------
Total return (not annualized) 5.91% 2.00% 0.60%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $7,069 $7,061 $10,066
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.62% 0.60% 0.55%
Ratio of net investment income to
average net assets 3.84% 3.73% 3.06%
- --------------------------------------------------------------------------------
Portfolio turnover 88% 14% 48%
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.17% 1.05% 0.92%
- --------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.29% 3.28% 2.69%
expenses
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997 1996
================================================================================
<S> <C> <C>
Returns for other share classes may vary 5.09% 3.89%
due to different fees and expenses. This
return reflect fee waivers and
reimbursements, does not reflect sales
loads, is not a guarantee of future
performance and has not been audited./3/
- --------------------------------------------------------------------------------
</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/ 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
- --------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 19
<PAGE>
National Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Stephen Galiani (since 12/97)
Mary Gail Walton (since 2/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 and 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; and
. 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 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30,
For the period ended: 1998/1/ 1997/1/ 1996/2/ 1995/3/
- ------------------------------------------------------------------------------------------------------------------------------------
<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 0.76 0.37 0.71 0.24
Net realized and unrealized gain (loss)
on investments 0.81 (0.07) (0.10) 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.57 0.30 0.61 0.32
Less distributions:
Dividends from net investment income (0.76) (0.37) (0.71) (0.26)
Distributions from net realized gain (0.06) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.82) (0.37) (0.71) (0.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.92 $ 15.17 $15.24 $ 15.34
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 10.51% 1.95%5 4.04% 6.53%/4/
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $7,654 $ 7,354 $7,132 $14,305
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.42% 0.35% 0.36% 0.35%
Ratio of net investment income to
average net assets 4.82% 4.82% 4.66% 4.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 78% 86% 73% 86%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.92% 2.03% 1.45% 1.85%
Ratio of net investment income to average
net assets prior to waived fees and reimbursed
expenses (loss) 3.32% 3.14% 3.57% 3.15%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997 1996 1995
====================================================================================================================================
Returns for other share classes may vary due 8.99% 3.28% 14.53%
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./5/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
/5/ For periods prior to October 1, 1995, these figures reflect the performance
and expenses of the Investor Class shares.
22 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
National Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------
May 31, May 31, May 31,
For the period ended: 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%/4/
- ------------------------------------------------------------------------------------------------------------------------------------
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%
- ------------------------------------------------------------------------------------------------------------------------------------
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 3.43% 2.99% 2.14%
expenses (loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1994
====================================================================================================================================
Returns for other share classes may vary due -4.33%
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./5/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
/5/ 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>
Oregon Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Mary Gail Walton (since 12/97)
Stephen Galiani (since 12/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 and 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; and
. 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.
- --------------------------------------------------------------------------------
[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 25
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
------------------------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, May 31, May 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995/3/ 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.28 $16.42 $16.38 $ 16.47 $ 16.17 $ 16.79
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.79 0.39 0.72 0.28 0.82 0.84
Net realized and
unrealized gain (loss)
on investments 0.82 (0.11) 0.04 (0.08) 0.39 (0.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.61 0.28 0.76 0.20 1.21 0.41
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.79) (0.39) (0.72) (0.29) (0.87) (0.82)
Distributions from net
realized gain (0.29) (0.03) 0.00 0.00 (0.04) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.08) (0.42) (0.72) (0.29) (0.91) (1.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $16.81 $16.28 $16.42 $ 16.38 $ 16.47 $ 16.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 10.08% 1.69% 5.13% 3.67%/4/ 7.92% 2.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $7,635 $8,175 $8,512 $50,077 $52,245 $53,846
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.43% 0.40% 0.63% 0.70% 0.70% 0.62%
Ratio of net investment
income to
average net assets 4.72% 4.72% 4.41% 5.01% 5.19% 4.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 82% 90% 27% 57% 15% 22%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.27% 1.24% 0.93% 1.01% 0.90% 0.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed 3.88% 3.88% 4.11% 4.70% 4.99% 4.69%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
====================================================================================================================================
Returns for other share classes may vary due 8.82% 3.45% 15.84% -6.49% 12.38%
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./5/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
/5/ For periods prior to September 6, 1996, these figures reflect the
performance and expenses of the Investor Class shares.
26 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" on page 37.
See "How to Read the Financial Highlights" on page 44.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
INSTITUTIONAL CLASS SHARES -- INVESTOR SHARES
COMMENCED ON OCTOBER 1, 1995
------------------------------------------------------------------------------------------------------
May 31, May 31, May 31, May 31, May 31,
For the period ended: 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.07 $ 15.74 $ 15.27 $15.35 $ 15.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.86 0.91 0.94 0.93 0.93
Net realized and
unrealized gain (loss)
on investments 0.76 0.38 0.47 (0.06) 0.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.62 1.29 1.41 0.87 1.24
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.86) (0.92) (0.94) (0.93) (0.89)
Distributions from net
realized gain (0.04) (0.04) 0.00 (0.02) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.90) (0.96) (0.94) (0.95) (0.89)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 16.79 $ 16.07 $ 15.74 $15.27 $ 15.35
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 10.36% 8.45% 9.58% 5.80% 8.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $45,435 $25,002 $14,607 $7,550 $ 3,175
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.60% 0.60% 0.55% 0.50% 0.50%
Ratio of net investment
income to
average net assets 5.34% 5.81% 6.27% 6.26% 6.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 6% 17% 23% 94% 9%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 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 5.03% 5.43% 5.79% 5.41% 3.85%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1992 1991 1990 1989
====================================================================================================================================
Returns for other share classes may vary due 8.03% 10.57% 6.02% 8.25%
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./5/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
/5/ For periods prior to September 6, 1996, these figures reflect the
performance and expenses of the Investor Class shares.
Stagecoach Tax-Free Income Funds Prospectus 27
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk 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 price 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 and the risks associated
with them. 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.
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.
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.
Year 2000 Risk-- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided to
the Funds depend on the proper functioning of computer systems. Any failure to
adapt these systems in time could hamper the Funds' operations and services. The
Funds' principal service providers have advised the Funds that they are working
on the necessary changes to their systems and that they expect their systems to
be adapted in time. There can, of course, be no assurance of success. In
addition, because the Year 2000 issue affects virtually all organizations and
governments, the companies or entities in which the Funds invest also could be
adversely impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
============================================================================
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>
ARIZONA CA TAX-FREE CA TAX-FREE NATIONAL OREGON
TAX-FREE BOND INCOME TAX-FREE TAX-FREE
===================================================================================================================================
INVESTMENT PRACTICE: RISK:
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are Interest Rate and . . . . .
adjusted either on a schedule or when an Credit Risk
index or benchmark changes.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a Credit and . . . . .
security agrees to buy back as security Counter-Party Risk
at an agreed upon time and price, usually
with interest.
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk . . . . .
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 Delayed Interest Rate, Credit . . . . .
Delivery Transactions--Securities bought and Experience Risk
or sold for delivery at a later date or
sold for a fixed price at a fixed date.
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Securities mortgage consisting of undivided Interest Rate, Credit, . . . . .
fractional interests in pools or mortgages, Experience and Extension
consumer loans, such as car loans or credit Risk
card debt or receivables held in trust.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, Liquidity Risk . . . . .
or cannot be readily sold without negatively
affecting its fair value. Limited to 15% of
assets for all but the California Tax-Free Bond
Fund, which has limit of 10%.
- -----------------------------------------------------------------------------------------------------------------------------------
PRIVATE ACTIVITY BONDS
A bond with interest subject to the Interest Rate, Credit . . . . .
alternative minimum tax. (Limited to 20% and Experience Risk
of assets.)
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of Leverage Risk . . . . .
10% of assets from banks for temporary
purposes to meet shareholder redemptions.
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities in Credit, Counter-Party . . . . .
brokers, dealers and financial institutions and Leverage Risk
to increase return on those securities.
Loans may be made in accordance with
existing investment policies. Limited to 30% of
total assets for the Oregon, Arizona and
National Tax-Free Funds, 33 1/2% 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 or Semi-Annual Reports. 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 ("NYSE"), 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 NYSE. 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.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
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 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 from an Institution in proper form before the
close of the NYSE, 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 15 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. Distributions have the effect of reducing NAV per share
by the amount distributed. Accordingly, distributions on newly purchased shares
represent in substance a return of capital, even though all or a portion of such
distributions may be taxable to you.
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as 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
such 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 capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. 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.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation
Your redemptions and exchanges of Fund shares will ordinarily result in a
taxable capital gain or loss, depending on the amount you receive for your
36 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
shares and the amount you paid for them. Foreign shareholders may be subject to
different tax treatment, including withholding taxes. In certain circumstances,
U.S. residents will be subject to back-up withholding taxes.
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 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 reorgani-
Stagecoach Tax-Free Income Funds Prospectus 37
<PAGE>
Other Information
- --------------------------------------------------------------------------------
zation 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.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Funds.
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.
38 Stagecoach Tax-Free Income 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 Tax-Free Income Funds Prospectus 39
<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.
================================================================================
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 Agents
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 Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Fargo Bank, 525 Market St., San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
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.
40 Stagecoach Tax-Free Income 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
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 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, 1998:
- --------------------------------------------------------------------------------
Arizona Tax-Free Fund .15%
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund .50%
- --------------------------------------------------------------------------------
California Tax-Free Income Fund .15%
- --------------------------------------------------------------------------------
National Tax-Free Fund .15%
- --------------------------------------------------------------------------------
Oregon Tax-Free Fund .15%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank N.A., is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of $32
billion. For providing sub-advisory services to the Funds, WCM is entitled to
receive from Wells Fargo Bank N.A. .15% of each Fund's assets up to the first
$400 million, .125% of the next $400 million in assets, and .10% of all assets
over $800 million. WCM receives a minimum annual sub-advisory fee of $120,000
per Fund for its services. This minimum annual fee payable to WCM does not
increase the advisory fees paid by each Fund to Wells Fargo Bank.
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator.
Stagecoach Tax-Free Income Funds Prospectus 41
<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, 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%
- --------------------------------------------------------------------------------
42 Stagecoach Tax-Free Income 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.
. 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
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over 15 years.
. Laura Milner
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over 10 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.
Stagecoach Tax-Free Income Funds Prospectus 43
<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, with the exception of the Institutional Shares
Calendar Year Returns, or 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 more detailed 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.
44 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
Stagecoach Tax-Free Income Funds Prospectus 45
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
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 Funds.
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.
46 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Institution
An affiliate, franchise or correspondent bank of Wells Fargo & Company and other
institutions.
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 a 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 NYSE 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.
Stagecoach Tax-Free Income Funds Prospectus 47
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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 Funds.
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.
48 Stagecoach Tax-Free Income Funds Prospectus
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- --------------------------------------------------------------------------------
<PAGE>
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- --------------------------------------------------------------------------------
<PAGE>
STAGECOACH FUNDS/TM/
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 TFIP (8/98)
Printed On Recycled Paper
<PAGE>
August 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
Income Fund These securities have not been approved or
disapproved by the U.S. Securities and Exchange
National Tax-Free Commission ("SEC"), any state securities
Fund commission or any other regulatory authority,
nor have any of these authorities passed upon
Oregon Tax-Free Fund the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a
Class A, Class B and criminal offense.
Class C
Investment Advisor and Fund shares are NOT deposits or other
Administrator: obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Wells Fargo Bank Fargo Bank"), or any of its affiliates. Fund
shares are NOT insured or guaranteed by the
Investment U.S. Government, the Federal Deposit Insurance
Sub-Advisor: Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
Wells Capital Management INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and
understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies What is the Fund
ARROW] 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 Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are the key risk factors for the 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 about these Funds?
Each Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Funds is available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Arizona Tax-Free Fund 10
This section contains California Tax-Free Bond Fund 14
important information
about the individual California Tax-Free Income Fund 20
Funds.
National Tax-Free Fund 24
Oregon Tax-Free Fund 28
General Investment Risks 33
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 37
Turn to this section for
information on how to Reduced Sales Charges 40
open and maintain
your account, including Your Account 44
how to buy, sell and
exchange Fund shares. How to Buy Shares 46
Selling Shares 47
Exchanges 49
Additional Services and
Other Information 50
- --------------------------------------------------------------------------------
Reference Organization and
Look here for details Management of the Funds 55
on organization
of the Funds and How to Read the Financial Highlights 59
term definitions.
Glossary 61
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Tax-Free Income Funds
The Funds described in this Prospectus invest primarily in municipal debt
securities 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 the risk that you may lose the money you
invest;
. you are unwilling to accept the risks of investing in the bond markets; or
. you are seeking aggressive 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 Funds 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. ("Stagecoach").
4 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 U.S. 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, and distribute capital gains, if any, at
least annually.
Stagecoach Tax-Free Income Funds Prospectus 5
<PAGE>
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Arizona Tax-Free California Tax-Free Bond CA Tax-Free
Income
-----------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None 4.50% None None 3.00%
- ---------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None None
- ---------------------------------------------------------------------------------------------------------
Maximum sales charge on:
Redemption during first year None 5.00% None 5.00% 1.00% None
Redemption after first year None 4.00% None 4.00% None None
- ---------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None
<CAPTION>
National Tax-Free Oregon Tax-Free
-------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None None 4.50% None
- -------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None
- -------------------------------------------------------------------------------------
Maximum sales charge on:
Redemption during first year None 5.00% 1.00% None 5.00%
Redemption after first year None 4.00% None None 4.00%
- -------------------------------------------------------------------------------------
Exchange fees None None None None None
- -------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Tax-Free Funds Summary of Expenses
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Expenses shown reflect contract amounts and amounts payable by each Fund. The
expenses shown under "Other Expenses" and "Total Fund Operating Expenses"
have been estimated or restated to reflect current fees. Expenses shown
"after waivers and reimbursements" reflect voluntary fee waivers and
reimbursements that may be discontinued without prior notice. Long-term
shareholders may pay more than the equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Arizona Tax-Free California Tax-Free Bond CA Tax-Free
Income
-------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.05% 0.75% 0.05% 0.70% 0.75% 0.05%
- -----------------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.15% 0.15% 0.50% 0.50% 0.50% 0.15%
- -----------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.57% 0.59% 0.22% 0.27% 0.22% 0.55%
- -----------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.77% 1.49% 0.77% 1.47% 1.47% 0.75%
- -----------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 1.22% 2.01% 0.34% 0.56% 0.38% 0.74%
- -----------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 1.77% 3.26% 0.89% 1.76% 1.63% 1.29%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
National Tax-Free Oregon Tax-Free
- -------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.05% 0.75% 0.75% 0.05% 0.75%
- -------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.15% 0.05% 0.05% 0.05% 0.05%
- -------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.61% 0.51% 0.51% 0.57% 0.71
- -------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.81% 1.41% 1.41% 0.77% 1.61%
- -------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50%
- -------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 1.06% 4.45% 1.03% 0.81% 1.14%
- -------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 1.61% 5.70% 2.28% 1.36% 2.39%
- -------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 7
<PAGE>
Tax-Free Funds Summary of Expenses (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE HIGER
OR LOWER THAN THOSE SHOWN.
=========================================================================================================================
You would pay the following expenses on a $1,000 Arizona Tax-Free California Tax-Free Bond CA Tax-Free
investment asssuming a 5% annual return and that Income
you redeem your shares at the end of each period. ---------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR $53 $65 $53 $65 $25 $37
- -------------------------------------------------------------------------------------------------------------------------
3 YEARS $68 $77 $68 $76 $46 $53
- -------------------------------------------------------------------------------------------------------------------------
5 YEARS $86 $101 $86 $100 $80 $70
- -------------------------------------------------------------------------------------------------------------------------
10 YEARS $136 $141 $136 $139 $176 $120
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 National Tax-Free Oregon Tax-Free
investment asssuming a 5% annual return and that
you redeem your shares at the end of each period. ---------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR $53 $64 $24 $53 $66
- --------------------------------------------------------------------------------------------------------
3 YEARS $70 $75 $45 $68 $81
- --------------------------------------------------------------------------------------------------------
5 YEARS $88 $97 $77 $86 $108
- --------------------------------------------------------------------------------------------------------
10 YEARS $141 $138 $169 $136 $148
- ---------------------------------------------------------------------------------------------------------
<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 Arizona Tax-Free California Tax-Free Bond CA Tax-Free
investment assuming a 5% annual return and that Income
you do not redeem your shares at the end of each period. -------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR $53 $15 $53 $15 $15 $37
- --------------------------------------------------------------------------------------------------------------------------
3 YEAR $68 $47 $68 $46 $46 $53
- --------------------------------------------------------------------------------------------------------------------------
5 YEAR $86 $81 $86 $80 $80 $70
- --------------------------------------------------------------------------------------------------------------------------
10 YEARS $136 $141 $136 $139 $176 $120
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Tax-Free Funds Summary of Expenses (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES,
AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- -----------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 National Tax-Free Oregon Tax-Free
investment asssuming a 5% annual return and that
you redeem your shares at the end of each period. -----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR $53 $14 $14 $53 $16
- -----------------------------------------------------------------------------------------
3 YEAR $70 $45 $45 $48 $51
- -----------------------------------------------------------------------------------------
5 YEAR $85 $77 $77 $86 $88
- -----------------------------------------------------------------------------------------
10 YEARS $141 $138 $169 $136 $148
- -----------------------------------------------------------------------------------------
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 9
<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 and 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] 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 Arizona personal income tax; and
. in municipal obligations rated in the four highest credit
categories by nationally recognized rating organizations.
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, including up to 20% of assets in certain taxable
investments, either to maintain liquidity or for short-term
defensive purposes when we believe it is in the best interests of
shareholders to do so.
10 Stagecoach Tax-Free Income Funds Propesctus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF] IMPORTANT RISK FACTORS
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 33 and the specific risks listed below. They are equally
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. Nondiversified, 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 0F] 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 11
<PAGE>
Arizona Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the
on page 52. Financial Highlights" on page 59.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON MARCH 2, 1992
-------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, May 31, May 31, May 31, May 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995/3/ 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $10.45 $10.71 10.68 $10.48 $10.64 $10.09 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.46 0.24 0.48 0.17 0.51 0.50 0.49 0.09
Net realized and unrealized gain (loss)
on investments 0.53 (0.01) (0.09) 0.06 0.23 (0.15) 0.55 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.99 0.23 0.39 0.23 0.74 0.35 1.04 0.17
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.46) (0.24) (0.48) (0.20) (0.53) (0.50) (0.49) (0.08)
Distributions from net realized gain (0.20) 0.00 (0.17) 0.00 (0.01) (0.01) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.66) (0.24) (0.65) (0.20) (0.54) (0.51) (0.49) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.77 $10.44 $10.45 $10.71 $10.68 $10.48 $10.64 $10.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.67% 2.18% 3.60% 6.55%/4/ 7.35% 3.28% 10.50% 7.02%/4/
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $5,467 $5,744 $7,331 $24,622 $24,581 $25,153 $22,430 $4,690
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.64% 0.60% 0.78% 0.45% 0.40% 0.31% 0.20% 0.68%
Ratio of net investment income to
average net assets 4.32% 4.54% 4.45% 4.73% 4.89% 4.72% 4.98% 4.32%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 127% 77% 42% 62% 14% 28% 4 0%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 1.77% 1.58% 1.46% 1.35% 1.13% 1.00% 1.18 2.08%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses (loss) 3.19% 3.56% 3.77% 3.83% 4.16% 4.03% 4.00 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARES CALENDAR RETURNS 1997 1996 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Returns for other share classes may vary 8.70 3.44% 13.69% -3.30% 10.55%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads and are not a
gurarantee of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
12 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Arizona Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the
on page 52. Financial Highlights" on page 59.
<TABLE>
<CAPTION>
=========================================================================================================================
FOR A SHARE OUTSTANDING
=========================================================================================================================
CLASS A SHARES -- COMMENCED
ON MARCH 2, 1992
-------------------------------------------------------------------
March 31, March 31, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.07 $10.07 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37 0.11 0.01
Net realized and unrealized gain (loss)
on investments 0.51 0.00 0.07
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.88 0.11 0.08
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.37) (0.11) (0.01)
Distributions from net realized gain (0.19) 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.56) (0.11) (0.01)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.39 $10.07 $10.07
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 8.90% 1.09% 0.76%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $1,546 $182 $20
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.37% 1.30% 1.16%
Ratio of net investment income to
average net assets 3.49% 3.83% 3.59%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 127% 77% 42%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 3.26% 2.96% 1.81%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and 2.92% 1.60% 2.17%
reimbursed expenses (loss)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
=========================================================================================================================
CLASS A SHARES CALENDAR RETURNS 1997 1996 1995 1994 1993
=========================================================================================================================
Returns for other share classes may vary 8.70% 3.44% 13.69% -3.30% 10.55%
due to different fees and expenses. These
returns reflect fee waivers and reimbursements,
do not reflect sales loads and are not a
gurarantee of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
Stagecoach Tax-Free Income Funds Prospectus 13
<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
dollar-weighted average maturity. Generally speaking, we will
attempt to capture greater total return by increasing dollar-
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 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; and
. in municipal obligations rated in the four highest credit
categories by nationally recognized rating organizations.
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, including up to 20% of assets in certain
taxable investments, either to maintain liquidity or for short-
term defensive purposes when we believe it is in the best
interests of shareholders to do so.
14 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 33 and the specific risks listed below. They are equally
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 15
<PAGE>
California Tax-Free Bond Fund/1/ Financial Highlights
See "Historical Fund Information" on page 52.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON OCTOBER 6, 1988
- ------------------------------------------------------------------------------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 30, Dec 30,
For the period ended: 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.97 $ 11.34 $ 10.67 $ 12.00 $ 11.43 $ 11.23 $ 10.75
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.54 0.57 0.63 0.67 0.66 0.71 0.72
Net realized and unrealized gain (loss)
on investments 0.42 (0.13) 1.08 (1.18) 0.78 0.27 0.48
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.96 0.44 1.71 (0.51) 1.44 0.98 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.54) (0.57) (0.63) (0.67) (0.66) (0.71) (0.72)
Distributions from net realized gain (0.07) (0.24) (0.41) (0.15) (0.21) (0.07) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.61) (0.81) (1.04) (0.82) (0.87) (0.78) (0.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.32 $ 10.97 $11.34 $ 10.67 $ 12.00 $ 11.43 $ 11.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 9.16% 4.03% 16.38% (4.32)% 12.98% 9.01% 11.62%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $509,844 $239,703 $268,352 $273,105 $361,779 $375,376 $332,845
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.74% 0.71% 0.58% 0.50% 0.69% 0.50% 0.45%
Ratio of net investment income to
average net assets 4.84% 5.08% 5.59% 5.87% 5.54% 6.24% 6.56%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 12% 19% 38% 4% 10% 24% 8%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 0.89% 0.82% 0.78% 0.95% 0.85% 0.85% 0.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 4.69% 4.97% 5.39% 5.42% 5.38% 5.89% 6.14%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS SHARE CALENDAR - YEAR RETURNS 1997 1996 1995 1994 1993 1992 1991
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Returns for other share classes may vary due to 9.15% 4.03% 16.38% -4.32% 12.98% 9.01% 11.62%
different fees and expenses.These returns
reflect fee waivers and reimbursement, do not
reflect sales loads and are not a guarantee of
future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express
Funds, Inc. and Stagecoach Funds, Inc.
/2/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
Stagecoach Tax-Free Income Funds Prospectus 17
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON OCTOBER 6, 1988
- ------------------------------------------------------------------------------------------------------------------------------------
Dec 30, Dec 30, Dec 30,
For the period ended: 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.83 $ 10.49 $ 10.46
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.74 0.75 0.22
Net realized and unrealized gain (loss)
on investments (0.08) 0.34 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.66 (1.09) 0.25
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.74) (0.75) (0.22)
Distributions from net realized gain 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.74) (0.75) (0.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.75 $ 10.83 $ 10.49
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 6.48% 10.73% 2.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $201,138 $ 70,412 $ 10,577
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.29% 0.30% 0.08%
Ratio of net investment income to
average net assets 6.97% 6.85% 6.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 35% 26% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 0.95% 1.18% 4.07%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimburse 6.31% N/A N/A
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS SHARE CALENDAR - YEAR RETURNS 1990 1989
====================================================================================================================================
Returns for other share classes may vary due to 6.48% 10.73%
different fees and expenses. These returns
reflect fee waivers and reimbursement, do not
reflect salesloads and are not a guarantee of
future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 17
<PAGE>
California Tax-Free Bond Fund/1/ Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 52. Highlights" on page 59.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS B SHARES
--COMMENCED ON
DECEMBER 15, CLASS C SHARES -- COMMENCED
1997 ON JULY 1, 1993
-----------------------------------------------------------------------------------------
Dec 31 Dec 31, Dec 31, Dec 31 Dec 31, Dec 31,
For the period ended: 1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.51 $ 11.19 $ 11.57 $ 10.88 $ 12.24 $ 12.25
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02 0.47 0.49 0.56 0.60 0.28
Net realized and unrealized gain (loss)
on investments 0.03 0.42 (0.13) 1.10 (1.20) 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.89 0.36 1.66 (0.60) 0.48
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02) (0.47) (0.49) (0.56) (0.60) (0.28)
Distributions from net realized gain 0.00 (0.07) (0.25) (0.41) (0.16) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.02) (0.54) (0.74) (0.97) (0.76) (0.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.54 $ 11.54 $ 11.19 $ 11.57 $ 10.88 $ 12.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 0.45% 8.11% 3.24% 15.58% (5.00)% 3.92%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 77,792 $ 5,860 $ 6,506 $ 7,063 $ 7,346 $ 7,641
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.44% 1.48% 1.46% 1.30% 1.20% 1.32%
Ratio of net investment income to
average net assets 3.95% 4.19% 4.33% 4.87% 5.15% 4.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 12% 12% 19% 38% 4% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 1.76% 1.63% 1.59% 1.57% 1.82% 1.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.63% 4.04% 4.20% 4.60% 4.53% 4.21%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express
Funds, Inc. and Stagecoach Funds, Inc.
/2/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
18 Prospectus Stagecoach Tax-Free Income Funds Prospectus
<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 dollar-weighted average
maturity. Generally speaking, we will attempt to capture
greater total return by increasing dollar-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; and
. in municipal obligations rated in the four highest
credit categories by nationally recognized rating
organizations.
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, including up to 20% of assets in
certain taxable investments, either to maintain liquidity or
for short-term defensive purposes when we believe it is in the
best interests of shareholders to do so.
20 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 33 and the specific risks listed below. They are equally
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 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>
California Tax-Free Income Fund Financial Highlights
See "Historical Fund Information" on page 5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
FOR A SHARE OUTSTANDING
=========================================================================================================================
CLASS A SHARES -- COMMENCED
ON NOVEMBER 18, 1992
---------------------------------------------------------------------
March 31, March 31, Sept 30, Dec 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.27 $ 10.26 $ 10.35 $ 9.84
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.39 0.19 0.29 0.38
Net realized and unrealized gain (loss)
on investments 0.20 0.01 (0.09) 0.51
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.59 0.20 0.20 0.89
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.39) (0.19) (0.29) (0.38)
Distributions from net realized gain (0.03) 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.42) (0.19) (0.29) (0.38)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.44 $ 10.27 $ 10.26 $ 10.35
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 5.92% 1.97% 2.01% 9.14%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 59,011 $ 67,647 $ 82,359 $ 77,965
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.68% 0.65% 0.65% 0.65%
Ratio of net investment income to
average net assets 3.78% 3.73% 3.83% 3.70%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 88% 14% 48% 31%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.29% 1.18% 1.14% 1.22%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.17% 3.20% 3.34% 3.13%
expenses
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
CLASS A SHARES CALENDAR-YEAR RETURNS 1997 1996 1995
=========================================================================================================================
Returns for other share classes may vary due 5.13% 3.85% 9.14%
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/ 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.
22 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
California Tax-Free Income Fund Financial Highlights
See "How to Read the Financial
Highlights" on page 59.
See "Historical Fund Information" on page 5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
Dec 31, Dec 31, Dec 31,
For the period ended: 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.36 $ 10.05 $ 10.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.40 0.39 0.02
Net realized and unrealized gain (loss)
on investments (0.52) 0.31 0.05
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.12) 0.70 0.07
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.40) (0.39) (0.02)
Distributions from net realized gain 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------
Total from distributions (0.40) (0.39) (0.02)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.84 $ 10.36 $ 10.05
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) (1.10)% 7.10% 0.84%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 48,998 $ 52,873 $ 7,821
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.16% 0.34% 0.00%
Ratio of net investment income to
average net assets 4.03% 3.74% 3.56%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 33% 11% 0%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.21% 1.23% 1.55%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 2.98% 2.85% 2.01%
expenses
- ----------------------------------------------------------------------------------------------------
====================================================================================================
CLASS A SHARES CALENDAR-YEAR RETURNS 1994 1993
====================================================================================================
-1.10% 7.10%
</TABLE>
Stagecoach Tax-Free Income Funds Prospectus 23
<PAGE>
National tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Stephen Galiani (since 12/97)
Mary Gail Walton (since 2/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 and 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; and
. in municipal obligations rated in the four highest credit
categories by nationally recognized rating organizations.
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, including up to 20% of 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.
24 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 33 and the specific risks listed below. The are equally
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 25
<PAGE>
National Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 52 Highlights" on page 59.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================================================================
FOR A SHARE OUTSTANDING
================================================================================================================================
CLASS A SHARES -- COMMENCED
ON JANUARY 15, 1993
------------------------------------------------------------------------------
March 31, March 31, Sept 30, Sept 30, May 31, May 31, May 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995/3/ 1994 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.17 $15.24 $15.34 $15.28 $14.98 $15.17 $15.00
Income from investment operations:
Net investment income 0.75 0.37 0.72 0.24 0.68 0.64 0.17
Net realized and unrealized gain (loss)
on investments 0.81 (0.07) (0.10) 0.08 0.32 (0.17) 0.15
Total from investment operations 1.56 0.30 0.62 0.32 1.00 0.47 0.32
Less distributions:
Dividends from net investment income (0.75) (0.37) (0.72) (0.26) (0.70) (0.64) (0.15)
Distributions from net realized gain (0.06) 0.00 0.00 0.00 0.00 (0.02) 0.00
Total from distributions (0.81) (0.37) (0.72) (0.26) (0.70) (0.66) (0.15)
Net asset value, end of period $15.92 $15.17 $15.24 $15.34 $15.28 $14.98 $15.17
Total return (not annualized) 10.44% 1.95% 4.03% 6.53%/4/ 6.97% 3.07% 5.65%/4/
Ratios/supplemental data:
Net assets, end of period (000s) $42,316 $4,526 $4,827 $14,305 $14,458 $13,600 $7,457
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.71% 0.35% 0.42% 0.35% 0.35% 0.27% 0.25%
Ratio of net investment income to
average net assets 4.69% 4.81% 4.69% 4.65% 4.59% 4.29% 3.88%
Portfolio turnover 78% 86% 73% 86% 23% 19% 18%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.61% 2.11% 1.42% 1.85% 1.51% 1.58% 1.99%
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.79% 3.05% 3.69% 3.15% 3.43% 2.99% 2.14%
expenses (loss)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996 1995 1994 1993
================================================================================================================================
<S> <C> <C> <C> <C>
Returns for other share classes may vary due 4.23% 14.53% -4.33% 3.27%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors during this fiscal year.
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
26 Stagecoach Tax-Free Income Funds Prospectus.
<PAGE>
National Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 52 Highlights" on page 59.
================================================================================
<TABLE>
<CAPTION>
======================================================================================================
CLASS B SHARES
CLASS B SHARES -- COMMENCED -- COMMENCED 0N
ON SEPTEMBER 6, 1996 DECEMBER 15, 1997
----------------------------------------------------
March 31, March 31, Sept 30, March 31,
For the period ended: 1998 1997/1/ 1996/2/ 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.01 $10.06 $10.00 $10.48
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42 0.06 0.00 0.13
Net realized and unrealized gain (loss)
on investments 0.53 (0.05) 0.06 0.03
- ------------------------------------------------------------------------------------------------------
Total from investment operations 0.95 0.01 0.06 0.16
- ------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.42) (0.06) 0.00 (0.13)
Distributions from net realized gain (0.04) 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------
Total from distributions (0.46) (0.06) 0.00 (0.13)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.50 $10.01 $10.06 $10.51
- ------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.58% 0.10% 0.60% 1.49%
- ------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $1,330 $119 $0 $7,608
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.26% 1.10% 0.00% 1.40%
Ratio of net investment income to
average net assets 3.88% 3.80% 1.83% 4.09%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 78% 86% 73% 78%
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 5.74% 13.74% 0.00% 2.28%
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed (0.60)% (8.84)% 1.83% 3.21%
expenses (loss)
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31,
/2/ The Fund changed Investment Advisors during this fiscal year.
Stagecoach Tax-Fee Income Funds Prospectus. 27
<PAGE>
Oregon Tax-Free Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Mary Gail Walton (since 12/97)
Stephen Galiani (since 12/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
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 and 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; and
. in municipal obligations rated in the four highest credit
categories by nationally recognized credit rating
organizations.
28 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, including up to 20% of 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 listed on
page 33 and the specific risks listed below. They are equally
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.
- --------------------------------------------------------------------------------
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 29
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 52. Highlights" on page 59.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON JUNE 1, 1988
-----------------------------------------------------------------------------
March 31, March 31, Sept. 30 Sept 30, May 31, May 31
For the period ended: 1998 1997 /1/ 1996 /2/ 1995 /3/ 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.29 $ 16.42 $ 16.38 $16.47 $16.17 $16.79
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.76 0.37 0.79 0.28 0.82 0.84
Net realized and unrealized gain (loss)
on investments 0.81 (0.10) 0.04 (0.08) 0.39 (0.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.57 0.27 0.83 0.20 1.21 0.41
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.76) (0.37) (0.79) (0.29) (0.87) (0.82)
Distributions from net realized gain (0.29) (0.03) 0.00 0.00 (0.04) (0.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.05) (0.40) (0.79) (0.29) (0.91) (1.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.81 $16.29 $16.42 $16.38 $16.47 $16.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.81% 1.65% 5.03% 3.67%/4/ 7.92% 2.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $27,837 $30,635 $33,676 $50,077 $52,245 $53,846
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.62% 0.60% 0.85% 0.70% 0.70% 0.62%
Ratio of net investment income to
average net assets 4.54% 4.52% 4.87% 5.01% 5.19% 4.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 82% 90% 27% 57% 15% 22%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.36% 1.31% 1.15% 1.01% 0.90% 0.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.80% 3.81% 4.57% 4.70% 4.99% 4.68%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARES CALENDER-YEAR RETURNS 1997 1996 1995 1994 1993
====================================================================================================================================
Returns for other share classes may vary due 8.60% 3.30% 15.84% -6.49% 12.38%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisors.
30 Stagecoach Tax-Free Income Funds Prospectus
<TABLE>
<CAPTION>
- ------------------------------------------------------
May 31, May 31, May 31, May 31, May 31,
1993 1992 1991 1990 1989
- ------------------------------------------------------
<S> <C> <C> <C> <C>
$16.07 $15.74 $15.27 $15.35 $15.00
- ------------------------------------------------------
0.86 0.91 0.94 0.93 0.93
0.76 0.38 0.47 (0.06) 0.31
- ------------------------------------------------------
1.62 1.29 1.41 0.87 1.24
- ------------------------------------------------------
(0.86) (0.92) (0.94) (0.93) (0.89)
(0.04) (0.04) 0.00 (0.02) 0.00
- ------------------------------------------------------
(0.90) (0.96) (0.94) (0.95) (0.89)
- ------------------------------------------------------
$16.79 $16.07 $15.74 $15.27 $15.35
- ------------------------------------------------------
10.36% 8.45% 9.58% 5.80% 8.55%
- ------------------------------------------------------
$45,435 $25,002 $14,607 $7,550 $3,175
- ------------------------------------------------------
0.60% 0.60% 0.55% 0.50% 0.50%
- ------------------------------------------------------
5.34% 5.81% 6.27% 6.26% 6.64%
- ------------------------------------------------------
6% 17% 23% 94% 9%
- ------------------------------------------------------
0.91% 0.98% 1.03% 1.35% 3.29%
- ------------------------------------------------------
5.03% 5.43% 5.79% 5.41% 3.85%
- ------------------------------------------------------
<CAPTION>
======================================================
1992 1991 1990 1989
======================================================
8.03% 10.57% 6.02% 8.25%
- ------------------------------------------------------
</TABLE>
/3/ The Fund changed its fiscal year-end from May 31 to September 30.
/4/ Annualized.
Stagecoach Tax-Free Income Funds Prospectus 31
<PAGE>
Oregon Tax-Free Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 52. Highlights" on page 59.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
FOR A SHARE OUTSTANDING
================================================================================
CLASS B SHARES -- COMMENCED
ON SEPTEMBER 6, 1996
-----------------------------------
March 31, March 31, Sept. 30
For the period ended: 1998 1997 /1/ 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.07 $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.39 0.17 0.00
Net realized and unrealized gain (loss)
on investments 0.47 (0.05) 0.07
- --------------------------------------------------------------------------------
Total from investment operations 0.86 0.12 0.07
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.39) (0.17) 0.00
Distributions from net realized gain (0.17) (0.02) 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.56) (0.19) 0.00
- --------------------------------------------------------------------------------
Net asset value, end of period $10.30 $10.00 $10.07
- --------------------------------------------------------------------------------
Total return (not annualized) 8.77% 1.17% 0.70%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $3,762 $287 $0
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.43% 1.30% 0.00%
Ratio of net investment income to
average net assets 3.56% 3.23% 1.83%
- --------------------------------------------------------------------------------
Portfolio turnover 82% 90% 27%
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed 2.39% 2.15% 0.00%
expenses
- --------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees 2.60% 2.38% 1.83%
and reimbursed expenses
- --------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
32 Stagecoach Tax-Free 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 risk 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 selling agents or investment advisors, offer or
promise to make good any such losses.
. Share prices--and therefore the value of your investment--will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as price 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 instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of a security will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value.
. The Funds invest in debt instruments, 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 instruments with longer maturities are generally more
sensitive to interest rate changes than those with shorter maturities.
Changes in market interest rates do not affect the rate payable on debt
instruments held in a Fund, unless the instrument has adjustable or variable
rate features. Changes in market interest rates may also extend or shorten
the duration of certain types of instruments, such as asset-backed
securities, thereby affecting their value and the return on your investment.
. The 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
Stagecoach Tax-Free Income Funds Prospectus 33
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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-instruments that cease to be rated by a
nationally recognized rating organization or whose ratings fall below the
levels generally permitted for such Fund, provided Wells Fargo deems the
instrument to be of comparable quality to rated or higher-rated instruments.
Unrated or downgraded instruments may be more susceptible to credit and
interest rate risks than investment grade bonds.
. 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 derivative 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 and the risks associated
with them. 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.
34 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 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.
Year 2000 Risks-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the Funds that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
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
discussion information about the investment practices and risks particular to
each Fund.
Stagecoach Tax-Free Income Funds Prospectus 35
<PAGE>
<TABLE>
<CAPTION>
ARIZONA CA CA NATIONAL OREGON
TAX FREE TAX FREE BOND TAX FREE INCOME TAX FREE TAX FREE
===================================================================================================================================
INVESTMENT PRACTICE: RISK
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT Interest Rate and . . . . .
Instruments with interest rates that are Credit Risk
adjusted either on a schedule or when an
index or benchmark changes
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a Credit and . . . . .
security agrees to buy back a security Counter-Party Risk
at an agreed upon time and price, usually
with interest
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk . . . . .
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 Delayed Delivery Interest Rate, Credit . . . . .
Transactions--Securities bought or sold for and Experience Risk
delivery at a later date or bought or sold
for a fixed price at a fixed date.
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Securities consisting of undivided fractional Interest Rate, Credit . . . . .
interests in pools of consumer loans, such Experience and
as car loans or credit card debt, or Extension Risk
receivables held in trust.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be readily sold or Liquidity Risk . . . . .
cannot be readily sold without negatively
affecting its fair value. Limited to 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 the Interest Rate, Credit . . . . .
alternative minimum tax. (Limited to 20% and Experience Risk
of assets.)
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of 10% Leverage Risk . . . . .
of assets from banks for temporary purposes
to meet shareholder redemptions.
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities in Credit, Counter-Party . . . . .
brokers, dealers and financial and Leverage Risk
institutions to increase return on those
securities. Loans may be in accordance
with existing investment policies. Limited
to 30% of total assets for the Oregon
Arizona and National Tax-Free Funds, 33
1/3% for the other Funds.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
. Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
. Class B Shares - with a contingent deferred sales charge ("CDSC") that
diminishes over time, and higher on-going expenses than Class A shares.
. Class C Shares - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B or Class C shares. Please note that Class B shares convert
to Class A shares after six years to avoid the higher on-going expenses assessed
against Class B shares. The California Tax-Free Income Fund is not available in
Class B or Class C shares.
Class C shares are available for the California Tax-Free Bond and National Tax-
Free Funds only. They are similar to Class B shares, with some important
differences. Unlike Class B shares, Class C shares do not convert to Class A
shares. The higher on-going expenses will be assessed as long as you hold the
shares. The choice between Class B and Class C shares may depend on how long you
intend to hold Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following sales charge
schedule before making your decision. You should also review the "Reduced Sales
Charges" section below. You may wish to discuss this choice with your financial
consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
Stagecoach Tax-Free Income Funds Prospectus 37
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
CLASS A SHARES FOR THE ARIZONA TAX-FREE, OREGON TAX-FREE, NATIONAL TAX-FREE AND
CALIFORNIA TAX-FREE BOND FUNDS HAVE THE FOLLOWING SALES CHARGE SCHEDULE:
========================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- ------------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- ------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.125%
- ------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC, if
they are redeemed within one year from the date of purchase. Charges are based
on the lower of the NAV on the date of purchase or the date of redemption.
<TABLE>
<CAPTION>
========================================================================================================================
CLASS A SHARES FOR THE CALIFORNIA TAX-FREE INCOME FUND HAS THE FOLLOWING SALES CHARGE SCHEDULE:
========================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.65%
- ------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 2.25% 2.30% 2.00%
- ------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 1.50% 1.52% 1.30%
- ------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 0.60% 0.60% 0.50%
- ------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 0.25%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC, if
they are redeemed within one year from the date of purchase. Charges are based
on the lower of the NAV on the date of purchase or the date of redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
38 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B and
Class C share CDSC Reductions" and "Waivers for Certain Parties"). The Class B
CDSC schedule is as follows:
<TABLE>
<CAPTION>
======================================================================================
CLASS BE SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
======================================================================================
REDEMPTION WITHIN: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
- --------------------------------------------------------------------------------------
</TABLE>
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the B shares are converted to A shares to reduce
your future on-going expenses.
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of
1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Generally, we offer more sales charge reductions for Class A shares than for
Stagecoach Tax-Free Income Funds Prospectus 39
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of these potential
reductions when you are deciding which share class to buy.
Class A Share Reductions:
. You pay no sales charges on Fund shares you buy with reinvested
distributions.
. You pay a lower sales charge if you are investing an amount over a breakpoint
level. See the "Class A Share Sales Charge Schedule" above.
. By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint within
the next 13 months. We will hold in escrow shares equal to approximately 5%
of the amount you intend to buy. If you do not invest the amount specified in
the LOI before the expiration date, we will redeem enough escrowed shares to
pay the difference between the reduced sales load you paid and the sales load
you should have paid. Otherwise, we will release the escrowed shares when you
have invested the agreed amount.
. Rights of Accumulation (ROA) allow you to combine the amount you invest with
the total NAV of shares you own in other Stagecoach front-end load Funds in
order to reach breakpoint levels for a reduced load. We give you a discount
on the entire amount of the investment that puts you over the breakpoint
level.
. If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have 120
days to reinvest the proceeds of that redemption with no sales charge into a
Fund that charges the same or a lower front-end sales charge. If you use such
a redemption to purchase shares of a Fund with a higher front-end sales
charge, you will have to pay the difference between the lower and higher
charge.
. You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for which
Wells Fargo Bank acts as trustee provided the distribution occurred within
the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
40 Stagecoach Tax-free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
. a family unit, consisting of a husband and wife and children under the age of
twenty-one or single trust estate;
. a trustee or fiduciary purchasing for a single fiduciary relationship; or
. the members of a "qualified group" which consists of a "Company" (as defined
in the Investment Company Act of 1940 ("1940 Act")), and related parties of
such a "Company", which has been in existence for at least six months and
which has a primary purpose other than acquiring Fund shares at a discount.
How a Letter of Intent Can Save You Money!
If you plan to invest in the Arizona Tax-Free Fund, for example, $100,000 in a
Stagecoach Fund in installments over the next year, by signing a letter of
intent you would pay only a 3.50% sales load on the entire purchase. Otherwise,
you might pay 4.50% on the first $50,000, then 4.00% on the next $49,999!
Stagecoach Tax-Free Income Funds Prospectus 41
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions:
. You pay no CDSC on Funds shares you purchase with reinvested distributions.
. We waive the CDSC for all redemptions made because of scheduled or mandatory
distributions for certain retirement plans. (See your retirement plan
disclosure for details.)
. We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability" is
defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the direction of Stagecoach Funds
in order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
. We waive the Class C share CDSC for certain types of accounts.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
. Current and retired employees, directors and officers of:
. Stagecoach Funds and its affiliates;
. Wells Fargo Bank and its affiliates;
. Stephens and its affiliates; and
. Broker-Dealers who act as selling agents.
. The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews,
fathers-in-law, mothers-in-law, brothers-in-law and sisters-in-law of either
the spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
42 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Special Notice
Class B shares you purchased prior to March 3, 1997 are subject to a CDSC if
they are redeemed within four years of purchase. The CDSC schedule for these
shares is below:
<TABLE>
<CAPTION>
===============================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
===============================================================================
REDEMPTION WITHIN: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
</TABLE>
The above schedule does not apply for any new shares purchased. If you exchange
Class B shares for Class B shares of another Fund, you will retain the above
CDSC schedule on your exchanged shares, but additional shares of the newly
purchased Fund will age at the higher CDSC schedule.
Stagecoach Tax-Free Income Funds Prospectus 43
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You Can Buy Fund Shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefit and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment, or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and applications for the program through which
you intend to invest.
44 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information or Annual Report. Copies are available free of charge from your
selling agent or by calling 1-800 222-8222.
. We process requests to buy or sell shares each business day as of the close
of regular trading on the New York Stock Exchange ("NYSE"), which is usually
1:00 PM Pacific time. Any request we receive in proper form before the close
of regular trading on the NYSE is processed the same day. Requests we receive
after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares or
the price you receive when you redeem shares is not determined until after a
request has been received in proper form.
. We determine the NAV of each class of the Funds' shares each business day as
of the close of regular trading on the NYSE. 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 Funds' assets are generally valued at current market prices. See the
Statement of Additional Information for further disclosure.
. We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-222-
8222) if you are investing directly with Stagecoach Funds, or speak to your
selling agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without completing a new application.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
Stagecoach Tax-Free Income Funds Prospectus 45
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How To Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
BY MAIL
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest. Mail To:
- ----------------------------------------------------- Stagecoach Funds
Enclose a check for at least $1,000 made out PO Box 7066
in the full name and share class of the Fund. San Francisco, CA
For example, "Stagecoach National Tax-Free 94120-9201
Fund, Class B".
- -----------------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail To:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ----------------------------------------------------- San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- -------------------------------------------------------------------------------
===============================================================================
BY WIRE
===============================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
If You Do Not Currently Have An Account, Complete Mail To:
A Stagecoach Funds Application. You Must Wire Stagecoach Funds
At Least $1,000. Be Sure To Indicate The Fund Name PO Box 7066
And The Share Class Into Which You Intend To Invest. San Francisco, CA
- ----------------------------------------------------- 94120-9201
Mail the completed application. FAX TO:
- ----------------------------------------------------- 1-415-546-0280
You may also fax the completed application (with
original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Instruct Your Wiring Bank To Transmit At Least $100 Wire To:
According To The Instructions Given To The Right. Be Wells Fargo Bank, N.A.
Sure To Have The Wiring Bank Include Your Current San Francisco,
Account Number And The Name Your Account California
Is Registered In.
- ----------------------------------------------------- Bank Routing Number:
121000248
Wire Purchase Account
Number:
4068-000587
Attention:
Stagecoach Funds (Name
of Fund and Share
Class)
Account Name:
(Registration Name
Indicated on
Application)
-------------------------
46 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
You can only make your first purchase of a Fund
by phone if you already have an existing Stagecoach
Account.
- -----------------------------------------------------
Call Investor Services and instruct the
representative to either: Call:
. transfer at least $1,000 from a linked
settlement account, or 1-800-222-8222
. exchange at least $1,000 worth of shares from an
existing Stagecoach Fund. Please see "Exchanges"
for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked settlement Call:
account, or
. exchange at least $100 worth of shares from 1-800-222-8222
another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Fund shares held through
brokerage and other types of accounts, please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account registration,
your account number, the Fund you wish to redeem
and the dollar amount ($100 or more) of the
redemption you wish to receive (or write "Full
Redemption").
- -----------------------------------------------------
Make sure all the account owners sign the request.
- -----------------------------------------------------
You may request that redemption proceeds be sent Mail To:
to you by check, by ACH transfer into a bank Stagecoach Funds
account, or by wire ($5,000 minimum). Please PO Box 7066
call Investor Services regarding requirements for San Francisco, CA
linking bank accounts or for wiring funds. We 94120-9201
reserve the right to charge a fee for wiring
funds although it is not currently our practice
to do so.
- -----------------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get a
signature guarantee at financial institutions such
as a bank or brokerage house. We do not accept
notarized signatures.
- --------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 47
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption of
at least $100.
Be prepared to provide your account number and
Taxpayer Identification Number.
- -----------------------------------------------------
Unless you have instructed us otherwise, only one
account owner needs to call in redemption requests.
- -----------------------------------------------------
You may request that redemption proceeds be sent
to you by check, by transfer into an ACH-linked
bank account, or by wire ($5000 minimum). Please
call Investor Services regarding requirements for
linking bank accounts or for wiring funds. We
reserve the right to charge a fee for wiring funds Call:
although it is not currently our practice to do so. 1-800-222-8222
- -----------------------------------------------------
Telephone privileges are automatically made
available to you unless you specifically decline
them on your application or subsequently in writing.
- -----------------------------------------------------
Phone privileges allow us to accept transaction
instructions by anyone representing themselves as
the shareholder and who provides reasonable
confirmation of their identity, such as providing
the Taxpayer Identification Number on the account.
We will not be liable for any losses incurred if
we follow telephone instructions we reasonably
believe to be genuine.
- -----------------------------------------------------
Telephone requests are not accepted if the address
on your account has been changed by phone in the
last 15 days
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process all requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the NYSE are processed the same business day.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of regular trading on the NYSE,
which is generally 1:00 PM Pacific time.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 days so that
we may be reasonably certain that investments made by check or AutoSaver have
been collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the SECin 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.
- --------------------------------------------------------------------------------
48 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 exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the maximum
3% load schedule and the maximum 4.5% schedule).
. If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
. Exchanges between Class B shares, between Class C shares or between either
Class B or Class C shares and a Stagecoach money market fund will not trigger
the CDSC. The new shares will continue to age according to their original
schedule while in the new Fund and will be charged the CDSC applicable to the
original shares upon redemption. This also applies to exchanges of Class A
shares that are subject to a CDSC.
. Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be borne
by other shareholders, we reserve the right to limit or reject exchange
orders. Generally, we will notify you 60 days in advance of any changes in
your exchange privileges.
. You may make exchanges between like share Classes. You may also exchange from
Class A, B or C shares and non-institutional class shares to a non-
institutional money market fund.
Stagecoach Tax-Free Income Funds Prospectus 49
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each month
if you have not specified a day. Please call Investor Services at 1-800-222-
8222 if you wish to change or add linked accounts.
. Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or transfer
it into your linked bank account. In order to set up a Systematic Withdrawal
Program, you:
. must have a Fund account valued at $10,000 or more;
. must have distributions reinvested; and
. may not simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the
linked account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option - Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
. Fund Purchase Plan - Uses your distributions to buy shares at NAV of another
Stagecoach Fund of the same share class or a money market fund. You must have
already satisfied the minimum investment requirements of the Fund into which
your distributions are being transferred in order to participate.
. Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the ACH
system. If your specified bank account is closed, we will reinvest your
distributions.
50 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Check Payment Option - Allows you to receive checks for distributions mailed
to your address of record or to another name and address which you have
specified in written, signature guaranteed instructions. If checks remain
uncashed for six months or are undeliverable by the Post Office, we will
reinvest the distributions at the earliest date possible.
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed. Also, distributions on new shares shortly after purchase
would be in effect a return of capital, although all or a portion of the
distribution may still be taxable to you.
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as 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
such 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 capital gain distributions.
In general, these distributions will be taxable to you as long-term capital
gains , which may qualify for taxation at preferential rates in the hands of non
corporate shareholders.
In general, all distributions will be taxable to you when paid, even if they are
paid 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 on December 31 of the year in which they were declared. We
will notify you as to the status of your Fund distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
Stagecoach Tax-Free Income Funds Prospectus 51
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Your redemptions and exchanges of Fund shares 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 taxes. In certain circumstances,
U.S. residents will be subject to back-up withholding taxes.
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 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
reorganization, existing Investor shares were converted into Class A shares of
the Fund. In connection with the merger of First Interstate Bancorp with Wells
Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
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 and the financial highlights shown for the Class
A and C shares are the Financial Highlights of the Class A and D shares of the
Overland Fund. The Overland Fund did not offer Class B shares. The Financial
Highlights for Class B shares reflect prior performance of the Stagecoach Class
B 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 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 reorganiza-
52 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
tion, existing Investor shares were converted into Class A shares of the Fund.
In connection with the merger of First Interstate Bancorp with Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment Management,
Inc.
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 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 reorganization, existing Investor
shares were converted into Class A shares of the Fund. In connection with the
merger of First Interstate Bancorp with Wells Fargo & Company on April 1, 1996,
FICM was renamed Wells Fargo Investment Management, Inc.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Funds.
Share Class-- This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds may offer additional share classes with
different expenses and returns than those described here. Call Stephens at
1-800-643-9691 for information on these or other investment options in
Stagecoach Funds.
Conversion of Class B shares-- We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed to
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value-- Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Stagecoach Tax-Free Income Funds Prospectus 53
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Statements-- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees-- Stephens, as the Fund's distributor,
will pay the portion of the Class A share sales charge shown as the Dealer
Allowance to the selling agent, if any. Stephens also compensates selling
agents for the sale of Class B and Class C shares and is reimbursed through Rule
12b-1 fees and contingent deferred sales charges. Selling agents may receive
different compensation for sales of Class A, Class B and Class C shares of the
same Fund. Stephens may, from time to time, pay additional compensation to
selling agents that will not exceed the maximum compensation permitted by Rule
12b-1.
Statement of Additional Information-- Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future federal
or state laws may prevent these entities from continuing in their roles.
Voting Rights-- All shares of the Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
54 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized and the entities that perform different services and
how they are compensated. Further information is available in the Statement of
Additional Information for each Fund.
About Stagecoach
Each Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach was organized on September 9, 1991,
as a Maryland Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund Investments
- --------------------------------------------------------------------------------
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT 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
Markets the Funds, Manages the Funds' Maintains records Provides services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
===============================================================================
INVESTMENT SUB-ADVISOR
===============================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
- -------------------------------------------------------------------------------
===============================================================================
BOARD OF DIRECTORS
===============================================================================
Supervises the Funds' activities
- -------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 55
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. Wells Fargo Bank,
founded in 1852, is the oldest bank in the Western United States and is one of
the largest banks in the U.S. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of August 1, 1998,
Wells Fargo Bank and its affiliates managed over $63 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, 1998:
- --------------------------------------------------------------------------------
Arizona Tax-Free Fund .15%
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund .50%
- --------------------------------------------------------------------------------
California Tax-Free Income Fund .15%
- --------------------------------------------------------------------------------
National Tax-Free Fund .15%
- --------------------------------------------------------------------------------
Oregon Tax-Free Fund .15%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank N.A., is the sub-advisor for each of the Funds. As of August
1, 1998, WCM provided investment advice for assets in excess of $32 billion. For
providing sub-advisory services to the Funds, WCM is entitled to receive from
Wells Fargo Bank .15% of each Fund's assets up to the first $400 million, .125%
of the next $400 million in assets, and .10% of all assets over $800 million.
WCM is entitled to receive from Wells Fargo Bank a minimum annual sub-advisory
fee of $120,000. This minimum annual fee payable to WCM does not affect the
advisory fee paid by the Funds to Wells Fargo Bank.
56 Stagecoach Tax-free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator. Stephens also receives
all loads, CDSCs and distribution plan fees. It uses a portion of these amounts
to compensate selling agents for their role in marketing the Funds' shares.
Distribution Plan
We have adopted distribution plans for each class of the Funds. For Class A
shares of the California Tax Free Bond and the California Tax-Free Income Funds,
these plans are used to defray all or part of the cost of preparing and
distributing prospectuses and promotional materials. For Class A shares of the
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds and the Class B
shares of the Arizona Tax-Free, California Tax-Free Bond, National Tax-Free and
Oregon Tax-Free Funds, these plans are used to pay for distribution-related
services including ongoing compensation to selling agents. Each Fund may
participate in joint distribution activities with other Stagecoach Funds. The
cost of these activities is generally allocated among the Funds. Funds with
higher assets levels pay a higher proportion of these costs.
For these services each Fund pays the following:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Arizona Tax-Free Fund .05% .75% N/A
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund .05% .70% .75%
- --------------------------------------------------------------------------------
California Tax-Free Income Fund .05% N/A N/A
- --------------------------------------------------------------------------------
National Tax-Free Fund .05% .75% .75%
- --------------------------------------------------------------------------------
Oregon Tax-Free Fund .05% .75% N/A
- --------------------------------------------------------------------------------
Stagecoach Tax-Free Income Funds Prospectus 57
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements
with various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services each Fund pays the following:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Arizona Tax-Free Fund .25% .25% N/A
- --------------------------------------------------------------------------------
California Tax-Free Bond Fund .30% .30% .25%
- --------------------------------------------------------------------------------
California Tax-Free Income Fund .30% N/A N/A
- --------------------------------------------------------------------------------
National Tax-Free Fund .25% .25% .25%
- --------------------------------------------------------------------------------
Oregon Tax-Free Fund .25% .25% N/A
- --------------------------------------------------------------------------------
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.
. David Klug
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over 15 years.
. Laura Milner
Senior Tax-Exempt Specialist
With Wells Fargo Bank for over 10 years.
. Mary Gail Walton
Senior Tax-Exempt Specialist
Joined Wells Fargo Bank in 1996 after the merger with First Interstate Bank,
where she had worked since 1991.
58 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 Funds. The
financial statements from which the Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, with the exception of the Class A Calendar-
Year returns, or as indicated. The financial statements are included in each
Fund's most recent Annual or Semi-Annual Report and are available free of charge
by calling 1-800-222-8222. Other auditors audited statements for the 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 definition.
Net Investment Income-- Net investment income is calculated by subtracting the
aggregate Fund expenses from a 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.
Stagecoach Tax-Free Income Funds Prospectus 59
<PAGE>
- --------------------------------------------------------------------------------
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.
Portfolio Turnover-- Portfolio turnover reflects the trading activity in each
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.
60 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and perform
other tasks.
Annual and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Funds' portfolio of investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
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 or portfolio, as defined by the Investment Company Act of
1940, 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.
Dollar-Weighted Average Maturity
The average maturity for the debt securities in a portfolio on a dollar for
dollar basis.
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 Tax-Free Income Funds Prospectus 61
<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.
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).
Nationally Recognized Rating Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV is calculated separately for each class of the
Fund, and is determined as of the close of regular trading on each business day
the New York Stock Exchange is open, typically 1:00 p.m. Pacific time.
Non-Diversified
Any fund that does not have a policy as described under "Diversified" in this
Glossary.
62 Stagecoach Tax-Free Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them to
sell a Fund's shares.
Senior Securities
A security that has a priority claim to a company's assets. For example, a
bondholder has the right to receive a share of a company's assets before a
common stockholder does in the event of a company's liquidation.
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.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
Standard & Poors (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.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Stagecoach Tax-Free Income Funds Prospectus 63
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
64 Stagecoach Tax-Free Income 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
1-800-222-8222 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.
===========================================================================
[LOGO OF RECYCLED PAPER] SC IX P (8/98)
Printed on Recycled Paper
<PAGE>
August 1, 1998
STAGECOACH FUNDS(R)
Stagecoach
Allocation Funds
Prospectus
Asset Please read this Prospectus and keep it for
Allocation Fund future reference. It is designed to provide
you with important information and to help you
Index Allocation decide if a Fund's goals match your own.
Fund
These securities have not been approved or
U.S. Government disapproved by the U.S. Securities and
Allocation Fund Exchange Commission ("SEC"), any state
securities commission or any other regulatory
Class A, Class B and authority, nor have any of these authorities
Class C passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary
Investment Advisor is a criminal offense.
and Administrator:
Fund shares are NOT deposits or other
Wells Fargo Bank obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Investment Fargo Bank"), Barclays Global Investors, N.A.,
Sub-Advisor: or any of their affiliates. Fund shares are
NOT insured or guaranteed by the U.S.
Barclays Global Government, the Federal Deposit Insurance
Fund Advisors Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
Distributor and INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
Co-Administrator: INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 the 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 about these Funds?
Each Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Asset Allocation Fund 10
This section contains Index Allocation Fund 16
important information
about the individual U.S. Government Allocation Fund 24
Funds.
General Investment Risks 32
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 34
Turn to this section Reduced Sales Charges 37
for information on
how to open and Your Account 41
maintain your account,
including how to buy, How to Buy Shares 43
sell and exchange
Fund shares. Selling Shares 44
Exchanges 46
Additional Services and
Other Information 47
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 52
Look here for details
on the organization of How to Read the Financial Highlights 57
the Funds and term
definitions. Glossary 58
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Allocation Funds
The Funds described in this Prospectus pursue a strategy of allocating and
reallocating investments among various asset classes to capture returns and
reduce risk. Each Fund has a different investment objective intended to meet
different investment needs. You should consider each Fund's objective,
investment practices, permitted investments and risks carefully before investing
in a Fund. The investment objective of each Fund is fundamental and may not be
changed without the approval of a majority of shareholders.
Should you consider investing in these Funds? Yes, if:
. you are looking for the diversification an asset allocation strategy
provides; and
. you are willing to accept the risks of investing, including the risk that
share prices may rise and fall.
You should not invest in these Funds if:
. you are looking for FDIC insurance coverage or guaranteed rates of return;
. you are unwilling to accept the risk that you may lose the money you invest;
or
. you are looking for an investment limited to a single asset class.
Who are "We"?
In this Prospectus, "We" generally means the Stagecoach Funds. "We" sometimes
refers to the Investment Advisor or other companies hired by a 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. ("Stagecoach").
Key Terms
An "asset class" is a broad category of investments such as "bonds" or
"equities". "Allocation" refers to the division of investments among two or more
asset classes. The Funds offered in this Prospectus are managed using a computer
"model" that recommends the allocation of assets according to a Fund's
investment objective and risk tolerance.
4 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Dividends
We pay dividends, if any, quarterly for the Asset Allocation and Index
Allocation Funds. Dividends for the U.S. Government Allocation Fund are declared
daily and paid monthly. Capital gains, if any, are distributed at least
annually.
Stagecoach Allocation Funds Prospectus 5
<PAGE>
Allocation 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Index Allocation U.S. Govt. Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a
purchase (as a percentage
of offering price) 4.50% None None 4.50% None None 4.50% None
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on
reinvested dividends None None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on:
Redemption during first year None 5.00% 1.00% 1.00% None 5.00% None 5.00%
Redemption after first
year None 4.00% None None None 4.00% None 4.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
====================================================================================================================================
Expenses shown reflect contract amounts and amounts payable by each Fund. The
expenses shown under "Other Expenses" and "Total Fund Operating Expenses" have
been estimated or restated to reflect current fees. Expenses shown "after
waivers and reimbursements" reflect voluntary fee waivers that may be
discontinued without prior notice. Long-term shareholders may pay more than the
equivalent of the maximum front-end sales charge allowed by the National
Association of Securities Dealers, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Index Allocation U.S. Govt Allocation
--------------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.05% 0.70% 0.75% 0.25% 0.75% 0.75% 0.05% 0.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Management fee 0.36%/1/ 0.36%/1/ 0.36%/1/ 0.70% 0.70% 0.70% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses (after waivers or
reimbursements) 0.58% 0.58% 0.53% 0.37% 0.61% 0.61% 0.64% 0.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Total fund operating
expenses (after waivers
or reimbursements) 0.99% 1.64% 1.64% 1.32% 2.06% 2.06% 1.19% 1.84%
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses (before
waivers or reimbursement) 0.58% 0.58% 0.53% 0.37% 2.58% 0.64% 0.71% 0.88%
- -----------------------------------------------------------------------------------------------------------------------------------
Total fund operating
expenses (before waivers
or reimbursements) 0.99% 1.64% 1.64% 1.32% 4.03% 2.09% 1.26% 2.08%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Fee shown for Asset Allocation Fund is after waiver. The maximum fee before
waivers is .50%.
6 Stagecoach Allocation Funds Prospectus
Stagecoach Allocation Funds Prospectus 7
<PAGE>
Allocation Funds Summary of Expenses (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
EXAMPLE OF EXPENSES--THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER
THAN THOSE SHOWN.
====================================================================================================================================
You would pay the following expenses
on a $1,000 investment assuming a 5% Asset Allocation Index Allocation U.S. Govt Allocation
annual return and that you redeem --------------------------------------------------------------------------------------------
your shares at the end of each period. Class A Class B Class C Class A Class B Class C Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 55 $ 67 $ 27 $ 58 $ 71 $ 31 $ 57 $69
- -----------------------------------------------------------------------------------------------------------------------------------
3 years $ 75 $ 82 $ 52 $ 85 $ 95 $ 65 $ 81 $88
- -----------------------------------------------------------------------------------------------------------------------------------
5 years $ 97 $109 $ 89 $114 $131 $111 $107 $120
- -----------------------------------------------------------------------------------------------------------------------------------
10 years $161 $161 $194 $197 $203 $239 $183 $183
- -----------------------------------------------------------------------------------------------------------------------------------
<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 do not Asset Allocation Index Allocation U.S. Govt Allocation
redeem your shares at the end of each -------------------------------------------------------------------------------------------
period. Class A Class B Class C Class A Class B Class C Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 55 $ 17 $ 17 $ 58 $ 21 $ 21 $ 57 $ 19
- -----------------------------------------------------------------------------------------------------------------------------------
3 years $ 75 $ 52 $ 52 $ 85 $ 65 $ 65 $ 81 $ 58
- -----------------------------------------------------------------------------------------------------------------------------------
5 years $ 97 $ 89 $ 89 $114 $111 $111 $107 $100
- -----------------------------------------------------------------------------------------------------------------------------------
10 years $161 $161 $194 $197 $203 $239 $183 $183
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Stagecoach Allocation Funds Prospectus
Stagecoach Allocation Funds Prospectus 9
<PAGE>
Asset Allocation Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Asset Allocation Fund seeks to earn over the long-term a
high level of total return, including net realized and
unrealized capital gains and net investment income, consistent
with reasonable risk.
Investment Policies
We allocate and reallocate assets among common stocks, U.S.
Treasury bonds and money market instruments. This strategy is
based on the premise that asset classes are at times undervalued
or overvalued in comparison to one another and that investing in
undervalued asset classes offers better long-term, risk-adjusted
returns.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] The asset classes we invest in are composed as follows:
. Stock Investments--We invest in common stocks representative
of the S&P 500 Index. We do not individually select common
stocks on the basis of traditional investment analysis.
Instead, stock investments are made according to a weighted
formula intended to match the total return of the S&P 500
Index as closely as possible; and
. Bond Investments--We invest in U.S. Treasury Bonds
representative of the Lehman Brothers 20+ Bond Index. Bonds
on this Index have remaining maturities of twenty years or
more; and
. Money Market Investments--We invest this portion of the Fund
in high-quality money market instruments, including U.S.
Government obligations, obligations of foreign and domestic
banks, short-term corporate debt instruments and repurchase
agreements.
In addition, under normal market conditions, we may invest:
. In call and put options on stock indexes, stock index
futures, options on stock index futures, interest rate and
Interest Rate Futures contracts as a substitute for a
comparable market position in stocks;
. In interest rate and Index Swaps; and
. Up to 25% of total assets in foreign obligations qualifying
as money market investments.
10 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We manage the allocation of investments in the Fund's portfolio
assuming a "normal" allocation of 60% stocks and 40% bonds. This
is not a "target" allocation but rather a means to set a level
of risk tolerance for the Fund.
We are not required to keep a minimum investment in any of the
three asset classes described above, nor are we prohibited from
investing substantially all of our assets in a single class. The
allocation may shift at any time. In addition, we may
temporarily hold assets in cash or in money market instruments,
including U.S. Government obligations, repurchase agreements and
other short-term investments, to maintain liquidity or when we
believe it is in the best interest of shareholders to do so. The
Fund is a diversified portfolio.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 29 and the specific risks listed below. They are equally
important to your investment choice.
You should consider that we may incur a higher than average
portfolio turnover ratio due to allocation shifts recommended by
the model. Foreign obligations may entail additional risks. The
value of investments in options on stock indexes is affected by
price level movements for a particular index, rather than price
movements for an individual security.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Barclays Global Fund Advisors ("BGFA"), as the Sub-Advisor, uses
a proprietary investment model that analyzes extensive financial
data from numerous sources and recommends a portfolio allocation
for the Fund. The model incorporates assumptions for expected
risks and returns and investor attitudes for risk. The model is
run daily and recommendations are made in 5% increments. No
single person is primarily responsible for recommending either
the asset mix or the mix of securities within a class. The Fund
is not designed to profit from short-term market changes.
Instead, it is designed for investors with investment horizons
of three to five years.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Allocation Funds Prospectus 11
<PAGE>
Asset Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================
FOR A SHARE OUTSTANDING
=========================================================================================
CLASS A SHARES -- COMMENCED ON NOVEMBER 13, 1986
- -----------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Dec. 31, Dec. 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 20.30 $ 21.24 $ 20.74 $ 16.73 $ 18.80
- ------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.69 0.41 0.57 0.74 0.77
Net realized and
unrealized gain (loss)
on investments 6.37 0.65 0.50 4.07 (1.31)
- ------------------------------------------------------------------------------------------
Total from investment
operations 7.06 1.06 1.07 4.81 (0.54)
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.69) (0.41) (0.57) (0.74) (0.77)
Distributions from net
realized gain (1.68) (1.59) 0.00 (0.06) (0.76)
- ------------------------------------------------------------------------------------------
Total from distributions (2.37) (2.00) (0.57) (0.80) (1.53)
- ------------------------------------------------------------------------------------------
Net asset value, end of
period $ 24.99 $ 20.30 $ 21.24 $ 20.74 $ 16.73
- ------------------------------------------------------------------------------------------
Total return (not
annualized) 36.08% 4.94% 5.14% 29.18% (2.82)%
- ------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $1,305,848 $1,041,622 $1,057,346 $1,077,935 $896,943
- ------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.95% 0.92%/3/ 0.90%/3/ 0.84% 0.84%
Ratio of net investment
income to
average net assets 2.99% 3.91%/3/ 3.53%/3/ 3.81% 4.30%
- ------------------------------------------------------------------------------------------
Portfolio turnover 51% 5%/4/ 1%/4/ 15% 49%
- ------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed expenses N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
<CAPTION>
==========================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1997 1996 1995 1994
==========================================================================================
Returns for other share classes may vary 22.01% 11.65% 29.18% -2.82%
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/ 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/ Ratio includes income and expenses charged to the Master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
Portfolio turnover for the period from April, 1996 to September 30, 1996 was
28%.
12 Stagecoach Allocation Funds Prospectus
<PAGE>
Asset Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================================
FOR A SHARE OUTSTANDING
============================================================================================
Dec. 31, Dec. 31, Dec. 31, Dec.31, Dec. 31, Dec. 31,
For the period ended: 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period 17.89 $ 17.65 $ 14.45 $ 13.42 $ 12.00 $ 10.93
- ------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.77 0.87 0.92 0.91 0.93 0.72
Net realized and
unrealized gain (loss)
on investments 1.88 0.31 2.28 0.12 0.49 0.35
- ------------------------------------------------------------------------------------------------
Total from investment
operations 2.65 1.18 3.20 1.03 1.42 1.07
- ------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.87) 0.00 0.00 0.00 0.00 0.00
Distributions from net
realized gain (0.97) (0.07) 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
Total from distribution (1.74) (0.94) 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 18.80 $ 17.89 $ 17.65 $ 14.45 $ 13.42 $ 12.00
- ------------------------------------------------------------------------------------------------
Total return (not
annualized) 15.00% 7.00% 22.13% 7.68% 11.83% 9.79
- ------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $1,048,667 $542,226 $367,251 $261,881 $229,211 $172,326
- ------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.86% 0.95% 0.95% 0.96% 1.02% 1.00
Ratio of net investment
income to
average net assets 4.20% 5.22% 5.88% 6.59% 7.35% 6.23
- ------------------------------------------------------------------------------------------------
Portfolio turnover 40% 5% 25% 88% 117% 94%
- ------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.86% 0.97% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed expenses N/A N/A 4.20% 5.20% N/A N/A
- ------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================================
CLASS A SHARES CALENDAR YEAR
RETURNS 1993 1992 1991 1990 1989 1988
================================================================================================
Returns for other share classes 15.00% 7.00% 22.13% 7.68% 11.83% 9.79%
may 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/ 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/ Ratio includes income and expenses charged to the Master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
Portfolio turnover for the period from April, 1996 to September 30, 1996 was
28%.
Stagecoach Allocation Funds Prospectus 13
<PAGE>
Asset Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================
FOR A SHARE OUTSTANDING
==========================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
-------------------------------------------
March 31, March 31, Sept. 30, Dec. 31,
For a period ended: 1998 1997/1/ 1996/2/ 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.29 $12.84/2/ $12.50/3/ $ 10.00
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29 0.19 0.28 0.22
Net realized and unrealized gain
on investments 3.89 0.41 0.34 2.53
- ------------------------------------------------------------------------------------------
Total from investment operations 4.18 0.60 0.62 2.75
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.29) (0.19) (0.28) (0.22)
Distributions from net realized gain (1.02) (0.96) 0.00 (0.03)
- ------------------------------------------------------------------------------------------
Total from distributions (1.31) (1.15) (0.28) (0.25)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.16 $ 12.29 $ 12.84 $ 12.50
- ------------------------------------------------------------------------------------------
Total return (not annualized) 35.16% 4.62% 4.96% 27.72%
- ------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $267,060 $89,252 $63,443 $26,271
- ------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.60%/4/ 1.53%/3/ 1.14%/3/ 1.53%
Ratio of net investment income to
average net assets 2.15%/4/ 3.30%/3/ 3.37%/3/ 2.71%
- ------------------------------------------------------------------------------------------
Portfolio turnover 51%/5/ 5%/5/ 1%/5/ 15%
- ------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses N/A 1.58%/3/ 1.56%/3/ 1.76%
- ------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and N/A 3.25%/3/ 2.95%/3/ 2.48%
reimbursed expenses
- ------------------------------------------------------------------------------------------
</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/ Ratio includes income and expenses charged to the Master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover rate for the period from April, 1996 to September 30,
1996 was 28%.
/5/ Represents activity from the Master Portfolio.
14 Stagecoach Allocation Funds Prospectus
<PAGE>
This page intentionally left blank
- -------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 15
<PAGE>
Index Allocation Fund
- -------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- -------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Index Allocation Fund seeks to earn over the long-term a
high level of total return, that is, income and capital
appreciation combined, consistent with the assumption of
reasonable risk, by pursuing an "asset allocation" strategy
whereby its investments are allocated, based on changes in
market conditions, among three asset classes-common stocks in
the S&P 500 Index, U.S. Treasury Bonds and money market
instruments.
Investment Policies
We allocate and reallocate assets among common stocks, U.S.
Treasury bonds and money market instruments. This strategy is
based on the premise that, from time to time, certain asset
classes are more attractive long-term investments than others
and that timely shifts based on the relative over or under-
valuation of these classes may produce superior investment
returns.
- -------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] We invest in the following asset classes:
. Stock Investments--We invest in common stocks representative
of the S&P 500 Index. We do not individually select common
stock on the basis of traditional investment analysis.
Instead stock investments are made according to a weighted
formula intend to match the of the S&P 500 Index as closely
as possible.
. Bond Investments--We invest in U.S. Treasury bonds
representative of the Lehman Brothers 20+ Bond Index. Bonds
on this Index will have maturities of 20 years or more; and
. Money Market Investments--We invest this portion of the Fund
in high-quality money market instruments, including U.S.
Government obligations, obligations of foreign and domestic
banks, short-term corporate debt instruments and repurchase
agreements.
In addition, under normal market conditions, we invest:
. at least 65% of assets in stocks representative of the S&P
500 Index, the Lehman Brothers 20+ Bond Index or a
combination of both;
. in call and put options on stock indexes, stock index
futures,
16 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
options on stock index futures, interest rate and Interest
Rate Futures contracts as a substitute for a comparable
market position in stocks;
. in interest rate and Index Swaps; and
. up to 25% of total assets in obligations of foreign banks
qualifying as money market investments.
We manage the allocation of investments in the Fund's portfolio
based on the assumption that the Fund's "normal" allocation is
100% stocks and no bonds. This is not a "target" allocation but
rather a measure of the level of risk tolerance for the Fund.
We are not required to keep a minimum investment in any of the
three asset classes, nor are we prohibited from investing
substantially all of our assets in a single class. The asset
allocation may shift at any time. In addition, we may
temporarily hold assets in cash or in money market instruments,
including U.S. Government obligations, repurchase agreements and
other short-term investments, to maintain liquidity or when we
believe it is in the best interest of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 29 and the specific risks listed below. They are equally
important to your investment choice.
We may incur a higher than average portfolio turnover ratio due
to allocation shifts recommended by the model. Foreign
obligations may entail additional risks. Investments in options
on stock indexes depend on movements in the market in general,
or price level movements for a particular index, rather than
price movements for an individual issue.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Barclays Global Fund Advisors, as the sub-advisor, uses a
proprietary investment model that analyzes extensive financial
data from numerous sources and recommends a portfolio allocation
for the Fund. The model incorporates assumptions for expected
risks and returns and investor attitudes for risk. The model is
run daily and recommendations are made in 5% increments. No
person is primarily responsible for recommending either the
asset mix or the mix of securities within a class. The Fund is
not designed to profit from
Stagecoach Allocation Funds Prospectus 17
<PAGE>
Index Allocation Fund
- --------------------------------------------------------------------------------
responsible for recommending either the asset or the mix of
securities within a class. The Fund is not designed to profit
from short-term market changes. Instead, it is designed for
investors with investment horizons of three to five years. We
allocate investments among the asset classes described above.
The Fund does not attempt to replicate the performance of a
single index and is not an index fund.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
18 Stagecoach Allocation Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
Index Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES --
COMMENCED ON APRIL 7, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, Dec. 31, Dec. 30, Dec, 31, Dec. 31, Dec. 31,
For the period ended: 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.51 $ 13.99 $ 13.76 $ 10.67 $ 11.90 $ 11.45
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.01 0.28 0.29 0.28 0.31 0.30
Net realized and
unrealized gain (loss)
on investments 2.04 3.23 2.02 3.42 (0.39) 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (loss) 2.05 3.51 2.31 3.70 (0.08) 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.28) (0.29) (0.28) (0.31) (0.30)
Distributions from net
realized gain 0.00 (1.71) (1.79) (0.33) (0.84) (0.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.01) (1.99) (2.08) (0.61) (1.15) (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period 17.55 $ 15.51 $ 13.99 $ 13.76 $ 10.67 $ 11.90
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/1/ 13.23% 25.18% 17.04% 34.71% (0.68)% 12.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $92,733 $80,512 $60,353 $52,007 $40,308 $53,124
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 1.31% 1.26% 1.31% 1.30% 1.30% 1.36%
Ratio of net investment
income to
average net assets 0.30% 1.82% 2.06% 2.07% 2.41% 2.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 0% 80% 67% 47% 50% 53%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.32% 1.29% 1.44% 1.35% 1.38% 1.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed expenses 0.29% 1.79% 1.93% 2.02% 2.33% 2.53%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1997 1996 1995 1994 1993
====================================================================================================================================
Returns for other share classes may 25.18% 17.04% 34.71% -0.68% 12.54%
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/ Total returns do not include any sales charges. Total returns for periods
annualized.
20 Stagecoach Allocation Funds Prospectus
<PAGE>
Index Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES --
COMMENCED ON APRIL 7, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec., 31, Dec. 31,
For the period ended: 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.95 $ 10.31 $ 10.39 $ 10.17 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.47 0.57 0.63 0.67 0.28
Net realized and
unrealized gain (loss)
on investments 0.36 1.51 0.10 0.33 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (loss) 0.83 2.08 0.73 1.00 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.63) (0.44) (0.61) (0.63) (0.27)
Distributions from net
realized gain (0.70) 0.00 (0.20) (0.15) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.33) (0.44) (0.81) (0.78) (0.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $11.45 $ 11.95 $ 10.31 $ 10.39 $ 10.17
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/1/ 7.44% 20.69% 7.08% 10.23% 4.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period $41,165 $38,663 $27,689 $23,814 $13,220
(000s)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
annualized:
Ratio of expenses to average
net assets 1.25% 1.38% 1.59% 1.76% 1.76%
Ratio of net investment income
to average net assets 4.08% 5.23% 6.01% 6.44% 4.69%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38% 18% 94% 62% 200%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.71% 1.56% 1.74% 2.37% 3.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior
to waived fees and reimbursed
expenses 3.62% 5.05% 5.86% N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1992 1991 1990 1989
==================================================================================================================================
Returns for other share classes may 7.44% 20.69% 7.08% 10.23%
vary due 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/ Total returns do not include any sales charges. Total returns for periods
annualized.
Stagecoach Allocation Funds Prospectus 21
<PAGE>
Index Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS B SHARES -- COMMENCED CLASS C SHARES -- COMMENCED
For the period ended: ON DECEMBER 15, 1997 ON JULY 1, 1993
-----------------------------------------------------------------------------------
Mar. 31, Dec. 31, Mar. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.31 $ 18.99 $ 19.32 $ 17.42 $ 17.10 $ 13.26 $ 14.75 $15.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (0.01) 0.00 (0.02) 0.20 0.22 0.20 0.25 0.07
Net realized and unrealized gain
(loss) on investments 2.51 0.32 2.52 4.00 2.54 4.24 (0.45) 0.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (loss) 2.50 0.32 2.50 4.20 2.76 4.44 (0.20) 0.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 (0.20) (0.22) (0.20) (0.25) (0.10)
Distributions from net realized gain 0.00 0.00 0.00 (2.10) (2.22) (0.40) (1.04) (0.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions 0.00 0.00 0.00 (2.30) (2.44) (0.60) (1.29) (0.93)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.81 $ 19.31 $ 21.82 $ 19.32 $ 17.42 $ 17.10 $ 13.26 $14.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/1/ 12.95% 1.69% 13.00% 24.07% 16.37% 33.72% (1.38)% 4.56%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 3,322 $ 356 $56,164 $46,084 $24,655 $16,075 $ 9,798 $8,996
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets 2.06% 2.05% 2.05% 2.02% 2.05% 2.05% 2.01% 0.96%
Ratio of net investment income to
average net assets (0.43)% (0.17)% (0.44)% 1.00% 1.35% 1.30% 1.75% 0.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 0% 80% 0% 80% 67% 47% 50% 53%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 4.03% 15.17% 2.09% 2.05% 2.20% 2.17% 2.20% 1.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses (2.40)% (13.29)% (0.48)% 0.97% 1.20% 1.18% 1.56% 0.37%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
22 Stagecoach Allocation Funds Prospectus
Stagecoach Allocation Funds Prospectus 23
<PAGE>
U.S. Government Allocation Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The U.S. Government Allocation Fund seeks over the long-term a
high level of total return, including net realized and
unrealized capital gains and net investment income, consistent
with reasonable risk.
Investment Policies
We allocate and reallocate assets among long-term U.S. Treasury
bonds, intermediate-term U.S. Treasury notes, and short-term
money market instruments. This strategy is based on the premise
that asset classes are at times undervalued or overvalued in
comparison to one another and that investing in undervalued
asset classes offers better long-term, risk-adjusted returns.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] The asset classes we invest in are composed as follows:
. Long-Term Investments -- We invest in U.S. Treasury bonds
representative of the Lehman Brothers 20+ Bond Index. Bonds
on this Index have maturities of twenty years or more.
. Intermediate-Term Investments -- We invest in U.S. Treasury
securities representative of the Lehman Brothers U.S.
Government Intermediate Bond Index. Bonds on this Index have
maturities of one to twenty years.
. Short-Term Investments -- We invest in high-quality money
market instruments, including U.S. Government obligations,
obligations of foreign and domestic banks, short-term
corporate debt instruments and repurchase agreements.
In addition, under normal market conditions, we invest:
. at least 65% of total assets in U.S. Government obligations;
and
. up to 25% of total assets in foreign obligations qualifying
as money market investments.
As long as we keep 65% of assets in U.S. Government obligations,
we are not required to keep a minimum investment in any of the
three asset classes, nor are we prohibited from investing
substantially all of our assets in a single asset class. The
allocation may shift at any time. In addition, we may
temporarily hold assets in cash or in money market instruments,
including U.S. Government obligations,
24 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
repurchase agreements and other short-term investments, to
maintain liquidity or when we believe it is in the best interest
of shareholders to do so. The Fund is a diversified portfolio.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 29 and the specific risks listed below. They are equally
important to your investment choice.
We may incur a higher than average portfolio turnover ratio due
to allocation shifts recommended by the model. Foreign
obligations may entail additional risks.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Barclays Global Fund Advisors, as the Sub-Advisor, uses a
proprietary investment model that analyzes extensive financial
data from numerous sources and recommends a portfolio
allocation. The model incorporates assumptions for expected
risks and returns and investor attitudes for risk. The model is
run daily and recommendations are made in 5% increments. No
person is primarily responsible for recommending either the
asset mix or the mix of securities within a class. The Fund is
not designed to profit from short-term market changes. Instead,
it is designed for investors with investment horizons of three
to five years.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Allocation Funds Prospectus 25
<PAGE>
U.S. Government Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================================
FOR A SHARE OUTSTANDING
=============================================================================================
CLASS A SHARES -- COMMENCED
ON MARCH 31, 1987
-----------------------------------------------------------
Mar. 31, Mar. 31, Sep. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $14.32 $14.48 $14.98 $13.76 $ 15.71 $15.41
- ---------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.77 0.42 0.59 0.79 0.87 0.96
Net realized and unrealized
gain (loss)
on investments 0.55 (0.16) (0.50) 1.22 (1.95) 1.69
- ---------------------------------------------------------------------------------------------
Total from investment
operations 1.32 0.26 0.09 2.01 (1.08) 2.65
- ---------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.77) (0.42) (0.59) (0.79) (0.87) (0.96)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 (1.39)
- ---------------------------------------------------------------------------------------------
Total from distributions (0.77) (0.42) (0.59) (0.79) (0.87) (2.35)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $14.87 $14.32 $14.48 $14.98 $ 13.76 $15.71
- ---------------------------------------------------------------------------------------------
Total return (not annualized) 9.36% 1.75% 0.69% 14.91% (6.99)% 17.46%
- ---------------------------------------------------------------------------------------------
Net assets, end of
period (000s) $82,958 $86,930 $98,741 $135,577 $140,066 $283,206
- ---------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 1.16% 1.00%/3/ 1.12%/3/ 1.04% 1.01% 0.99%
Ratio of net investment
income to
average net assets 5.21% 5.70%/3/ 5.45%/3/ 5.41% 5.94% 5.92%
- ---------------------------------------------------------------------------------------------
Portfolio turnover 62% 113%/5/ 31%/4/ 292% 112% 150%
- ---------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.26% 1.31%/3/ 1.20%/3/ 1.07% 1.08% 1.02%
- ---------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed expenses 5.11% 5.39%3 5.37%3 5.38% 5.87% 5.89%
- ---------------------------------------------------------------------------------------------
<CAPTION>
=============================================================================================
1997 1996 1995 1994 1993
=============================================================================================
Returns for other share classes 6.96% 3.48% 14.91% -6.99% 17.46
may vary due to different fees
and expenses. returns reflect fee
waivers and reimbursements, do
not reflect sales loads and are
not a guarantee of future
performance.
- ---------------------------------------------------------------------------------------------
</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/ Ration includes and expenses charged to the master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
Portfolio turnover for he period from April 28, 1996 to September 30, 1996
was 87%.
/5/ Reflects activity of the Master Portfolio.
26 Stagecoach Allocation Funds Prospectus
<PAGE>
U.S. Government Allocation Fund Financial Highlights
See "Historical Fund Information" on page 49.
See "How to Read the Financial Highlights" on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================
CLASS A SHARES -- COMMENCED
ON MARCH 31, 1987
--------------------------------------------------
Dec. 31, Dec. 31, Mar. 31, Dec. 31, Dec. 31,
For the period ended: 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $15.41 $13.14 $12.49 $11.05 $10.34
- -------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.87 0.94 0.92 0.93 0.87
Net realized and unrealized
gain (loss)
on investments 0.04 1.33 (0.27) 0.51 (0.16)
- -------------------------------------------------------------------------------------
Total from investment
operations 0.91 2.27 0.65 1.44 0.71
- -------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.87) 0.00 0.00 0.00 0.00
Distributions from net
realized gain (0.04) 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------
Total from distributions (0.91) 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------
Net asset value, end of period $15.41 $15.41 $13.14 $12.49 $11.05
- -------------------------------------------------------------------------------------
Total return (not annualized) 6.30% 17.21% 5.20% 13.03% 6.87%
- -------------------------------------------------------------------------------------
Net assets, end of
period (000s) 127,504 $30,098 $19,777 $14,367 $ 10,330
- -------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 1.00% 1.01% 1.03% 1.05% 0.99%
Ratio of net investment
income to
average net assets 6.06% 6.77% 7.34% 7.90% 8.04%
- -------------------------------------------------------------------------------------
Portfolio turnover 33% 147% 558% 17% 42%
- -------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.08% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed expenses 5.98% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------
<CAPTION>
=============================================================================================
1992 1991 1990 1989 1988
=============================================================================================
<S> <C> <C> <C> <C> <C>
Returns for other share classes 6.30% 17.21% 5.20% 13.03% 6.87%
may vary due to different fees
and expenses. returns reflect fee
waivers and reimbursements, do
not reflect sales loads and are
not a guarantee of future
performance.
- ---------------------------------------------------------------------------------------------
</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/ Ration includes and expenses charged to the master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
Portfolio turnover for he period from April 28, 1996 to September 30, 1996
was 87%.
/5/ Reflects activity of the Master Portfolio.
Stagecoach Allocation Funds Prospectus 27
<PAGE>
U.S. Government Allocation Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial Highlights"
on page 49. on page 56.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================================
FOR A SHARE OUTSTANDING
============================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
---------------------------------------------
March 31, March 31, Sept. 30, Dec. 31,
For a period ended: 1998 1997/1/ 1996/2/ 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.42 $10.54 $10.91 $10.00
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.49 0.27 0.36 0.49
Net realized and unrealized gain (loss)
on investments 0.40 (0.12) (0.37) 0.91
- --------------------------------------------------------------------------------------------
Total from investment operations 0.89 0.15 (0.01) 1.40
- --------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.49) (0.27) (0.36) (0.49)
Distributions from net realized gain 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------
Total from distributions (0.49) (0.27) (0.36) (0.49)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.82 $10.42 $10.54 $10.91
- --------------------------------------------------------------------------------------------
Total return (not annualized) 8.64% 1.42% 0.11% 14.11%
- --------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $14,144 $ 7,221 $ 6,406 $4,077
- --------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.82%/4/ 1.61%/3/ 1.92%/3/ 1.65%
Ratio of net investment income to
average net assets 4.40%/4/ 5.12%/3/ 4.60%/3/ 4.31%
- --------------------------------------------------------------------------------------------
Portfolio turnover 62%/5/ 113%/5/ 31%/4/ 292%
- --------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 2.08%/4/ 2.28%/3/ 2.21%/3/ 2.36%
- --------------------------------------------------------------------------------------------
Ratio of net investment income to average
to assets prior to waived fees and 4.14%/4/ 4.45%/3/ 4.31%/3/ 3.60%
reimbursed expenses
- --------------------------------------------------------------------------------------------
</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/ Ratio includes income and expenses charged to the Master Portfolio.
/4/ Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover for the period from April 28, 1996 to September 30, 1996
was 87%.
/5/ Reflects activity of the Master Portfolio.
28 Stagecoach Allocation Funds Prospectus
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk 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 selling agents or investment
advisors, offer or promise to make good any such losses.
. Share prices-- and therefore the value of your investment--will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as price 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 Asset Allocation and Index Allocation Funds invest in equities which
are subject to equity market risk. This is the risk that stock prices will
fluctuate and can decline and reduce the value of the portfolio. Certain
types of stock and certain stocks selected for a Fund's portfolio may
underperform or decline in value more than the overall market. As of the
date of this Prospectus, the equity market, as measured by the S&P 500
Index and other commonly used indexes, is trading at or close to record
levels. There can be no guarantee that these performance levels will
continue.
. The Funds invest in debt instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer
or changes in the credit rating of a security may affect its value.
Interest rate risk is the possibility that interest rates may increase and
reduce the resale value of securities in a Fund's portfolio. Debt
instruments with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Changes in market interest
rates do not affect the rate payable on debt instruments held in a Fund,
unless the instrument has adjustable or
Stagecoach Allocation Funds Prospectus 29
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
variable rate features. Changes in market interest rates may also extend or
shorten the duration of certain types of instruments, such as asset-backed
securities, thereby affecting their value and the return on your
investment.
. The Asset Allocation and Index Allocation Funds invest in smaller
companies, foreign companies (including investments made through American
Depositary Receipts and similar instruments), and emerging markets that are
subject to additional risks, including less liquidity and greater price
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 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 and the risks associated
with them. 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.
30 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Diplomatic Risk-- The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
Experience Risk-- The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
Information Risk-- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk-- The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
Leverage Risk-- The risk that a practice may increase the Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting the price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
Political Risk-- The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's industry,
government or markets.
Regulatory Risk-- The risk that changes in government regulations will adversely
affect the value of a security. Also the risk that an insufficiently
regulated market might permit inappropriate trading practices.
Year 2000 Risk-- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided to
the Funds depend on the proper functioning of computer systems. Any failure to
adapt these systems in time could hamper the Fund's operations and services.
The Funds' principal service providers have advised the Funds that they are
working on the necessary changes to their systems and that they expect their
systems to be adapted in time. There can, of course, be not assurance of
success. In addition, because the Year 2000 issue affects virtually all
organizations and governments, the companies or entities in which the Funds
invest also could be adversely impacted by the Year 2000 issue. The extent of
such impact cannot be predicted.
Stagecoach Allocation Funds Prospectus 31
<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 Objective
and Investment Policies sections of the Prospectus. The risks
indicated after the description of the practice are NOT the only
potential risks associated with that practice, but are among the more
prominent. Market risk is assumed for each. See the Investment
Objective and Investment Policies for each Fund or the Statement of
Additional Information for more information on these practices.
Remember, each Fund is designed to meet different investment needs and
has a different investment objective and investment policy. Each Fund
engages in the investment practices described below to varying
degrees.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in
a particular Fund. See the "Important Risk Factors" in the summary for
each Fund. You should also see the Statement of Additional Information
for additional Information about the investment practices and risks
particular to each Fund.
Investment practices and risk levels are carefully monitored. We
attempt to ensure that the risk exposure for each Fund remains within
the parameters of its objective.
========================================================================
32 Stagecoach Allocation Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
ASSET INDEX U.S. GOVERNMENT
ALLOCATION ALLOCATION ALLOCATION
================================================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================================================
<S> <C> <C> <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 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 Funds,
will be borne by Fund shareholders.
- ----------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES
Securities in a dollar-denominated Information, Political, . . .
debt of non-U.S. companies or Regulatory, Liquidity,
foreign governments. Diplomatic and Currency Risk
- ----------------------------------------------------------------------------------------------------------------
OPTIONS
The right or obligation to receive Credit, Information and
or deliver a security or cash Liquidity Risk
payment depending on the security's
price or the performance of an index
or benchmark.
-------------------------------------------------------------------------------------------------------------
Stock Index Futures . .
Options on Stock Index Futures . .
Index Swaps . . .
Interest Rate Futures . . .
Interest Rate Futures Options . . .
Interest Rate Swaps . . .
- ----------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, Counter-Party . . .
to brokers, dealers and financial and Leverage Risk
institutions to increase return on
those securities. Loans may be
made in accordance with existing
investment policies.
- ----------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk . . .
of 20% (10% for Index Allocation)
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. Limited to 15% of assets for
Asset Allocation and U.S. Government
Allocation Funds and 10% of assets
for Index Allocation Fund.
- ----------------------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Allocation Funds Prospectus 33
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
. Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
. Class B Shares - with a contingent deferred sales charge ("CDSC") that
diminishes over time, and higher on-going expenses than Class A shares.
. Class C Shares - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest.
If so, then consider Class B or Class C shares. Please note that Class B shares
convert to Class A shares after six years to avoid the higher on-going
expenses assessed against Class B shares.
Class C shares are available for Asset Allocation and Index Allocation Funds.
They are similar to Class B shares, with some important differences. Unlike
Class B shares, Class C shares do not convert to Class A shares. The higher on-
going expenses will be assessed as long as you hold the shares. The choice
between Class B and Class C shares may depend on how long you intend to hold
Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following sales charge
schedule before making your decision. You should also review the "Reduced Sales
Charges" section of this Prospectus. You may wish to discuss this choice with
your financial consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
34 Stagecoach Allocation Funds Prospectus
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
================================================================================
CLASS A SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING SALES CHARGE
SCHEDULE:
================================================================================
FRONT-END SALES FRONT-END SALES DEALER ALLOWANCE
CHARGE AS CHARGE AS AS % OF
AMOUNT % OF PUBLIC % OF NET PUBLIC OFFERING
OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
- --------------------------------------------------------------------------------
Less than $50,000 4.50% 4.71% 4.00%
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.125%
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- --------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- --------------------------------------------------------------------------------
/1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges
are based on the lower of the NAV on the date of purchase or the date of
redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based
on how long you have held your shares. Certain exceptions apply (see "Class B
and Class C share CDSC Reductions" and "Waivers for Certain Parties"). The
CDSC schedule is as follows:
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
REDEMPTIONS WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
- --------------------------------------------------------------------------------
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the Class B shares are converted to Class A
shares to reduce your future on-going expenses.
Stagecoach Allocation Funds Prospectus 35
<PAGE>
- --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of
1.00%.
The CDSC you pay is based on the lower of the NAV on the date of the original
purchase, or the NAV on the date of redemption. The distributor pays sales
commissions of up to 1.00% of the purchase price of Class C shares to selling
agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
36 Stagecoach Allocation Funds Prospectus
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than
for Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of these potential
reductions when you are deciding which share class to buy.
Class A Share Reductions:
. You pay no sales charges on Fund shares you buy with reinvested
distributions.
. You pay a lower sales charge if you are investing an amount over a breakpoint
level. See the "Class A Share Sales Charge Schedule" above.
. By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
. Rights of Accumulation (ROA) allow you to combine the amount you invest
with the total NAV of shares you own in other Stagecoach front-end load
Funds in order to reach breakpoint levels for a reduced load. We give you a
discount on the entire amount of the investment that puts you over the
breakpoint level.
. If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have
120 days to reinvest the proceeds of that redemption with no sales charge
into a Fund that charges the same or a lower front-end sales charge. If you
use such a redemption to purchase shares of a Fund with a higher front-end
sales charge, you will have to pay the difference between the lower and
higher charge.
. You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for
which Wells Fargo Bank acts as trustee provided the distribution occurred
within the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
Stagecoach Allocation Funds Prospectus 37
<PAGE>
- --------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
. a family unit, consisting of a husband and wife and children under the age of
twenty-one or single trust estate;
. a trustee or fiduciary purchasing for a single fiduciary relationship; or
. the members of a "qualified group" which consists of a "Company" (as
defined in the Investment Company Act of 1940 ("1940 Act"), and related
parties of such a "Company", which has been in existence for at least six
months and which has a primary purpose other than acquiring Fund shares at
a discount.
========================================================================
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in a Stagecoach Fund in
installments over the next year, by signing a letter of intent you
would pay only a 3.50% sales load on the entire purchase. Otherwise,
you might pay 4.50% on the first $50,000, then 4.00% on the next
$49,999!
========================================================================
38 Stagecoach Allocation Funds Prospectus
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions:
. You pay no CDSC on Funds shares you purchase with reinvested distributions.
. We waive the CDSC for all redemptions made because of scheduled or mandatory
distributions for certain retirement plans. (See your retirement plan
disclosure for details.)
. We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability" is
defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the direction of Stagecoach Funds
in order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
. We waive the Class C share CDSC for certain types of accounts.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
. Current and retired employees, directors and officers of:
. Stagecoach Funds and its affiliates;
. Wells Fargo Bank and its affiliates;
. Stephens and its affiliates; and
. Broker-Dealers who act as selling agents.
. The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews, fathers-
in-law, mothers-in-law, brothers-in-law and sisters-in-law of either the
spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom the
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
Stagecoach Allocation Funds Prospectus 39
<PAGE>
- --------------------------------------------------------------------------------
Class B shares you purchased prior to March 3, 1997 are subject to a CDSC if
they are redeemed within four years of purchase. The CDSC schedule for these
shares is below:
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
REDEMPTIONS WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
The above schedule does not apply for any new shares purchased. If you exchange
Class B shares for Class B shares of another Fund, you will retain the above
CDSC schedule on your exchanged shares, but additional shares of the newly
purchased Fund will age at the higher CDSC schedule.
40 Stagecoach Allocation Funds Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment; or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and applications for the program through
which you intend to invest.
Stagecoach Allocation Funds Prospectus 41
<PAGE>
Your Account
- --------------------------------------------------------------------------------
Important Information:
. Read this Prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your selling agent or by calling 1-800-222-8222.
. We process requests to buy or sell shares each business day as of the
close of regular trading on the New York Stock Exchange ("NYSE") which is
usually 1:00 PM (Pacific time). Any request we receive in proper form
before the close of regular trading on the NYSE is processed the same day.
Requests we receive after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
. We determine the NAV of each class of the Funds' shares each business day
as of the close of regular trading on the NYSE. 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.
. We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-
222-8222) if you are investing directly with Stagecoach Funds, or speak to
your selling agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without completing a new application.
. We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We may reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
42 Stagecoach Allocation Funds Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
BY MAIL
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest.
- ---------------------------------------------- Mail to:
Enclose a check for at least $1,000 made out Stagecoach Funds
in the full name and share class of the Fund. PO Box 7066
For example, "Stagecoach Asset Allocation, San Francisco, CA
Class B". 94120-9201
- ----------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application. You Mail to:
must wire at least $1,000. Be sure to indicate Stagecoach Funds
the Fund name and the share class into which PO Box 7066
you intend to invest. San Francisco, CA
- ---------------------------------------------- 94120-9201
Mail the completed application.
- ---------------------------------------------- Fax to:
You may also fax the completed application 1-415-546-0280
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number:
name your account is registered in. 121000248
- ----------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated on
Application)
---------------------------------------
Stagecoach Allocation Funds Prospectus 43
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- ---------------------------------------------
You can only make your first purchase of a
Fund by phone if you already have an existing
Stagecoach Account.
- ----------------------------------------------
Call Investor Services and instruct the Call:
representative to either: 1-800-222-8222
. transfer at least $1,000 from a linked
settlement account, or
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund. Please
see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Fund shares held
through brokerage and other types of accounts, please consult your selling
agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the Fund
you wish to redeem and the dollar amount
($100 or more) of the redemption you wish to
receive (or write "Full Redemption").
- ----------------------------------------------
Make sure all the account owners sign the
request.
- ---------------------------------------------- Mail to:
You may request that redemption proceeds be Stagecoach Funds
sent to you by check, by ACH transfer into a PO Box 7066
bank account, or by wire ($5,000 minimum). San Francisco, CA
Please call Investor Services regarding 94120-9201
requirements for linking bank accounts or for
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- ----------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage house.
We do not accept notarized signatures.
- --------------------------------------------------------------------------------
44 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption
of at least $100. Be prepared to provide your
account number and Taxpayer Identification
Number.
- ----------------------------------------------
Unless you have instructed us otherwise, only
one account owner needs to call in redemption
requests.
- ----------------------------------------------
You may request that redemption proceeds be
sent to you by check, by transfer into an
ACH-linked bank account, or by wire ($5,000
minimum). Please call Investor Services
regarding requirements for linking bank
accounts or for wiring funds. We reserve the
right to charge a fee for wiring funds
although it is not currently our practice
to do so. Call:
- ---------------------------------------------- 1-800-222-8222
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or
subsequently in writing.
- ----------------------------------------------
Phone privileges allow us to accept
transaction instructions by anyone representing
themselves as the shareholder and who provides
reasonable confirmation of their identity,
such as providing the Taxpayer Identification
Number on the account. We will not be liable
for any losses incurred if we follow
telephone instructions we reasonably
believe to be genuine.
- ----------------------------------------------
Telephone requests are not accepted if the
address on your account was changed by phone
in the last 15 days.
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the NYSE are processed on the same business day.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of regular trading on the NYSE
which is generally 1:00 PM Pacific time.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 days so that
we may be reasonably certain that investments made by check or AutoSaver have
been collected. Payments of redemptions may also 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 to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 45
<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 exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.5% schedule).
. If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
. Exchanges between Class B shares, between Class C shares or between either
Class B or Class C shares and a Stagecoach money market fund will not
trigger the CDSC. The new shares will continue to age according to their
original schedule while in the new Fund and will be charged the CDSC
applicable to the original shares upon redemption. This also applies to
exchanges of Class A shares that are subject to a CDSC.
. Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes to the Fund's exchange privileges.
. You may make exchanges between like share classes. You may also exchange
from Class A, B or C shares and non-Institutional class shares to a non-
institutional money market fund.
46 Stagecoach Allocation Funds Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Investor Services at 1-
800-222-8222 if you wish to change or add linked accounts.
. Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or
transfer it into your linked bank account. In order to set up a Systematic
Withdrawal Program, you:
. must have a Fund account valued at $10,000 or more;
. must have distributions reinvested; and
. may not be simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the linked
account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option - Lets you buy new shares of the same class
of the Fund that generated the distributions. The new shares are purchased
at NAV generally on the day the income is paid. This option is
automatically assigned to your account unless you specify another plan.
. Fund Purchase Plan - Uses your distributions to buy shares at NAV of
another Stagecoach Fund of the same share class or a money market fund. You
must have already satisfied the minimum investment requirements of the Fund
into which your distributions are being transferred in order to
participate.
. Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the
ACH system. If your specified bank account is closed, we will reinvest your
distributions.
Stagecoach Allocation Funds Prospectus 47
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
. Check Payment Option - Allows you to receive checks for distributions
mailed to your address of record or to another name and address which you
have specified in written, signature guaranteed instructions. If checks
remain uncashed for six months or are undeliverable by the Post Office, we
will reinvest the distributions at the earliest date possible.
========================================================================
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share
by the amount distributed. Also, distributions on new shares shortly
after purchase would be in effect a return of capital, although the
distribution may still be taxable to you.
========================================================================
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by 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 capital
gain distributions. In general, these distributions will be taxable to you as
long-term capital gains which may qualify for taxation at preferential rates in
the hands of non-corporate shareholders. However, distributions declared in
October, November and December and distributed by the following January will be
taxable as if they were paid on December 31 of the year in which they were
declared. We will notify you annually as to the status of your Fund
distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
48 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Your redemptions and exchanges of Fund shares 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 taxes. In certain
circumstances, U.S. residents will be subject to back-up withholding.
Historical Fund Information
Index Allocation Fund-- Commenced operations on April 7, 1988, as the Asset
Allocation Fund of Overland Express Funds, Inc., another investment company
advised by Wells Fargo Bank. In February of 1997, the Fund changed its name to
the "Index Allocation Fund". On December 12, 1997, the Overland Express Fund was
reorganized as a Fund of Stagecoach Funds. Performance for the period prior to
December 15, 1997, reflects the performance of the Overland Fund. The Fund's
manager has voluntarily waived or reimbursed expenses to the Fund; without these
reductions, the Fund's performance would have been lower.
Asset Allocation and U.S. Government Allocation Funds-- Financial information
for fiscal periods prior to, and including, 1991 is based on the financial
information for the Asset Allocation Fund of the Wells Fargo Investment Trust
for Retirement Programs and the Fixed-Income Strategy Fund of the Trust, which
were reorganized into the Asset Allocation and U.S. Government Allocation Funds,
respectively, on January 2, 1992. From the period from April 28, 1996 to
December 15, 1997, the Asset Allocation Fund and the U.S. Government Allocation
Fund invested all of their assets in master portfolios with corresponding
investment objectives. The Funds no longer invest in a master portfolio.
Currently, and for periods prior to April 28, 1996, the Funds invest directly in
a portfolio of securities.
Wells Fargo & Company/Norwest Mergers-- Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and must be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level of quality of advisory and other
services provided by Wells Fargo Bank to the Funds.
Share Class-- This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds may offer additional share classes with
different expenses and returns than those described here. Call Stephens at
1-800-643-9691 for information on these or other investment options in
Stagecoach Funds.
Stagecoach Allocation Funds Prospectus 49
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Conversion of Class B shares-- We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed to
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value-- Due to the expense involved in maintaining
low-balance accounts, we reserve the right to close accounts that have fallen
below the $1,000 minimum balance due to redemptions (as opposed to
market conditions). You will be given an opportunity to make additional
investments to prevent account closure before any action is taken.
Statements-- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement
policies. The Fund will also send any necessary tax reporting documents in
January, and will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees-- Stephens, as the Fund's
distributor, will pay the portion of the Class A share sales charge shown as the
Dealer Allowance to the selling agent, if any. Stephens also compensates selling
agents for the sale of Class A shares of Index Allocation, Class B and Class C
shares and is reimbursed through Rule 12b-1 fees and contingent deferred sales
charges. Selling agents may receive different compensation for sales of Class
A, Class B and Class C shares of the same Fund. Stephens may, from time to
time, pay additional compensation to selling agents that will not exceed the
maximum compensation permitted under Rule 12b-1.
Statement of Additional Information-- Additional information about
some of the topics discussed in this Prospectus as well as details about
performance calculations, distribution plans, servicing plans, tax issues and
other important issues are available in the Statement of Additional Information
for each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and
special counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that
Wells Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
50 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
performance calculations, distribution plans, servicing plans, tax issues and
other important issues are available in the Statement of Additional
Information for each Fund. The Statement of Additional Information should be
read along with this Prospectus and may be obtained free of charge by calling
Investor Services at 1-800-222-8222.
Glass Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future federal
or state laws may prevent these entities from continuing in their roles.
Voting Rights-- All shares of the Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for 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.
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT SERVICING AGENTS
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Barclay Global Fund Advisors, 45 Fremont Street, San Francisco, CA
Manages the Funds' investment activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Barclay's Global Investors, N.A.
San Francisco, CA 45 Fremont St., San Francisco, CA
Manages the Funds' Provides safekeeping for the
investment activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
52 Stagecoach Allocation Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. Wells Fargo Bank, founded
in 1852, is the oldest bank in the western United States and is one of the
largest banks in the United States. Wells Fargo Bank is a wholly owned
subsidiary of Wells Fargo & Company, a national bank holding company. As of
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion in
assets. The Funds paid Wells Fargo Bank the following for advisory services for
the last fiscal year:
- --------------------------------------------------------------------------------
Asset Allocation Fund .36%
- --------------------------------------------------------------------------------
Index Allocation Fund .70%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .50%
- --------------------------------------------------------------------------------
The amount paid by the Asset Allocation Fund is after fee waivers.
The Sub-Advisor
Barclays Global Fund Advisors ("BGFA"), a wholly owned subsidiary of Barclays
Global Investors and an indirect subsidiary of Barclays Bank PLC, is the sub-
advisor for each of the Funds. BGFA was created from the reorganization of Wells
Fargo Nikko Investment Advisors, a former affiliate of Wells Fargo Bank. As of
April 30, 1998, BGFA managed or provided investment advice for assets
aggregating in excess of $575 billion. For providing sub-advisory services to
the Asset Allocation and Index Allocation Funds, BGFA is entitled to receive
from Wells Fargo Bank .20% of each Fund's assets up to $500 million, .15% from
$500 million to $1 billion, and .10% of assets in excess of $1 billion. For
providing sub-advisory services to the U.S. Government Allocation Fund, BGFA is
entitled to receive from Wells Fargo Bank .05% of the Fund's assets up to $100
million, .04%, from $100 million up to $150 million, and .03% of the Fund's
assets in excess of $150 million.
Stagecoach Allocation Funds Prospectus 53
<PAGE>
- --------------------------------------------------------------------------------
The Funds paid BGFA the following for sub-advisory services for the last fiscal
year:
- --------------------------------------------------------------------------------
Asset Allocation Fund .17%
- --------------------------------------------------------------------------------
Index Allocation Fund .21%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .13%
- --------------------------------------------------------------------------------
The Administrator
Wells Fargo Bank is the administrator of the Funds. Wells Fargo Bank is paid
.03% of each Fund's assets for these services. Prior to February 1, 1998, Wells
Fargo Bank was entitled to receive .04% of each Fund's assets for administration
services.
The Distributor and Co-Administrator
Stephens is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator. Stephens also receives
all loads, CDSCs and distribution plan fees. It uses a portion of these amounts
to compensate selling agents for their role in marketing the Funds' shares.
Prior to February 1, 1998, Stephens Inc. was entitled to receive .02% of each
Fund's assets for co-administration services.
Distribution Plan
We have adopted distribution plans for the Funds. For Class A shares of the
Asset Allocation and U.S. Government Allocation Funds, these plans are used to
defray all or part of the cost of preparing and distributing prospectuses and
promotional materials. For Class A, Class B and Class C shares of the Index
Allocation Fund, these plans are used to pay for distribution-related services,
including on-going compensation to selling agents. Each Fund may participate in
joint distribution activities with other Stagecoach Funds. The cost of these
activities is generally allocated among the Funds. Funds with higher asset
levels pay a higher proportion of these costs. The fees paid under these plans
are as follows:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Asset Allocation Fund .05% .70% .75%
- --------------------------------------------------------------------------------
Index Allocation Fund .25% .75% .75%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .05% .70% N/A
- --------------------------------------------------------------------------------
54 Stagecoach Allocation Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements with
various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services. For the Class A shares of the Index Allocation Fund, the Fund has a
Shareholder Administrative Servicing Plan. Where fees are paid pursuant to this
Plan, no fees are paid pursuant to any Distribution Plan applicable to these
shares.
For these services each Fund pays as follows:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Asset Allocation Fund .30% .30% .25%
- --------------------------------------------------------------------------------
Index Allocation Fund .25% .25% .25%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .30% .30% N/A
- --------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 55
<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 Funds. The
financial statements from which these Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, with the exception of the Class A Calendar-
Year returns, or as indicated. The financial statements are included in each
Fund's most recent Annual or Semi-Annual Report and are available free of
charge by calling 1-800-222-8222. Other auditors audited financial statements
for the Asset Allocation and U.S. Government Allocation 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 more detailed definition.
Net Investment Income-- Net investment income is calculated by subtracting the
aggregate Fund expenses from the Fund's investment income. The number in the
financial highlights is the net investment income of a class divided by the
number of outstanding shares of that class. The amount distributed to
shareholders is listed under the heading "Less Distributions--Dividends from
Net Investment Income."
Net Realized and Unrealized Gains (Loss) on Investments-- We continually buy and
sell investments. The profit on an investment sold for more than its purchase
price is a realized capital gain while a loss on an investment sold for less
than its purchase price is a realized capital loss. An unrealized gain or loss
occurs when an investment gains or loses value but is not sold. The amount of
capital gain or loss per share that was paid to shareholders is listed under the
heading "Less Distributions--Distributions From Net Realized Gains."
Net Assets-- The value of the investments in a Fund's portfolio (after
accounting for expenses) that are attributable to a particular class of the
Funds.
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.
56 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Portfolio Turnover-- Portfolio turnover reflects the trading activity in the
Fund's portfolio and is expressed as a percentage of a Funds' 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.
Stagecoach Allocation Funds Prospectus 57
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and
perform other tasks.
American Depositary Receipts ("ADRs")
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically
held in bank vaults. The ADRs' 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 Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the "NYSE" is open is a business day for the Funds.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "total return".
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "total return".
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund or portfolio, as defined by the Investment Company Act of
1940, 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.
58 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Index Swaps
The exchange with another party of cash flows based on the performance of an
index of securities or a portion of an index that usually includes dividends or
income.
Interest Rate Futures
Agreements to buy or sell finance instruments or cash at a particular time and
price based on movements in interest rate. Unlike Options, in which the holder
may or may not execute the right, a futures contract must be fulfilled.
Interest Rate Swaps
Involve the exchange between parties of their respective commitments to pay or
receive interest.
Investment Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment grade bonds may have some speculative
characteristics.
Lehman Brothers 20+ Bond Index
An unmanaged index composed of U.S. Treasury bonds with 20 years or longer dates
to maturity.
Liquidity
The ability to readily sell a security at a fair price.
Moody's
A nationally recognized ratings organizations.
Stagecoach Allocation Funds Prospectus 59
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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 "NYSE" is open, typically 1:00 p.m. (Pacific time).
Non-Diversified
Any fund that does not have a policy as described under "diversified" in this
Glossary.
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
An entity appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
60 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
S&P 500 Index
An unmanaged index of stocks comprised of 500 companies, including industrial,
financial, utility and transportation companies.
Statement of Additional Information
A document that supplements the disclosures made in this Prospectus.
Stock Index Futures and Options on Stock Index Futures
A stock index future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Fund.
Turnover Ratio
The percentage of the securities held in a Fund's portfolio, other than short-
term securities, that were bought or sold within a year.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Stagecoach Allocation Funds Prospectus 61
<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
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
===============================================================
STAGECOACH FUNDS:
---------------------------------------------------------------
. are NOT insured by the FDIC.
. are NOT obligations or deposits of Wells Fargo Bank, nor
guaranteed by the Bank.
. involve investment risk, including possible loss of principal.
===============================================================
[LOGO OF RECYCLED PAPER] SC AAP (8/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS/R/
August 1, 1998
Stagecoach
Equity Funds
Prospectus
Balanced Fund Please read this Prospectus and keep it for
future reference. It is designed to provide
Equity Value Fund you with important information and to help you
decide if a FundOs 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(OSECO), any state
securities commission or any other regulatory
Institutional Class authority, nor have any of these authorities
passed upon the accuracy or adequacy of this
Investment Advisor Prospectus. Any representation to the contrary
and Administrator: is a criminal offense.
Wells Fargo Bank
Fund shares are NOT deposits or other
Investment obligations of, or issued, endorsed or
Sub-Advisor: guaranteed by, Wells Fargo Bank, N.A. (OWells
Fargo BankO), or any of its affiliates. Fund
Wells Capital shares are NOT insured or guaranteed by the
Management U.S. Government, the Federal Deposit Insurance
Corporation (OFDICO), the Federal Reserve
Distributor and Board or any other governmental agency. AN
Co-Administrator: INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in Oplain EnglishO 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 FundOs
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 FundOs key permitted investments and practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for the 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 about these Funds?
Each Fund has a OStatement of Additional InformationO 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. The Statement of Additional Information and
other information for the funds is available on the SECOs web site
(http://www.sec.gov).
<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 your How to Sell Shares 31
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 Highlights 40
organization of
the Funds and Glossary 42
term definitions.
<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 to accept the risk that you may lose the money you
invest;
. 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 Funds 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. ("Stagecoach").
Dividends
We pay dividends, if any, quarterly for the Funds listed on the cover of this
Prospectus, except for the Small Cap Fund, which pays annual dividends.
Capital gains, if any, are distributed at least annually.
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.
- -------------------------------------------------------------------------------
Balanced Equity Growth Small Cap
Fund Value Fund Fund Fund
- -------------------------------------------------------------------------------
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 ASSETS)
===============================================================================
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
- -------------------------------------------------------------------------------
Management fee
(after waivers) 0.57% 0.50% 0.50% 0.50%
- -------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.61% 0.58% 0.52% 0.26%
- -------------------------------------------------------------------------------
Total fund operating expenses
(after waivers or reimbursements) 1.18% 1.08% 1.02% 0.76%
- -------------------------------------------------------------------------------
Management fee
(before waivers) 0.60% 0.50% 0.50% 0.60%
- -------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.61% 0.58% 0.52% 0.66%
- -------------------------------------------------------------------------------
Total fund operating expenses
(before waivers or reimbursements) 1.21% 1.08% 1.02% 1.26%
- -------------------------------------------------------------------------------
6 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
===============================================================================
You would pay the following
expenses on a $1,000
investment assuming a 5%
annual return and that you
redeem your shares at the Balanced Equity Growth Small Cap
end of each period. Fund Value Fund Fund Fund
- -------------------------------------------------------------------------------
1 year $ 12 $ 11 $ 10 $ 8
- -------------------------------------------------------------------------------
3 years $ 37 $ 34 $ 32 $ 24
- -------------------------------------------------------------------------------
5 years $ 65 $ 60 $ 56 $ 42
- -------------------------------------------------------------------------------
10 years $143 $132 $125 $ 94
- -------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 7
<PAGE>
Balanced Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 2/97)
Scott Smith (since 2/98)
Gregg Giboney (since 8/98)
- -------------------------------------------------------------------------------
[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 FundOs
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 are trading at low price-to-earnings ratios, as
measured against the stock market as a whole or against the
individual stockOs own price history. In addition we look at
price-to-book and price-to-cash flow ratios of companies for
indications of attractive valuation. 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
PERCENTAGE
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 with
market capitalization exceeding $50 million companies at the
time of purchase; and
. foreign companies through American Depositary Receipts
and similar instruments, up to 25% of total assets.
8 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Under normal market conditions we invest the fixed-income
portion of the Fund's portfolio in:
. 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
interests of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] 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 choice.
Historically, stock and bond markets have often had different
cycles, with one rising while the other falls. A balanced
objective attempt 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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Scott Smith is the manager of the income portion of the Fund.
Rex Wardlaw and Gregg Giboney are co-managers of the equity
portion of the Fund. Together, they 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>
Balanced Fund Financial Highlights
See "Historical Fund Information" on page 33.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED INVESTOR SHARES
ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------------
Mar 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.00 $ 11.45 $ 11.84 $ 11.67 $ 12.71 $ 11.18
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
Net investment income (loss) 0.40 0.21 0.40 0.463 0.433 0.443
Net realized and unrealized gain
(loss) on investments 2.74 0.74 0.89 0.683 (0.13)3 1.723
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.14 0.95 1.29 1.14 0.30 2.16
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.40) (0.21) (0.40) (0.47) (0.46) (0.43)
Distributions from net realized gain (1.48) (0.19) (1.28) (0.50) (0.88) (0.20)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.88) (0.40) (1.68) (0.97) (1.34) (0.63)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.26 $ 12.00 $ 11.45 $ 11.84 $ 11.67 $ 12.71
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 27.67% 8.27% 10.80% 10.62% 2.30% 19.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $51,241 $55,456 $72,327 $89,034 $108,290 $104,434
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets 0.99% 0.95% 0.94% 1.03% 1.09% 1.01%
Ratio of net investment income to
average net assets 3.05% 3.30% 3.29% 4.05% 3.55% 3.62%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 67% 43% 131% 90% 35% 60%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.21% 1.18% 1.11% 1.05% 1.11% 1.06%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses (loss) 2.83% 3.07% 3.12% 4.03% 3.53% 3.57%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
===================================================================================================================================
Returns for other share classes may vary due to 17.76% 16.39% 17.71% -3.80% 18.71%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
10 Stagecoach Equity Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================
=====================================================================================
INVESTOR SHARES
----------------------------------------------
Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1992 1991 1990
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.80 $ 9.50 $ 10.00
- -------------------------------------------------------------------------------------
Income from investment
Net investment income (loss) 0.42/3/ 0.52 0.14
Net realized and unrealized gain
(loss) on investments 0.53/3/ 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%
- -------------------------------------------------------------------------------------
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 (loss) 3.60% 5.66% 5.20%
- -------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1992 1991
=====================================================================================
Returns for other share classes may vary due to 8.79% 18.53%
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>
Stagecoach Equity Funds Prospectus 11
<PAGE>
Equity Value Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 1/97)
Allen Wisniewski (since 9/96)
Gregg Giboney (since 8/98)
- --------------------------------------------------------------------------------
[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 are trading at low price-to-earnings ratios, as measured
against the stock market as a whole or against the individual
stockOs own price history. In addition we look at the price-to-
book and price-to-cash flow ratios of companies for indications
of attractive valuation. We use both quantitative and
qualitative analysis to identify possible investments. Dividends
are a secondary consideration when selecting stocks. We may
purchase particular stocks when we believe that a history of
strong dividends may increase their market value.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. primarily in common stocks of both panies and smaller
companies with exceeding $50 million at large, well-
established com- market capitalizations the time of purchase;
. in debt instruments that may be stock of both U.S. and
foreign converted into the common companies; and
. up to 25% of our assets in foreign Depositary Receipts and
similar companies through American instruments.
We may also purchase convertible securities with the same
characteristics as common stock, as well as 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>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] 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 choice.
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.
- -------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Our strategy of buying attractive stocks selling at low
price-to-earnings ratios 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>
Equity Value Fund Financial Highlights
See "Historical Fund Information" on page 33.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED INVESTOR SHARES
ON OCTOBER 1, 1995
--------------------------------------------------------------------------------------------
Mar 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.43 $ 12.65 $ 13.27 $ 12.36 $ 13.17 $ 10.73
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
Net investment income (loss) 0.20 0.09 0.22 0.24/3/ 0.20/3/ 0.21/3/
Net realized and unrealized gain
(loss) on investments 5.58 1.89 1.61 1.63/3/ 0.74/3/ 2.75/3/
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.78 1.98 1.83 1.87 0.94 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.08) (0.23) (0.25) (0.21) (0.23)
Distributions from net realized gain (1.86) (0.12) (2.22) (0.71) (1.54) (0.29)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions (2.06) (0.20) (2.45) (0.96) (1.75) (0.52)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.15 $ 14.43 $ 12.65 $ 13.27 $ 12.36 $ 13.17
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 42.02% 15.73% 14.58% 16.58% 7.49% 28.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $228,452 $193,161 $206,620 $170,406 $168,852 $140,551
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets 0.95% 0.95% 0.87% 0.96% 0.99% 0.98%
Ratio of net investment income to
average net assets 1.18% 1.25% 1.69% 1.97% 1.60% 1.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50% 45% 91% 75% 41% 82%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 0.98% 0.99% 0.92% 0.98% 1.01% 0.99%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses (loss) 1.15% 1.21% 1.64% 1.95% 1.58% 1.72%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
===================================================================================================================================
Returns for other share classes may vary due to 27.46% 26.69% 24.37% -1.71% 25.82%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
14 Stagecoach Equity Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 40.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================
=====================================================================================
INVESTOR SHARES
----------------------------------------------
Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1992 1991 1990
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.45 $ 8.48 $ 10.00
- -------------------------------------------------------------------------------------
Income from investment
Net investment income (loss) 0.90/3/ 0.28 0.08
Net realized and unrealized gain
(loss) on investments 0.49/3/ 1.98 (1.60)
- -------------------------------------------------------------------------------------
Total from investment operations 0.69 2.26 (1.52)
- -------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22) (0.29) --
Distributions from net realized gain (0.19) -- --
- -------------------------------------------------------------------------------------
Total from distributions (0.41) (0.29) --
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 10.73 $ 10.45 $ 8.48
- -------------------------------------------------------------------------------------
Total return (not annualized) 6.81% 27.05% (15.20)%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $92,915 $68,412 $26,100
- -------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets 1.02% 0.98% 0.91%
Ratio of net investment income to
average net assets 1.86% 2.69% 3.38%
- -------------------------------------------------------------------------------------
Portfolio turnover 78% 36% 21%
- -------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.02% 1.11% 1.86%
- -------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses (loss) 1.86% 2.56% 2.43%
- -------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1992 1991
=====================================================================================
Returns for other share classes may vary due to 10.54% 20.79%
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/ 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 stocks 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 dividend
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 stockOs 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
PERCENTAGE
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 total assets in issues of companies with
market capitalizations that fall within the range of the
Russell 1000 Index (as of June 1998, this range was from $470
million to $296 billion. The range is expected to change
frequently.);
. up to 25% of our total assets in American Depositary Receipts
and similar instruments; and
. up to 15% of our total 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 interests
of shareholders to do so.
16 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] 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 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.
- -------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] We have a quarterly dividend policy. The Fund is not suitable
for investors requiring monthly income. Prior to December 15,
1997, the Fund was called 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 "Historical Fund See "How to Read Financial
Information" on page 33. Highlights" on page 40.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON SEPTEMBER 1, 1995
----------------------------------------------------------------
March 31, March 31, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 22.52 $ 21.01 $ 20.03
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.09 0.02
Net realized and unrealized gain
on investments 7.25 1.57 0.97
- -------------------------------------------------------------------------------------------------------
Total from investment operations 7.42 1.66 0.99
- -------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.17) (0.09) (0.01)
Distributions from net realized gain (3.86) (0.06) 0.00
- -------------------------------------------------------------------------------------------------------
Total from distributions (4.03) (0.15) (0.01)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 25.91 $ 22.52 $ 21.01
- -------------------------------------------------------------------------------------------------------
Total return (not annualized) 34.86% 7.92% 3.41%
- -------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $18,180 $19,719 $18,508
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets 0.99% 1.01% 0.96%
Ratio of net investment income to
average net assets 0.65% 0.78% 1.27%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 137% 40% 83%
- -------------------------------------------------------------------------------------------------------
Average commission rate paid ($) $ 0.08 $0.07 $0.0702
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
<CAPTION>
=======================================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996
=======================================================================================================
Returns for other share classes may vary due to 19.31% 21.48%
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./3/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed fiscal year-end from December 31 to September 30.
/3/ For the period prior to September 6, 1996, this figure reflects the
performance and expenses of the FundOs 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 common stocks
issued by companies whose market capitalization falls within the
range of the Russell 2000 Index. We will sell the stock of any
company whose market capitalization exceeds the range of this
index for sixty consecutive days. As of June 30, 1998, the range
was $110 million to $2.5 billion, but it is expected to change
frequently.
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
PERCENTAGE
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
and American Depositary Receipts or similar issues;
. up to 15% of our portfolio in emerging markets.
We may invest in preferred stock or investment-grade debt
securities that are convertible into common stock, and in money
market instruments to maintain liquidity, to meet expected
redemption requests or as a temporary defensive measure when we
believe that the basic investment strategy is not in the best
interests of shareholders.
20 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
Generally, these defensive investments are temporary and will not exceed 35% of
total assets.
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] 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 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 new
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 may 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 seeking current income.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 21
<PAGE>
Small Cap Fund Financial Highlights
See "Historical Fund Information" See "How to Read Financial Highlights"
on page 33. on page 40.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================
FOR A SHARE OUTSTANDING
=====================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON SEPTEMBER 16, 1996
---------------------------------------------
March 31, Mar 31, Sept. 30,
For the period ended: 1998 1997/1/ 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) 0.00 (0.02) 0.00
Net realized and unrealized gain
(loss) on investments 8.84 (3.46) 0.44
- -------------------------------------------------------------------------------------
Total from investment operations 8.84 (3.44) 0.44
- -------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.01) 0.00 0.00
Distributions from net realized gain (2.07) 0.00 0.00
- -------------------------------------------------------------------------------------
Total from distributions (2.08) 0.00 0.00
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 25.77 $ 19.01 $ 22.45
- -------------------------------------------------------------------------------------
Total return (not annualized) 47.70% (15.32)% 2.00%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $78,856 $29,200 $24,553
- -------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets/2/ 0.75% 0.75% 1.60%
Ratio of net investment income to
average net assets/2/ 0.01% 0.16% (1.15)%
- -------------------------------------------------------------------------------------
Portfolio turnover/3/ 291% 69% 10%
- -------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses/2/ 1.26% 1.65% 1.63%
- -------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses/2/ (0.50)% (0.74)% (1.18)%
- -------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996 1995
=====================================================================================
Returns for other share classes may vary 11.57% 23.45% 69.60%
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./4/
- -------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end to March 31.
/2/ Ratio includes income and expenses allocated from the Master Portfolio.
/3/ Reflects activity of the Master Portfolio.
/4/ Performance shown 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.
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 risk tolerance and preferences.
You should carefully consider the 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 price 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 Depositary 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. GovernmentOs guarantee does not extend to the
Funds themselves.
. 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 and the risks associated
with them. 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.
Emerging Market Risk-- The risk that the emerging market, as defined in the
glossary, may be more sensitive to certain economic changes. For example,
emerging market countries are often dependent on international trade and are
therefore often vulnerable to recessions in other countries. They may have
obsolete financial systems, have volatile currencies and may be more sensitive
than more mature markets to a variety of economic factors. Emerging market
securities may also be less liquid than securities of more developed countries
and could be difficult to sell, particularly during a market downturn.
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.
Year 2000 Risks-- Many computer software systems in use today cannot distinguish
the year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any fail-
26 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
ure to adapt these systems in time could hamper the Funds' operations and
services. The Funds' principal service providers have advised the Funds that
they are working on the necessary changes to their system and that they expect
their systems to be adapted in time. There can, of course, be no assurance of
success. In addition, because the Year 2000 issue affects virtually all
organizations and governments, the companies or entities in which the Funds
invest also could be adversely impacted by the Year 2000 issue. The extent of
such impact cannot be predicted.
=======================================================================
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>
General Investment Risks
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY SMALL
BALANCED VALUE GROWTH CAP
====================================================================================================================================
INVESTMENT PRACTICE: RISK:
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are Interest Rate and . . . .
adjusted either on a schedule or when an Credit Risk
index or benchmark changes.
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a Credit and . . . .
security agrees to buy back a security Counter-Party Risk
at an agreed upon time and price, usually
with interest.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk . . . .
another mutual fund. A pro rata portion
of the other fund's expenses, in
addition to the expenses paid by the Funds,
will be borne by Fund shareholders.
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES
Securities issued by a non-U.S. company Information, Political, . . . .
or debt of a foreign government in the form Regulatory, Diplomatic,
of an American Depositary Receipt or similar Liquidity and Currency Risk
instrument. Limited t25% of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
Investments in companies located or Information, Political, . .
in countries considered developing or to have Regulatory, Diplomatic
"emerging" stock markets. Generally, these and Currency Risk
investments have the same type of risks as
foreign securities, but to a higher degree.
Limited to 15% of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
OPTIONS
The right or obligation to receive or deliver Credit, Information Leverage
a security or cash payment depending on the and Liquidity Risk
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 traded but Liquidity Risk . . . .
which may e resold in accordance with Rule
144A of the Securities Act of 1933.
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loan securities to broker's Credit, Counter-Party . . . .
dealers and financial institutions to and Leverage Risk
increase return on those securities. Loans
may be made in accordance with existing
investment policies and may not exceed
33 1/3 of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of Leverage Risk . . . .
10% of total assets from banks for temporary
purposes to meet shareholder redemptions.
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, Liquidity Risk . . . .
or cannot be readily sold without negatively
affecting its fair price. Limited to 10% of
total assets for the Growth Fund, and limited to
15% of total 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 ("NYSE"), 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 NYSE. 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 Account
- --------------------------------------------------------------------------------
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
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>
Your Fund Account
- --------------------------------------------------------------------------------
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 from an Institution in proper form before the
close of the NYSE, 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 15 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 such
distributions when determining their federal taxable income.
We will pass on to you any net capital gains earned by a Fund as capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. However, distributions declared in
October, November and December and distributed by the following January will be
taxable as if they were paid on December 31 of the year in which they were
declared. We will notify you annually as to the status of your Fund
distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Your redemptions and exchanges of Fund shares 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 taxes. In certain circumstances,
U.S. residents will be subject to back-up withholding taxes.
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 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
Stagecoach Equity Funds Prospectus 33
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Capital Management, Inc. ("FICM"). In connection with the merger of First
Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was renamed
Wells Fargo Investment Management, Inc.
Equity Value Fund-- The Fund operated as a series of Pacifica Funds Trust from
its commencement of operations 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.
Growth Fund-- The financial information for the fiscal periods prior to, and
including, 1991 is based on the financial information for the Select Stock Fund
of the Wells Fargo Investment Trust for Retirement Programs which was
reorganized into the Growth Stock Fund on January 2, 1992.
Small Cap Fund-- On December 12, 1997, the Overland Express Small Cap Strategy
Fund was merged into the Small Cap Fund of 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.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Funds.
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
34 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
================================================================================
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 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 Provide services
distributes shares, business of shares and to customers
and manages the activities supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market Street, San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
36 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of 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
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion in
assets. The Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the last fiscal year:
- --------------------------------------------------------------------------------
Balanced Fund .57%
- --------------------------------------------------------------------------------
Equity Value Fund .50%
- --------------------------------------------------------------------------------
Growth Fund .50%
- --------------------------------------------------------------------------------
Small Cap Fund* .50%
- --------------------------------------------------------------------------------
*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 Sub-Advisor
Wells Capital Management ("WCM"), a wholly owned subsidiary of Wells Fargo Bank,
is the sub-advisor for each of the Funds. As of August 1, 1998 WCM provided
investment advice for assets aggregating in excess of $32 billion. For
providing sub-advisory services to the Funds, WCM is entitled to receive from
Wells Fargo Bank .25% of each Funds' assets up to the first $200 million, .20%
of the next $200 million in assets, and .15% of all assets above $400 million.
WCM receives a minimum annual sub-advisory fee of $120,000 per Fund for its
services. This minimum annual fee payable to WCM does not increase the advisory
fees paid by each Fund to Wells Fargo Bank.
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.
Stagecoach Equity Funds Prospectus 37
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
The Distributor and Co-Administrator
Stephens is the Funds' distributor and co-administrator. Stephens receives .04%
of each Funds' assets for its role as co-administrator.
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, CFA
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 1996. Was with First Interstate Capital Management
prior to 1996.
. Allen Wisniewski, CFA
Member of Los Angeles Society of Financial Analysts
With Wells Fargo since 1987.
. Gregg Giboney, CFA
With Wells Fargo since 1996. Was with First Interstate Capital Management
prior to 1996.
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, with the exception of the Institutional Share Calendar
year returns, or 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 more detailed 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.
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.
40 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
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
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial advisor.
American Depositary 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 Funds.
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".
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
42 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 of 1940, 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 international financial
organization, such as the International Finance Corporation, the International
Bank for Reconstruction and Development, and the international financial
community to have an "emerging" stock market. Such markets may be under-
capitalized, have less-developed legal and financial systems or may have less
stable currencies than markets in the developed world.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. mutual funds are not FDIC insured.
Stagecoach Equity Funds Prospectus 43
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Initial Public Offering
The first time a company's stock is offered for sale to the public.
Investment-Grade
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 a fair price.
Moody's
A nationally recognized ratings organization.
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 NYSE is open, typically 1:00 PM (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.
Price-to-Earnings Ratio
The ratio between a stock's price and its historical, current or anticipated
earnings. Low ratios typically indicate a high yield. High ratios are a
characteristic of growth stocks which generally have low current yields.
44 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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
A nationally recognized ratings organization. S&P 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.
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 Funds.
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 market
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 strategy of investing which tries to identify and buy undervalued stocks under
the assumption that the stock will eventually rise to its fair market 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>
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 (8/98)
Printed on Recycled Paper
<PAGE>
August 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
Diversified Equity you with important information and to help you
Income Fund decide if a Fund's goals match your own.
Equity Value Fund These securities have not been approved or
disapproved by the U.S. Securities and
Growth Fund Exchange Commission ("SEC"), any state
securities commission or any other regulatory
International Equity authority, nor have any of these authorities
Fund passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary
Small Cap Fund is a criminal offense.
Strategic Fund shares are NOT deposits or other
Growth Fund obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), Wells Capital Management
Class A, Class B and Incorporated ("Wells Capital Management" or
Class C "WCM"), or any of their affiliates. Fund
shares are NOT insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance
Investment Advisor Corporation ("FDIC"), the Federal Reserve
and Administrator: Board or any other governmental agency. AN
INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
Wells Fargo Bank INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Investment Sub-
Advisor:
Wells Capital
Management
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 the 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 about these Funds?
Each Fund has a Statement of Additional Information that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Balanced Fund 10
This section Diversified Equity Income Fund 14
contains important
information about Equity Value Fund 18
the individual
Funds. Growth Fund 22
International Equity Fund 26
Small Cap Fund 29
Strategic Growth Fund 33
General Investment Risks 38
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 43
Turn to this section Reduced Sales Charges 46
for information on how
to open and maintain Your Account 50
your account,
including how to buy, How to Buy Shares 52
sell and exchange
Fund shares. Selling Shares 53
Exchanges 55
Additional Services and
Other Information 56
- --------------------------------------------------------------------------------
Reference Organization and
Management of the Funds 61
Look here for
details on the How to Read the Financial Highlights 66
organization of
the Funds and Glossary 68
term definitions.
<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 to accept the risk that you may lose the money you invest;
. you are unwilling to accept the risks involved in the securities markets; or
. you are seeking monthly dividend income.
Who are "We"?
In this Prospectus, "We" generally means the Stagecoach Funds. "We" sometimes
refers to the Investment Advisor or other companies hired by the Fund to perform
services. The section on "Organization and Management of the 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. ("Stagecoach").
Dividends
We pay dividends, if any, quarterly for the Funds listed on the cover of this
Prospectus, except for the International Equity, Small Cap and Strategic Growth
Funds, for which we pay dividends annually. Capital gains, if any, are
distributed at least annually.
4 Stagecoach Equity Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
Equity 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.
- ------------------------------------------------------------------------------------
Balanced Fund Diversified Equity
Income Fund
--------------------------------------------
Class A Class B Class A Class B
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 5.25% None 5.25% None
- ------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None
- ------------------------------------------------------------------------------------
Maximum sales charge on a:
Redemption during first year None 5.00% None 5.00%
Redemption after first year None 4.00% None 4.00%
- ------------------------------------------------------------------------------------
Exchange fees None None None None
- ------------------------------------------------------------------------------------
<CAPTION>
====================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
====================================================================================
Expenses shown "after waivers" reflect amounts paid by each Fund during the
prior fiscal period. They have been restated to reflect current expenses and
fee waivers. Expenses shown "before waivers" reflect contract amounts and
amounts paid during the prior fiscal period. Expense waivers and reimbursements
are voluntary and may be discontinued without prior notice. Long-term
shareholders of Class B and Class C shares may pay more than the equivalent of
the maximum front-end sales charge allowed by the National Association of
Securities Dealers, Inc.
- ------------------------------------------------------------------------------------
Balanced Fund Diversified Equity
Income Fund
--------------------------------------------
Class A Class B Class A Class B
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rule 12b-1 fee 0.10% 0.75% 0.05% 0.70%
- ------------------------------------------------------------------------------------
Management fee
(after waivers) 0.57% 0.57% 0.50% 0.50%
- ------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.61% 0.61% 0.65% 0.68%
- ------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.28% 1.93% 1.20% 1.88%
- ------------------------------------------------------------------------------------
Management fee
(before waivers) 0.60% 0.60% 0.50% 0.50%
- ------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.70% 0.94% 0.65% 0.68%
- ------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.40% 2.29% 1.20% 1.88%
- ------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Equity Value Fund Growth Fund International Equity Fund
---------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 5.25% None None 5.25% None 5.25% None None
- -------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None None None None
- -------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on a:
Redemption during first year None 5.00% 1.00% None 5.00% None 5.00% 1.00%
Redemption after first year None 4.00% None None 4.00% None 4.00% None
- -------------------------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None None None
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund Growth Fund International Equity Fund
--------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.10% 0.75% 0.75% 0.05% 0.70% 0.10% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.50% 0.50% 0.50% 0.50% 0.50% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.48% 0.48% 0.48% 0.57% 0.59% 0.65% 0.65% 0.65%
- ------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.18% 1.83% 1.83% 1.12% 1.79% 1.75% 2.40% 2.40%
- ------------------------------------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.58% 0.58% 0.58% 0.58% 0.60% 1.10% 1.09% 1.09%
- ------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.18% 1.83% 1.83% 1.13% 1.80% 2.20% 2.84% 2.84%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund Strategic Growth Fund
--------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 5.25% None None 5.25% None None
- -------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None None
- -------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on a:
Redemption during first year None 5.00% 1.00% None 5.00% 1.00%
Redemption after first year None 4.00% None None 4.00% None
- -------------------------------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund Strategic Growth Fund
--------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.10% 0.75% 0.75% 0.10% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.76% 0.86% 0.86% 0.69% 0.76% 0.76%
- ------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.36% 2.11% 2.11% 1.29% 2.01% 2.01%
- ------------------------------------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.60% 0.60% 0.60% 0.50% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.87% 0.86% 1.31% 0.69% 0.76% 0.76%
- ------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.57% 2.21% 2.66% 1.29% 2.01% 2.01%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 7
<PAGE>
Equity Funds Summary of Expenses (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER
OR LOWER THAN THOSE SHOWN.
==============================================================================================================================
You would pay the following expenses Balanced Fund Diversified Equity Equity Value Fund Growth Fund
on a $1,000 investment assuming a 5% Income Fund
annual return and that you redeem -------------------------------------------------------------------------------------
your shares at the end of each period. Class A Class B Class A Class B Class A Class B Class C Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 65 $ 70 $ 64 $ 69 $ 64 $ 69 $ 29 $ 63 $ 68
- ------------------------------------------------------------------------------------------------------------------------------
3 years $ 91 $ 91 $ 89 $ 88 $ 88 $ 88 $ 58 $ 86 $ 86
- ------------------------------------------------------------------------------------------------------------------------------
5 years $119 $124 $115 $122 $114 $119 $ 99 $111 $117
- ------------------------------------------------------------------------------------------------------------------------------
10 years $199 $193 $190 $186 $188 $182 $215 $182 $177
- ------------------------------------------------------------------------------------------------------------------------------
<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 Balanced Fund Diversified Equity Equity Value Fund Growth Fund
on a $1,000 investment assuming a 5% Income Fund
annual return and that you do not
redeem your shares at the end of -------------------------------------------------------------------------------------
each period. Class A Class B Class A Class B Class A Class B Class C Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 65 $ 20 $ 64 $ 19 $ 64 $ 19 $ 19 $ 63 $ 18
- ------------------------------------------------------------------------------------------------------------------------------
3 years $ 91 $ 61 $ 89 $ 59 $ 88 $ 58 $ 58 $ 86 $ 56
- ------------------------------------------------------------------------------------------------------------------------------
5 years $119 $104 $115 $102 $114 $ 99 $ 99 $111 $ 97
- ------------------------------------------------------------------------------------------------------------------------------
10 years $199 $193 $190 $186 $188 $182 $215 $182 $177
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
International Equity Fund Small Cap Fund Strategic Growth Fund
-------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 69 $ 74 $ 34 $ 66 $ 71 $ 31 $ 65 $ 70 $ 30
- ------------------------------------------------------------------------------------------------------------------------------
3 years $105 $105 $ 75 $ 93 $ 96 $ 66 $ 91 $ 93 $ 63
- ------------------------------------------------------------------------------------------------------------------------------
5 years $142 $148 $128 $123 $133 $113 $120 $128 $108
- ------------------------------------------------------------------------------------------------------------------------------
10 years $248 $243 $274 $207 $207 $244 $200 $198 $234
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
International Equity Fund Small Cap Fund Strategic Growth Fund
-------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 69 $ 24 $ 24 $ 66 $ 21 $ 21 $ 65 $ 20 $ 20
- ------------------------------------------------------------------------------------------------------------------------------
3 years $105 $ 75 $ 75 $ 93 $ 66 $ 66 $ 91 $ 63 $ 63
- ------------------------------------------------------------------------------------------------------------------------------
5 years $142 $128 $128 $123 $113 $113 $120 $108 $108
- ------------------------------------------------------------------------------------------------------------------------------
10 years $248 $243 $274 $207 $207 $244 $200 $198 $234
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 9
<PAGE>
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 2/97)
Scott Smith (since 2/98)
Gregg Giboney (since 8/98)
- --------------------------------------------------------------------------------
[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 fixed-income securities. By actively
managing both the equity and fixed-income portion of the Fund's
portfolio and the allocation mix, we hope to achieve a high
total return, including both distributions and growth in share
values. We invest the equity portion of our portfolio in equity
securities that are trading at low price-to-earnings ratios, as
measured against the stock market as a whole or against the
individual stock's own price history. In addition we look at
price-to-book and price-to-cash flow ratios of companies for
indications of attractive valuation. 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:
. primarily in common stocks of both large, well-established
companies and smaller companies with market capitalization
exceeding $50 million at the time of purchase; and
. in foreign companies through American Depositary 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:
10 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 interests of shareholders to do so .
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 38 and the specific risks listed below.
They are both important to your investment choice.
Historically, stock and bond markets have often had different
cycles, with one rising while the other falls. 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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Scott Smith is the manager of the income portion of the
Fund. Rex Wardlaw and Gregg Giboney are co-managers of the
equity portion of the Fund. Together, they determine the
portfolio's asset allocation.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 11
<PAGE>
Balanced Fund Financial Highlights
See "Historical Fund Information" on page 58.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================================
CLASS A SHARES -- COMMENCED
ON JULY 2, 1990
- ------------------------------------------------------------------------------------------------------------------------
Mar. 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.01 $ 11.46 $ 11.84 $ 11.67 $ 12.71 $ 11.18
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.19 0.36 0.46/3/ 0.43/3/ 0.44/3/
Net realized and unrealized gain (loss)
on investments 2.76 0.74 0.89 0.68/3/ (0.13)/3/ 1.72/3/
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.14 0.93 1.25 1.14 0.30 2.16
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.38) (0.19) (0.35) (0.47) (0.46) (0.43)
Distributions from net realized gain (1.49) (0.19) (1.28) (0.50) (0.88) (0.20)
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions: (1.87) (0.38) (1.63) (0.97) (1.34) (0.63)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.28 $ 12.01 $ 11.46 $ 11.84 $ 11.67 $ 12.71
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 27.49% 8.15% 10.51% 10.62% 2.30% 19.83%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $34,952 $31,632 $32,640 $89,034 $108,290 $104,434
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.12% 1.05% 1.31% 1.03% 1.09% 1.01%
Ratio of net investment income to
average net assets 2.91% 3.20% 2.98% 4.05% 3.55% 3.62%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 67% 43% 131% 90% 35% 60%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.40% 1.30% 1.48% 1.05% 1.11% 1.06%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 2.63% 2.95% 2.81% 4.03% 3.53% 3.57%
expenses (loss)
=========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
=========================================================================================================================
Returns for other share classes may vary due to 17.64 15.99% 17.63% -3.80% 18.71%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
12 Stagecoach Equity Funds Prospectus
<PAGE>
Balanced Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================================
CLASS B SHARES -- COMMENCED
ON SEPTEMBER 6, 1996
- -------------------------------------------------------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Mar. 31, Sept. 30, Sept. 30,
For the period ended: 1992 1991 1990 1998 1997/1/ 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.80 $ 9.50 $ 10.00 $10.79 $ 10.24 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42/3/ 0.52 0.14 0.19 0.08 0.00
Net realized and unrealized gain (loss)
on investments 0.53/3/ 1.40 (0.64) 2.55 0.72 0.24
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.95 1.92 (0.50) 2.74 0.80 0.24
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.43) (0.62) 0.00 (0.19) (0.08) 0.00
Distributions from net realized gain (0.14) 0.00 0.00 (1.34) (0.17) 0.00
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.57) (0.62) 0.00 (1.53) (0.25) 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.18 $ 10.80 $ 9.50 $12.00 $ 10.79 $10.24
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 9.03% 20.78% (5.00)% 26.64% 7.84% 2.40%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $65,226 $ 50,038 $33,185 $9,145 $ 297 $ 2
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.02% 0.96% 0.93% 1.82% 1.70% 0.00%
Ratio of net investment income to
average net assets 3.76% 5.88% 5.87% 2.15% 2.48% 3.09%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 49% 30% 12% 67% 43% 131%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.10% 1.18% 1.60% 2.29% 7.85% 0.66%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 3.68% 5.66% 5.20% 1.68% (3.67)% 2.43%
expenses (loss)
=========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1992 1991
=========================================================================================================================
Returns for other share classes may vary due to 8.79% 18.53%
different fees and expenses. These returns
reflect fee waivers and reimbursements, do not
reflect sales loads and are not a guarantee of
future performance.
- -------------------------------------------------------------------------------------------------------------------------
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ Per share data are based upon average monthly shares outstanding.
</TABLE>
Stagecoach Equity Funds Prospectus 13
<PAGE>
Diversified Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Allen Wisniewski (since 11/92)
Rex Wardlaw (since 2/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Diversified Equity Income Fund seeks to earn current income
and a growing stream of income over time, consistent with the
preservation of capital.
Investment Policies
We actively manage a diversified portfolio of income-producing
equity securities. In selecting stocks we emphasize dividend
histories and trends. We also look for 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,
a history of profit growth, and relatively high dividends.
We may also invest in the following income producing debt
securities:
. U.S. Government obligations;
. a broad range of debt instruments, including bonds and other
debt obligations of domestic corporations;
. U.S. dollar-denominated debt instruments of foreign issuers,
including foreign governments and companies; and
. various asset-backed securities.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
. at least 65% of our total assets in equity securities;
. at least 90% of our equity portfolio in issues of companies
with market capitalization that falls within the range of the
Russell 1000 Index (as of June 1998, this range was from $470
million to $296 billion. The range is expected to change
frequently);
. up to 25% of our total assets in foreign companies through
American Depositary Receipts and similar instruments;
. up to 15% of our total assets in emerging markets;
. most of our debt portfolio in companies and government
entities located within the United States;
. generally all of our debt portfolio in instruments rated at
14 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
the time of acquisition in the four highest credit categories
by one or more nationally recognized ratings organizations,
or in unrated instruments determined by Wells Fargo Bank to
be of comparable quality; and
. up to 20% of our nonconvertible debt portfolio in instruments
rated at the time of purchase in the highest four credit
categories.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other
short-term investments, either to maintain liquidity or for
short-term defensive purposes when we believe it is in the best
interests of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 38 and the specific risks listed below. They are both
important to your investment choice.
You should also consider that stocks selected for their high
dividend yields may be more sensitive to changes in interest
rates than other stocks. Also, stocks of smaller and medium-
sized companies selected for their earnings growth potential may
be more volatile than larger company stocks. Investments in
foreign and emerging markets may also present special risks,
including currency, political, diplomatic, regulatory and
liquidity risks.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN]
We have a quarterly dividend policy. You should not invest in
the Fund if you are looking for monthly income, nor should you
invest if you are looking for higher than average levels of
capital growth. Prior to December 15, 1997, the Fund was known
as the "Diversified Income Fund."
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 15
<PAGE>
Diversified Equity Income Fund Financial Highlights
See "How to Read the Financial Highlights" on page 58.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS A SHARES -- COMMENCED
ON NOVEMBER 18, 1992
-------------------------------------------------------------------------------------
March 31, March 31, Sept 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 14.52 $ 14.73 $ 13.34 $ 10.76 $ 11.08 $ 10.29 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.28 0.14 0.25 0.35 0.33 0.30 0.02
Net realized and unrealized
gain (loss) on investments 5.15 0.64 1.39 2.86 (0.32) 0.96 0.29
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.43 0.78 1.64 3.21 0.01 1.26 0.31
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.28) (0.14) (0.25) (0.35) (0.33) (0.30) (0.02)
Distributions from net realized
gain 0.70 (0.85) 0.00 (0.28) 0.00 (0.17) 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.98) (0.99) (0.25) (0.63) (0.33) (0.47) (0.02)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.97 $ 14.52 $ 14.73 $ 13.34 $ 10.76 $ 11.08 $ 10.29
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 38.15% 5.25% 12.35% 30.17% 0.08% 12.33% 3.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 223,540 $ 154,502 $ 134,648 $ 79,977 $ 45,178 $ 26,704 $ 1,379
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 1.12% 1.10% 1.10% 1.10% 1.06% 0.46% 0.00%
Ratio of net investment income
to average net assets 1.67% 1.91% 2.57% 3.02% 3.16% 3.51% 4.09%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59% 33% 43% 70% 62% 46% 1%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.19% 1.17% 1.26% 1.31% 1.34% 1.66% 3.49%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 1.60% 1.84% 2.41% 2.81% 2.88% 2.31% 0.60%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
===================================================================================================================================
Returns for other share classes may vary due to differ- 20.21% 22.11% 30.17% 0.08% 12.33%
ent 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/ The Fund changed its fiscal year-end from September 30 to March 31.
16 Stagecoach Equity Funds Prospectus
<PAGE>
Diversified Equity Income Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==================================================================================================
FOR A SHARE OUTSTANDING
==================================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
----------------------------------------------------
Mar. 31, Mar. 31, Sept. 30, Dec. 31,
For the period ended: 1998 1997/2/ 1996/3/ 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 13.60 $ 13.79 $ 12.49 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.15 0.08 0.17 0.20
Net realized and unrealized
gain (loss) on investments 4.82 0.60 1.30 2.75
- --------------------------------------------------------------------------------------------------
Total from investment operations 4.97 0.68 1.47 2.95
- --------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.15) (0.08) (0.17) (0.20)
Distributions from net realized
gain (0.65) (0.79) 0.00 (0.26)
- --------------------------------------------------------------------------------------------------
Total from distributions: (0.80) (0.87) (0.17) (0.46)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.77 $ 13.60 $ 13.79 $ 12.49
- --------------------------------------------------------------------------------------------------
Total return (not annualized) 37.29% 4.91% 11.76% 29.64%
- --------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 71,736 $ 32,632 $ 17,045 $ 5,339
- --------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 1.77% 1.74% 1.74% 1.73%
Ratio of net investment income
to average net assets 1.02% 1.29% 2.01% 2.40%
- --------------------------------------------------------------------------------------------------
Portfolio turnover 59% 33% 43% 70%
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.83% 1.87% 2.08% 2.57%
- --------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 0.96% 1.16% 1.67% 1.56%
- --------------------------------------------------------------------------------------------------
</TABLE>
/2/ The Fund changed its fiscal year-end from December 31 to September 30.
Stagecoach Equity Funds Prospectus 17
<PAGE>
Equity Value Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 1/97)
Allen Wisniewski (since 9/96)
Gregg Giboney (8/98)
- --------------------------------------------------------------------------------
[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 are trading at low price-to-earnings ratios, as measured
against the stock market as a whole or against the individual
stock's own price history. In addition we look at the price-to-
book value and price-to-cash flow ratios of companies for
indications of attractive valuation. We use both quantitative
and qualitative analysis to identify possible investments.
Dividends are a secondary consideration when selecting stocks.
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 capitalization
exceeding $50 million at the time of purchase;
. 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
Depositary Receipts and similar instruments.
We may also purchase convertible debt securities with the same
characteristics as common stock, as well as in preferred stock
and warrants. We may temporarily hold assets in cash or in money
market instruments, including U.S. Government obligations,
shares of other mutual funds and repurchase agreements, or make
short-term investments, either to maintain liquidity or for
short-term defensive purposes when we believe it is in the best
interests of shareholders.
18 Stagecoach Equity Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 38 and the specific risks listed below. They are both
important to your investment choice.
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.
- -------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Our strategy of buying stocks with low price-to-earnings ratios
is commonly known as a value strategy.
For information on Fund fee and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prosepctus 19
<PAGE>
Equity Value Fund Financial Highlights
See "Historical Fund Information" on page 58.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================================
CLASS A SHARES -- COMMENCED
ON JULY 2, 1990
- ------------------------------------------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.43 $ 12.66 $ 13.27 $ 12.36 $ 13.17 $ 10.73
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.08 0.20 0.24/3/ 0.20/3/ 0.21/3/
Net realized and unrealized gain (loss)
on investments 5.58 1.89 1.60 1.63/3/ 0.74/3/ 2.75/3/
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.75 1.97 1.80 1.87 0.94 2.96
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.17) (0.08) (0.19) (0.25) (0.21) (0.23)
Distributions from net realized gain (1.86) (0.12) (2.22) (0.71) (1.54) (0.29)
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions: (2.03) (0.20) (2.41) (0.96) (1.75) (0.52)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.15 $ 14.43 $ 12.66 $ 13.27 $ 12.36 $ 13.17
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 41.76% 15.63% 14.27% 16.58% 7.49% 28.22%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $52,392 $20,798 $18,453 $170,406 $168,852 $140,551
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.07% 1.05% 1.18% 0.96% 0.99% 0.98%
Ratio of net investment income to
average net assets 1.03% 1.14% 1.73% 1.97% 1.60% 1.73%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 50% 45% 91% 75% 41% 82%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.16% 1.12% 1.22% 0.98% 1.01% 0.99%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 0.94% 1.07% 1.69% 1.95% 1.58% 1.72%
expenses (loss)
- -------------------------------------------------------------------------------------------------------------------------
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Returns for other share classes may vary due to 27.32% 26.46% 24.20% -1.71% 25.82%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ Per share data based upon average monthly shares outstanding.
20 Stagecoach Equity Funds Prospectus
<PAGE>
Equity Value Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================================
CLASS B SHARES -- COMMENCED
ON SEPTEMBER 6, 1996
- -------------------------------------------------------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Mar. 31, Sept. 30, Sept. 30,
For the period ended: 1992 1991 1990 1998 1997/1/ 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.45 $ 8.48 $ 10.00 $11.81 $ 10.34 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.28 0.08 0.05 0.01 0.00
Net realized and unrealized gain (loss)
on investments 0.49/3/ 1.98 (1.60) 4.57 1.57 0.34
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.69 2.26 (1.52) 4.62 1.58 0.34
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22) (0.29) 0.00 (0.05) (0.01) 0.00
Distributions from net realized gain (0.19) 0.00 0.00 (1.52) (0.10) 0.00
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.41) (0.29) 0.00 (1.57) (0.11) 0.00
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.73 $ 10.45 $ 8.48 $14.86 $ 11.81 $10.34
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.81% 27.05% (15.20)% 40.87% 15.31% 3.40%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $92,915 $ 68,412 $26,100 $72,428 $ 2,542 $ 0
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.02% 0.98% 0.91% 1.76% 1.70% 0.00%
Ratio of net investment income to
average net assets 1.86% 2.69% 3.38% 0.42% 0.34% 1.83%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 78% 36% 21% 50% 45% 91%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.02% 1.11% 1.86% 1.83% 2.19% N/A
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 1.86% 2.56% 2.43% 0.35% (0.15)% N/A
expenses (loss)
- -------------------------------------------------------------------------------------------------------------------------
Class A Share Calendar-Year Returns 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
Returns for other share classes may vary due to 10.54 20.79%
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>
Stagecoach Equity Funds Prospectus 21
<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 stocks 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 total assets in issues of companies with
market capitalization that falls within the range of the
Russell 1000 Index (As of June 1998, this range was from $470
million to $296 billion. The range is expected to change
frequently.);
. up to 25% of our total assets in foreign companies through
American Depositary Receipts and similar instruments; and
. up to 15% of our total 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 interests
of shareholders to do so.
22 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 38 and the specific risks listed below. They
are both 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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN]
We have a quarterly dividend policy. The Fund is not suitable
for investors requiring monthly income. Prior to December 15,
1997, the Fund was known as the "Growth and Income Fund".
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 23
<PAGE>
Growth Fund Financial Highlights
See "Historical Fund Information" on page 58.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
FOR A SHARE OUTSTANDING
========================================================================================================================
CLASS A SHARES -- COMMENCED
ON AUGUST 2, 1990
- -------------------------------------------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Dec. 31, Dec. 30, Dec. 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.20 $ 17.91 $ 17.26 $ 14.10 $ 14.75 $ 13.88
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11 0.06 0.07 0.19 0.22 0.23
Net realized and unrealized gain (loss)
on investments 6.18 1.34 2.00 3.87 (0.27) 0.93
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.29 1.40 2.07 4.06 (0.05) 1.16
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.06) (0.07) (0.19) (0.22) (0.23)
Distributions from net realized gain (3.29) (0.05) (1.35) (0.71) (0.38) (0.06)
- -------------------------------------------------------------------------------------------------------------------------
Total from distributions: (3.40) (0.11) (1.42) (0.90) (0.60) (0.29)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 22.09 $ 19.20 $ 17.91 $ 17.26 $ 14.10 $ 14.75
- -------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 34.65% 7.86% 12.45% 28.90% (0.29)% 8.44%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $365,405 $283,468 $254,498 $178,488 $113,525 $112,236
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.12% 1.14% 1.18% 1.18% 1.11% 0.93%
Ratio of net investment income to
average net assets 0.53% 0.65% 0.56% 1.23% 1.51% 1.72%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 137% 40% 83% 100% 71% 55%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.13% N/A 1.19% 1.21% 1.15% 1.11%
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 0.52% N/A 0.55% 1.20% 1.47% 1.54%
expenses (loss)
=========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
=========================================================================================================================
Returns for other share classes may vary due to 19.05% 21.72% 28.90% -0.29% 8.44%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed fiscal year-end from December 31 to September 30.
24 Stagecoach Equity Funds Prospectus
<PAGE>
Growth Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Mar. 31, Mar. 31 Sept. 30, Dec. 30,
For the period ended: 1992 1991 1990 1998 1997/1/ 1996/2/ 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.84 $10.29 $ 10.00 $13.64 $ 12.74 $12.29 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.27 0.41 0.26 (0.01) 0.00 (0.01) 0.05
Net realized and unrealized gain (loss)
on investments 1.44 2.14 0.03 4.38 0.94 1.42 2.79
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.71 2.55 0.29 4.37 0.94 1.41 2.84
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.27) 0.00 0.00 0.00 0.00 0.00 (0.05)
Distributions from net realized gain (0.40) 0.00 0.00 (2.31) (0.04) (0.96) (0.50)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.67) 0.00 0.00 (2.31) (0.04) (0.96) (0.55)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.88 $ 12.84 $ 10.29 $15.70 $ 13.64 $12.74 $12.29
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 13.45% 24.77% 2.90% 33.83% 7.36% 11.89% 28.47%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $44,883 $ 10,323 $ 430 $52,901 $23,010 $12,832 $ 4,682
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.42% 0.05% 0.00% 1.79% 1.86% 1.93% 1.87%
Ratio of net investment income to
average net assets 2.31% 3.50% 2.51% (0.15)% (0.06)% (0.12)% 0.43%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 80% 13% 0% 137% 40% 83% 100%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.10% 1.16% N/A 1.80% 1.89% 2.03% 2.21%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 1.63% 2.39% N/A (0.16)% (0.09)% (0.22)% 0.09%
expenses (loss)
===================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1992 1991
===================================================================================================================================
Returns for other share classes may vary due to 13.45% 24.77%
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>
Stagecoach Equity Funds Prospectus 25
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Katherine Schapiro, CFA (since 9/97)
Stacey Ho (since 9/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The International Equity Fund seeks to earn total return, with
an emphasis on capital appreciation, over the long-term, by
investing primarily in equity securities of non-U.S.
companies.
Investment Policies
We actively manage a diversified portfolio of equity securities
of companies located or operating in major non-U.S. countries
and emerging markets of the world. We expect that the securities
we hold will be traded on a stock exchange or other market in
the country in which the issuer is based, but they also may be
traded in other countries, including the U.S.
We apply a fundamentals-driven, value-oriented analysis to
identify companies with above-average potential for long-term
growth. The financial data we examine includes both the
company's historical performance results and its projected
future earnings. Among other key criteria we consider are a
company's local, regional or global franchise; history of
effective management demonstrated by expanding revenues and
earnings growth; prudent financial and accounting policies and
ability to take advantage of a changing business environment.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we invest:
. at least 80% of our assets in equity securities of companies
located or operating outside the U.S.;
. in a minimum of five countries exclusive of the U.S.;
. up to 50% of our assets in any one country;
. up to 25% of our portfolio in emerging markets;
. in issuers with an average market capitalization of $10
billion or more, although we may invest in equity securities
of issuers with market capitalization as low as $250 million;
and
. in equity securities including common stocks, preferred
stocks, warrants, convertible debt securities, ADRs, GDRs
(and similar instruments) and shares of other mutual funds.
Although it is not our intention to do so, we reserve the right
to
26 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
hedge the portfolio's foreign currency exposure by purchasing or
selling foreign currency futures and forward foreign currency
contracts.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other
short-term investments, either to maintain liquidity or for
short-term defensive purposes when we believe it is in the best
interests of shareholders to do so. We may also, for defensive
purposes, invest without limit in cash, short-term debt and
equity securities of U.S. companies when we believe it is in the
best interests of shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 38 and the specific risks listed below. They are both
important to your investment choice.
Investments in foreign and emerging markets present special
risks, including currency, political, diplomatic, regulatory and
liquidity risks. These risks are defined beginning on page 38.
In addition, certain fees, such as custodial, transaction and
registration fees may be higher than similar fees incurred by
funds investing solely within the U.S.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] In allocating among countries, regions and industry sectors, we
consider factors such as economic growth prospects, monetary and
fiscal policies, political stability, currency trends, market
liquidity and investor sentiment. We do not expect our turnover
ratio to exceed 100% under normal market conditions, but this
target will not limit our discretion in buying or selling
securities. Higher turnover will result in higher or transaction
costs, which are passed on to shareholders.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Funds Prospectus 27
<PAGE>
International Equity Fund
See "Historical Fund Information" See "How to Read the Financial Highlights"
on page 58 on page 66
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================================
FOR A SHARE OUTSTANDING
===========================================================================================================
Class A Shares Class B Shares
-- Commenced -- Commenced
on Sept. 24, 1997 on Sept. 24, 1997
----------------------------------------
March 31, March 31,
For the period ended: 1998 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 (0.01)
Net realized and unrealized gain (loss) on investments 1.03 1.02
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.05 1.01
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net Investment income 0.00 0.00
Distributions from net realized gain 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Total from distributions: 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.05 $ 11.01
- -----------------------------------------------------------------------------------------------------------
Total return (not annualized) 10.52% 10.10%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $26,770 $ 33,003
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.75% 2.40%
Ratio of net investment income (loss) to average net assets 0.35% (0.31)%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover 12% 12%
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and 2.20% 2.84%
reimbursed expenses
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets prior
to waived fees and reimbursed expenses (0.10)% (0.75)%
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997
===========================================================================================================
Returns for other share classes may 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. -3.28%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
28 Stagecoach Equity Funds Prospectus
<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 common stocks
issued by companies whose market capitalization falls within the
range of the Russell 2000 Index. We will sell the stock of any
company whose market capitalization exceeds the range of this
index for sixty consecutive days. As of June 1998, the range was
$110 million to $2.5 billion, but it is expected to change
frequently.
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;
. no more than 25% of our assets in foreign companies through
American Depositary 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 or as a temporary defensive measure when we
believe that the basic investment strategy is not in the best
interests of shareholders. Generally, these defensive
investments are temporary and will not exceed 35% of total
assets.
Stagecoach Equity Funds Prospectus 29
<PAGE>
Small Cap Fund
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 38 and the specific risks listed below. They are both
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 capitalization;
. have less market liquidity;
. have no or relatively short operating histories, or are new
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 may 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 seeking current income.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
30 Stagecoach Equity Funds Prospectus
<PAGE>
Small Cap Fund Financial Highlights
See "Historical Fund Information" on page 58.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================================================
FOR A SHARE OUTSTANDING
============================================================================================================
Class A Shares -- Commenced
on September 16, 1996
----------------------------------------
March 31, March 31, Sept. 30,
For the period ended: 1998 1997/2/ 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 18.98 $ 22.45 $ 22.01
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.01) 0.00
Net realized and unrealized gain (loss) on investments 8.76 (3.46) 0.44
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 8.70 (3.47) 0.44
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00
Distributions from net realized gain (2.06) 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Total from distributions: (2.06) 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 25.62 $ 18.98 $ 22.45
- -----------------------------------------------------------------------------------------------------------
Total return (not annualized) 47.03% (15.46)% 2.00%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $15,611 $ 3,107 $ 96
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets/2/ 1.22% 1.10% 1.03%
Ratio of net investment income (loss) to average net assets/2/ (0.43)% (0.23)% (0.59)%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover/3/ 291% 69% 10%
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses/2/ 1.57% 2.80% 38.54%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses/2/ (0.78)% (1.93)% (38.10)%
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================================================
CLASS A SHARE ANNUAL RETURNS 1997 1996 1995 1994
===========================================================================================================
Returns for other share classes may vary due to 11.09% 20.89% 69.10% 5.50%
different fees and expenses. These returns
reflect fee waivers and reimbursements, do
not reflect sales loads and are not a guarantee
of future performance./4/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ Ratio includes income and expenses allocated from the Master Portfolio.
Stagecoach Equity Funds Prospectus 31
<PAGE>
Small Cap Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================================================
FOR A SHARE OUTSTANDING
==============================================================================================================
Class B Shares -- Commenced Class C Shares
on September 16, 1996 Commenced on
Dec. 15, 1997
--------------------------------------------
Mar. 31, Mar. 31, Sept. 30, Mar. 31,
For the period ended: 1998 1997/1/ 1996 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.93 $ 22.46 $22.02 $ 21.77
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.04) 0.00 (0.00)
Net realized and unrealized gain (loss) on investments 8.61 (3.49) 0.44 3.69
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 8.50 (3.53) 0.44 3.61
- --------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 0.00
Distributions from net realized gain (2.05) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Total from distributions: (2.05) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 25.38 $ 18.93 $22.46 $ 25.38
- --------------------------------------------------------------------------------------------------------------
Total return (not annualized) 46.02% (15.72)% 2.00% 16.58%
- --------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $15,320 $ 1,905 $ 0 $ 2,495
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets/2/ 1.92% 1.75% 0.00% 2.10%
Ratio of net investment income (loss) to average net assets/2/ (1.13)% (0.85)% 0.00% (1.17)%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover/3/ 291% 69% 10% 291%
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses/2/ 2.21% 3.55% 0.00% 2.66%
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses/2/ (1.42)% (2.65)% 0.00% (1.73)%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
/3/ Reflects activity of the Master Portfolio.
/4/ Performance shown 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.
32 Stagecoach Equity Funds Prospectus
<PAGE>
Strategic Growth Fund
- -------------------------------------------------------------------------------
Portfolio Managers: Jon Hickman (since 1/93)
Chris Greene (since 9/97)
- -------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Strategic Growth Fund seeks to provide investors with an
above-average level of long-term capital appreciation.
Investment Policies
We seek an above-average level of capital appreciation for
investors willing to assume above-average risk. We actively
manage a broadly diversified equity portfolio of companies
expected to have strong growth in revenues, earnings and assets.
We select a range of companies from different industry groups,
with the majority of our holdings consisting of established
growth companies, turnaround or acquisition candidates, or
attractive larger capitalization companies.
- -------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT
SIGN] Under normal market conditions, we may invest:
. in at least 20 common stock issues spread across a number of
different industry groups;
. at least 65% of our assets in common stocks and securities
which are convertible into common stocks that we believe have
better-than-average prospects to increase in value;
. up to 40% of our assets in initial public offerings and/or
small and newer equity issues;
. up to 65% of our assets in companies whose market
capitalization at the time we buy their stock is within the
capitalization range of the companies listed on the Russell
MidCap/TM/ Index (As of June 1998, this range was from $470
million to $11.3 billion. The range is expected to change
frequently.);
. up to 15% of our assets in emerging markets; and
. up to 15% of our assets in certain call and put options.
We may invest in preferred stock or investment-grade debt
securities that are convertible into common stock, and in money
market instruments to maintain liquidity, to meet expected
redemption requests or as a defensive measure when we believe
that the basic investment strategy is not in the best interests
of shareholders. Generally, these defensive investments are
temporary and will not exceed 35% of total assets.
Stagecoach Equity Funds Prospectus 33
<PAGE>
Strategic Growth Fund
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 38 and the specific risks listed below. They are both
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 capitalization;
. have less market liquidity;
. have no or relatively short operating histories or are newly
public;
. have aggressive capital structures, including high debt
levels; or
. are involved in rapidly growing or changing industries and/or
new technologies.
The Fund's share price may rise and fall more than the share
prices of other funds. Investments in foreign and emerging
markets may also present special risks, including currency,
political, diplomatic, regulatory and liquidity risks. In
addition, our active trading investment strategy may result in a
higher-than-average portfolio turnover ratio, increased trading
expenses, and short-term capital gains that pass through to the
Fund's shareholders.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] We have an annual dividend policy. You should not invest in the
Fund if you are seeking current income. Prior to December 5,
1997, the Fund was known as the "Aggressive Growth Fund."
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
34 Stagecoach Equity Funds Prospectus
<PAGE>
This page intentionally left blank
- -----------------------------------------------------------------
<PAGE>
Strategic Growth Fund Financial Highlights
See "How to Read the Financial Highlights" on page 58.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================================================
FOR A SHARE OUTSTANDING
==========================================================================================================================
CLASS A SHARES -- COMMENCED
ON JANUARY 20, 1993
----------------------------------------------------------------------------
CLASS B
SHARE
COMMENCED
ON DEC.
15, 1997
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1997 1996 1995 1994 1993 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 26.42 $ 24.12 $ 19.06 $ 18.93 $ 14.34 $ 23.68
- --------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.07) (0.04) (0.06) (0.16) (0.04) (0.02)
Net realized and unrealized
gain (loss) on investments 2.48 2.54 8.12 0.96 5.27 0.67
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.41 2.50 8.06 0.80 5.23 0.65
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions from net realized
gain (8.87) (0.20) (3.00) (0.47) (0.59) 0.00
- --------------------------------------------------------------------------------------------------------------------------
Tax return of capital 0.00 0.00 0.00 (0.20) (0.01) 0.00
- --------------------------------------------------------------------------------------------------------------------------
Total from distributions: (8.87) (0.20) (3.00) (0.67) (0.64) 0.00
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.96 $ 26.42 $ 24.12 $ 19.06 $ 18.93 $ 24.33
- --------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 7.73% 10.32% 42.51% 4.23% 36.56% 2.74%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 148,122 $ 131,226 $ 59,016 $ 26,744 $ 25,413 $ 23,562
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 1.18%/1/ 1.24%/3/ 1.28% 1.20% 0.66% 1.89%
Ratio of net investment income
to average net assets (0.96)%/1/ (0.82)%/3/ (0.76)% (0.81)% (0.01)% (1.63)%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 256%/2/ 10%/4/ 171% 149% 182% 256%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.18%/1/ 1.27%/3/ 1.38% 1.55% 1.64% 1.89%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses (loss) (0.96)%/1/ (0.85)/3/ (0.86)% (1.16)% (0.99)% (1.63)%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
==========================================================================================================================
Returns for other share classes may vary due to differ- 7.73% 10.32% 42.51% 4.23% 36.56%
ent 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/ This ratio includes activity of the Master Portfolio for the period from
January 1, 1997 to December 12, 1997.
/2/ The portfolio turnover rate and average commission rate paid includes
activity of the Master Portfolio from January 1, 1997 to December 12, 1997.
36 Stagecoach Equity Funds Prospectus
<PAGE>
Strategic Growth Fund Financial Highlights
See "How to Read the Financial Highlights" on page 66.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================================================
FOR A SHARE OUTSTANDING
==============================================================================================================
CLASS C SHARES -- COMMENCED
ON JULY 1, 1993
----------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 32.42 $ 29.84 $ 23.74 $ 23.75 $ 21.53
- --------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.45) (0.11) (0.23) (0.34) (0.62)
Net realized and unrealized
gain (loss) on investments 3.17 2.93 10.03 1.16 3.60
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 2.72 2.82 9.80 0.82 2.98
- --------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income 0.00 0.00 0.00 0.00 (0.00)
Distributions from net realized
gain (10.82) (0.24) (3.70) (0.57) (0.76)
- --------------------------------------------------------------------------------------------------------------
Tax return of capital (0.00) 0.00 0.00 (0.26) 0.00
- --------------------------------------------------------------------------------------------------------------
Total from distributions: (10.82) (0.24) (3.70) (0.83) (0.76)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.32 $ 32.42 $ 29.84 $ 23.74 $ 23.75
- --------------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.98% 9.46% 41.54% 3.46% 13.84%
- --------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 41,608 $ 55,063 $ 26,326 $ 15,335 $ 11,932
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 1.93%/1/ 2.00%/3/ 2.02% 1.95% 0.61%
Ratio of net investment income
to average net assets (1.70)%/1/ (1.58)%/3/ (1.49)% (1.56)% (1.00)%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover 256%/2/ 10%/4/ 171% 149% 182%
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.94%/1/ 2.02%/3/ 2.09% 2.33% 2.14%
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses (loss) (1.71)%/1/ (1.60)/3/ (1.56)% (1.84)% (2.53)%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
/3/ The ratio includes income and expenses allocated from the Master Portfolio.
/4/ The portfolio turnover for and average commission rate paid by the Capital
Appreciation Master Portfolio from its inception on February 20, 1996 to
December 31, 1996, were 137% and $0.0781, respectively. The information
shown reflects the stand-alone period only.
Stagecoach Equity Funds Prospectus 37
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider the 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 selling agents or investment
advisors, offer or promise to make good any such losses.
. Share prices--and therefore the value of your investment--will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as price 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 equities that are subject to equity market risk. This
is the risk that stock prices will fluctuate and can decline and reduce the
value of the portfolio. Certain types of stock and certain stocks selected
for a Fund's portfolio may underperform or decline in value more than the
overall market. As of the date of this Prospectus, the equity market, as
measured by the S&P 500 Index and other commonly used indexes, is trading
at or close to record levels. There can be no guarantee that these
performance levels will continue.
. The Funds invest in debt instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer
or changes in the credit rating of a security may affect its value.
Interest rate risk is the possibility that interest rates may increase and
reduce the resale value of securities in a Fund's portfolio. Debt
instruments with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Changes in market interest
rates do not affect the rate payable on debt instruments held in a Fund,
unless the instrument has
38 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
adjustable or variable rate features. Changes in market interest rates may
also extend or shorten the duration of certain types of instruments, such
as asset-backed securities, thereby affecting their value and the return on
your investment.
. The Funds that invest in smaller companies, foreign companies (including
investments made through American Depositary Receipts and similar
instruments), and in emerging markets are subject to additional risks,
including less liquidity and greater price 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
Funds themselves.
. 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 and the risks associated
with them. 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.
Stagecoach Equity Funds Prospectus 39
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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.
Emerging Market Risk-- The risk that the emerging market, as defined in the
glossary, may be more sensitive to certain economic changes. For example,
emerging market countries are often dependent on international trade and are
therefore often vulnerable to recessions in other countries. They may have
obsolete financial systems, have volatile currencies and may be more sensitive
than more mature markets to a variety of economic factors. Emerging market
securities may also be less liquid than securities of more developed countries
and could be difficult to sell, particularly during a market downturn.
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.
40 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the Funds that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
========================================================================
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 41
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED
EQUITY EQUITY INTERNATIONAL SMALL STRATEGIC
BALANCED INCOME VALUE GROWTH EQUITY CAP GROWTH
====================================================================================================================================
INVESTMENT PRACTICE: RISK:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <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 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 Funds,
will be borne by Fund shareholders.
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES
Securities issued by a non-U.S. company Information, Political, . . . . . . .
or debt of a foreign government in the Regulatory, Diplomatic,
form of an American Depositary Receipt Liquidity and Currency
or similar instrument. Limited to 25% Risk
of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
Investments in companies located Information, Political . . . . .
or operating in countries considered Regulatory, Diplomatic
developing or to have "emerging" and Currency Risk
stock markets. Generally, these
investments have the same type of
risks as foreign securities, but
to a higher degree. Limited to
15% of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
OPTIONS
The right or obligation to receive Credit, Information and
or deliver a security or cash 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, Counter-Party . . . . . . .
to brokers, dealers and financial and Leverage Risk
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 total 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 readily Liquidity Risk . . . . . . .
sold, or cannot be readily sold
without negatively affecting its fair
price. Limited to 10% of total
assets for the Diversified Equity
Income and Growth Funds, and limited
to 15% of assets for the other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42 Stagecoach Equity Funds Prospectus
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
. Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
. Class B Shares - with a contingent deferred sales charge ("CDSC") that
diminishes over time, and higher on-going expenses than Class A shares.
. Class C Shares - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest.
If so, then consider Class B or Class C shares. Please note that Class B shares
convert to Class A shares after six years to avoid the higher on-going expenses
assessed against Class B shares.
Class C shares are available for the Equity Value, International Equity, Small
Cap, and Strategic Growth Funds only. They are similar to Class B shares, with
some important differences. Unlike Class B shares, Class C shares do not convert
to Class A shares. The higher on-going expenses will be assessed as long as you
hold the shares. The choice between Class B and Class C shares may depend on how
long you intend to hold Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following sales charge
schedule before making your decision. You should also review the "Reduced Sales
Charges" section of this Prospectus. You may wish to discuss this choice with
your financial consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales
Stagecoach Equity Funds Prospectus 43
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
charges are reduced for Class A share purchases above certain dollar amounts,
known as "breakpoint levels", the POP is lower for these purchases.
================================================================================
CLASS A SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING SALES CHARGE
SCHEDULE:
================================================================================
FRONT-END SALES FRONT-END SALES DEALER ALLOWANCE
CHARGE AS CHARGE AS AS % OF
AMOUNT % OF PUBLIC % OF NET PUBLIC OFFERING
OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
- --------------------------------------------------------------------------------
Less than $50,000 5.25% 5.54% 4.75%
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.50% 4.71% 3.75%
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 2.75%
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- --------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- --------------------------------------------------------------------------------
/1/ We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B and
Class C Share CDSC Reductions" and "Waivers for Certain Parties"). The CDSC
schedule is as follows:
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
- --------------------------------------------------------------------------------
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the Class B shares are converted to Class A
shares to reduce your future on-going expenses.
44 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of
1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Stagecoach Equity Funds Prospectus 45
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of these potential
reductions when you are deciding which share class to buy.
Class A Share Reductions:
. You pay no sales charges on Fund shares you buy with reinvested
distributions.
. You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
. By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
. Rights of Accumulation (ROA) allow you to combine the amount you invest with
the total NAV of shares you own in other Stagecoach front-end load Funds in
order to reach breakpoint levels for a reduced load. We give you a discount
on the entire amount of the investment that puts you over the breakpoint
level.
. If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have
120 days to reinvest the proceeds of that redemption with no sales charge
into a Fund that charges the same or a lower front-end sales charge. If you
use such a redemption to purchase shares of a Fund with a higher front-end
sales charge, you will have to pay the difference between the lower and
higher charge.
. You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for
which Wells Fargo Bank acts as trustee provided the distribution occurred
within the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
46 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
. a family unit, consisting of a husband and wife and children under the age of
twenty-one or single trust estate;
. a trustee or fiduciary purchasing for a single fiduciary relationship; or
. the members of a "qualified group" which consists of a "Company" (as
defined in the Investment Company Act of 1940 ("1940 Act"), and related
parties of such a "Company", which has been in existence for at least six
months and which has a primary purpose other than acquiring Fund shares at
a discount.
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in a Stagecoach Fund in
installments over the next year, by signing a letter of intent you would
pay only a 3.50% sales load on the entire purchase. Otherwise, you might
pay 5.25% on the first $50,000, then 4.50% on the next $49,999!
Stagecoach Equity Funds Prospectus 47
<PAGE>
Class B and Class C Share CDSC Reductions:
. You pay no CDSC on Funds shares you purchase with reinvested
distributions.
. We waive the CDSC for all redemptions made because of scheduled or
mandatory distributions for certain retirement plans. (See your retirement
plan disclosure for details.)
. We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability"
is defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the direction of Stagecoach
Funds, Inc. in order to, for example, complete a merger or close an account
whose value has fallen below the minimum balance.
. We waive Class C share CDSC for certain types of accounts.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
. Current and retired employees, directors and officers of:
. Stagecoach Funds and its affiliates;
. Wells Fargo Bank and its affiliates;
. Stephens and its affiliates; and
. Broker-Dealers who act as selling agents.
. The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews, fathers-
in-law, mothers-in-law, brothers-in-law and sisters-in-law of either the
spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
48 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class B shares you purchased prior to March 3, 1997 are subject to a CDSC if
they are redeemed within four years of purchase. The CDSC Schedule for these
shares is below:
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
The above schedules do not apply for any new shares purchased. If you exchange
Class B shares for Class B shares of another Fund, you will retain the above
CDSC schedule on your exchanged shares, but additional shares of the newly
purchased Fund will age at the higher CDSC schedule.
Stagecoach Equity Funds Prospectus 49
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment; or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and applications for the program through
which you intend to invest.
50 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your selling agent or by calling 1-800 222-8222.
. We process requests to buy or sell shares each business day as of the close
of regular trading on the New York Stock Exchange ("NYSE"), which is
usually 1:00 PM Pacific time. Any request we receive in proper form before
the close of regular trading on the NYSE is processed the same day.
Requests we receive after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
. We determine the NAV of each class of the Funds' shares each business day
as of the close of regular trading on the NYSE. 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.
. We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-
222-8222) if you are investing directly with Stagecoach Funds, or speak to
your selling agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without completing a new application.
. We reserve the right to cancel any purchase order if your check does not
clear. We also reserve the right to delay payment of a redemption until we
are reasonably certain that investments made by check have been collected.
Stagecoach Equity Funds Prospectus 51
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest. Mail to:
- ---------------------------------------------- Stagecoach Funds
Enclose a check for at least $1,000 made out PO Box 7066
in the full name and share class of the Fund. San Francisco, CA
For example, "Stagecoach Strategic Growth 94120-9201
Fund, Class B."
- ----------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application.
You must wire at least $1,000. Be sure to Mail to:
indicate the Fund name and the share class Stagecoach Funds
into which you intend to invest. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Mail the completed application. 94120-9201
- ---------------------------------------------- Fax to: 1-415-546-0280
You may also fax the completed application
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number:
name your account is registered in. 121000248
- ----------------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated on
Application)
--------------------------------
52 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
You can only make your first purchase of a
Fund by phone if you already have an
existing Stagecoach Account.
- ---------------------------------------------- Call:
Call Investor Services and instruct the 1-800-222-8222
representative to either:
. transfer at least $1,000 from a linked
settlement account, or
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Funds held through
brokerage and other types of accounts, please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption you
wish to receive (or write "Full Redemption").
- ---------------------------------------------
Make sure all the account owners sign
the request.
- ---------------------------------------------
You may request that redemption proceeds be Mail to:
sent to you by check, by ACH transfer into a Stagecoach Funds
bank account, or by wire ($5,000 minimum). PO Box 7066
Please call Investor Services regarding San Francisco, CA
requirements for linking bank accounts or for 94120-9201
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- ---------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage
house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 53
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption
of at least $100. Be prepared to provide your
account number and Taxpayer Identification Number.
- ---------------------------------------------------
Unless you have instructed us otherwise, only
one account owner needs to call in redemption
requests.
- ---------------------------------------------------
You may request that redemption proceeds be
sent to you by check, by transfer into an
ACH-linked bank account, or by wire
($5,000 minimum). Please call Investor
Services regarding requirements for linking
bank accounts or for wiring funds. We reserve
the right to charge a fee for wiring funds
although it is not currently our practice to do so. Call:
- --------------------------------------------------- 1-800-222-8222
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or
subsequently in writing.
- ---------------------------------------------------
Phone privileges allow us to accept
transaction instructions by anyone representing
themselves as the shareholder and who provides
reasonable confirmation of their identity, such
as providing the Taxpayer Identification Number
on the account. We will not be liable for any
losses incurred if we follow telephone
instructions we reasonably believe to be genuine.
- ---------------------------------------------------
Telephone requests are not accepted if
the address on your account was changed
by phone in the last 15 days.
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We determine the NAV each day as of the close of regular trading on the NYSE,
which is generally 1:00 PM Pacific time.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the NYSE are processed on the same business day.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There may be special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption that we may be reasonably
certain that investments made by check or autosaver 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 Funds 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.
- --------------------------------------------------------------------------------
54 Stagecoach Equity 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 exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.5% schedule).
. If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
. Exchanges between Class B shares, between Class C shares or between either
Class B or Class C shares and a Stagecoach money market fund will not
trigger the CDSC. The new shares will continue to age according to their
original schedule while in the new Fund and will be charged the CDSC
applicable to the original shares upon redemption. This also applies to
exchanges of Class A shares that are subject to a CDSC.
. Exchanges from any share class to a money market fund can only be re-
exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes in your exchange privileges.
. You may make exchanges between like share classes. You may also exchange
from Class A, Class B or Class C shares and non-Institutional class shares
to a non-institutional money market fund.
Stagecoach Equity Funds Prospectus 55
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Investor Services at
1-800-222-8222 if you wish to change or add linked accounts.
. Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or
transfer it into your linked bank account. In order to set up a Systematic
Withdrawal Program, you:
. must have a Fund account valued at $10,000 or more;
. you must have distributions reinvested; and
. you may not be simultaneously participating in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the linked
account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option - Lets you buy new shares of the same class
of the Fund that generated the distributions. The new shares are purchased
at NAV generally on the day the income is paid. This option is
automatically assigned to your account unless you specify another plan.
. Fund Purchase Plan - Uses your distributions to buy shares at NAV of
another Stagecoach Fund of the same share class or a money market fund. You
must have already satisfied the minimum investment requirements of the Fund
into which your distributions are being transferred in order to
participate.
. Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the
ACH system. If your specified bank account is closed, we will reinvest your
distributions.
56 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Check Payment Option - Allows you to receive checks for distributions
mailed to your address of record or to another name and address which you
have specified in written, signature guaranteed instructions. If checks
remain uncashed for six months or are undeliverable by the Post Office, we
will reinvest the distributions at the earliest date possible.
=======================================================================
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share
by the amount distributed. Also, distributions on new shares shortly
after purchase would be in effect a return of capital, although the
distribution may still be taxable to you.
=======================================================================
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by a Fund as dividend distributions. These are taxable to you as ordinary
income. We will pass on to you any net capital gains earned by a Fund as a
capital gain distribution. These distributions will be taxable to you as long-
term capital gains, which may qualify for taxation at preferential rates in
the hands of non-corporate shareholders.
In general, all distributions will be taxable to you when paid, even if they are
paid in additional Funds Shares. 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.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Stagecoach Equity Funds Prospectus 57
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will be subject to back-up withholding.
Historical Fund Information
Balanced Fund-- The Fund operated as a series of Pacifica Funds Trust from its
commencement of operations until it was reorganized as a series of Stagecoach
Funds on September 6, 1996. In conjunction with the reorganization, existing
Investor Shares were converted into Class A shares of the Fund. Prior to April
1, 1996, the Fund was advised by First Interstate Capital Management, Inc.
("FICM") In connection with the merger of First Interstate Bancorp into Wells
Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
Equity Value Fund-- The Fund operated as a series of Pacifica Funds Trust from
its commencement of operations until it was reorganized as a series of
Stagecoach Funds on September 6, 1996. In connection with the reorganization,
existing Investor Shares were converted into Class A shares of the Fund. Prior
to April 1, 1996, the Fund was advised by First Interstate Capital Management,
Inc. ("FICM"). In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
Growth Fund-- The financial information for the fiscal periods prior to, and
including, 1991 is based on the financial information for the Select Stock
Fund of the Wells Fargo Investment Trust for Retirement Programs which was
reorganized into the Growth Stock Fund on January 2, 1992.
Small Cap Fund-- On December 12, 1997, the Overland Express Small Cap Strategy
Fund was merged into the Small Cap Fund of the Stagecoach Funds. The Stagecoach
Small Cap Fund commenced operations on September 16, 1996. Prior to December 15,
1997, the Fund invested in a Master Portfolio with a corresponding investment
objective. The Fund no longer invests in a Master Portfolio. Currently the Fund
invests directly in a portfolio of securities.
Strategic Growth Fund-- On December 12, 1997, the Class A and Class D shares of
the Overland Express Strategic Growth Fund were reorganized as the Class A and
Class C shares of the Strategic Growth Fund of Stagecoach Funds. For accounting
purposes, the Overland Express Fund is considered the surviving entity and the
financial highlights shown for the Stagecoach Class
58 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
A and Class C shares have been restated to give effect to the conversion ratio
applied in the consolidation of Overland Express Funds, Inc. and Stagecoach
Funds, respectively. The Overland Fund did not offer Class B shares. 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.
Wells Fargo & Company/Norwest Merger - Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Funds.
Share Class - This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds may offer additional share classes with
different expenses and returns than those described here. Call Stephens Inc. at
1-800-643-9691 for information on these or other investment options in
Stagecoach Funds.
Conversion of Class B shares - We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed to
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value - Due to the expense involved in maintaining
low-balance accounts, we reserve the right to close accounts that have fallen
below the $1,000 minimum balance due to redemptions (as opposed to market
conditions). You will be given an opportunity to make additional investments
to prevent account closure before any action is taken.
Statements - We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Stagecoach Equity Funds Prospectus 59
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Dealer Concessions and Rule 12b-1 fees - Stephens as the Fund's distributor,
will pay the portion of the Class A share sales charge shown as the Dealer
Allowance to the selling agent, if any. Stephens also compensates selling
agents for the sale of Class B and Class C shares and is reimbursed through
Rule 12b-1 fees and contingent deferred sales charges. Selling agents may
receive different compensation for sales of Class A, Class B and Class C
shares of the same Fund. Stephens may, from time to time, pay additional
compensation to selling agents that will not exceed the maximum compensation
permitted under Rule 12b-1.
Statement of Additional Information - Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act - Morrison & Foerster LLP, counsel to the Funds and
special counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that
Wells Fargo Bank and its affiliates may perform the services contemplated
by the Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future federal
or state laws may prevent these entities from continuing in their roles.
Voting Rights - All shares of the Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
60 Stagecoach Equity Funds Prospectus
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for the Funds.
About Stagecoach
Each Fund is one of over 30 Funds of Stagecoach Funds, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a
Maryland Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below.
If the Board believes that it is in the best interests of the shareholders it
may make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT 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
Markets the Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
Investors Bank & Trust Company
89 South Street, Boston, MA 02111
Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 61
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the investment advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. Wells Fargo Bank, founded
in 1852, is the oldest bank in the western United States and is one of the
largest banks in the United States. Wells Fargo Bank is a wholly owned
subsidiary of Wells Fargo & Company, a national bank holding company. As of
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion
in assets. The Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the last fiscal year:
-------------------------------------------------------------------------------
Balanced Fund .57%
-------------------------------------------------------------------------------
Diversified Equity Income Fund .50%
-------------------------------------------------------------------------------
Equity Value Fund .50%
-------------------------------------------------------------------------------
International Equity Fund N/A
-------------------------------------------------------------------------------
Growth Fund .50%
-------------------------------------------------------------------------------
Small Cap Fund* .50%
-------------------------------------------------------------------------------
Strategic Growth Fund* .50%
-------------------------------------------------------------------------------
/*/ Prior to December 15, 1997, the Strategic Growth Fund and the Small Cap
Fund each invested all of its assets in a master portfolio with the same
investment objective. The management fee shown was charged to and paid by
the master portfolio.
The Sub-Advisor
Wells Capital Management ("WCM"), a wholly owned subsidiary of Wells Fargo Bank
N.A., is the sub-advisor for each of the Funds. As of August 1, 1998, WCM
provided advisory services for assets aggregating in excess of $32 billion. For
providing sub-advisory services to the Funds, WCM is entitled to receive from
Wells Fargo Bank N.A. .25% of each Fund's assets up to the first $200 million,
.20% of the next $200 million in assets, and .15% of all assets over $400
million. WCM is entitled to receive from Wells Fargo Bank a minimum annual sub-
advisory fee of $120,000. This minimum annual fee payable to WCM does not affect
the advisory fee paid by the Funds to Wells Fargo Bank.
62 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The Administrator
Wells Fargo Bank is the administrator of the Funds. Wells Fargo Bank is paid
.03% of each Fund's except the International Equity Fund, assets for these
services. The International Equity Fund is entitled to receive .06% of assets
for these services. Prior to February 1, 1998, Wells Fargo Bank was entitled to
receive .04% of each Fund's assets for administration services.
The Distributor and Co-Administrator
Stephens is the Funds' distributor and co-administrator. Stephens receives .04%
of each Funds' assets for its role as co-administrator. Stephens Inc. also
receives all loads, CDSCs and distribution plan fees. It uses a portion of these
amounts to compensate selling agents for their role in marketing the Funds'
shares. Prior to February 1, 1998, Stephens was entitled to receive .02% of each
Fund's assets for co-administration services.
Distribution Plan
We have adopted Distribution Plans for each class of the Funds. For the Class A
shares of the Diversified Equity Income and Growth Funds, the plans defray all
or part of the cost of preparing and distributing prospectuses and promotional
materials. For Class A shares of the Balanced, Equity Value, International
Equity, Small Cap and Strategic Growth Funds, and the Class B and Class C shares
of each Fund, these plans are used to pay for distribution-related services
including ongoing compensation to selling agents. Each Fund may participate in
joint distribution activities with other Stagecoach Funds. The cost of these
activities is generally allocated among the Funds. Funds with higher assets
levels pay a higher proportion of these costs. The fees paid under these plans
are as follows:
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Balanced Fund .10% .75% N/A
-------------------------------------------------------------------------------
Diversified Equity Income Fund .05% .70% N/A
-------------------------------------------------------------------------------
Equity Value Fund .10% .75% .75%
-------------------------------------------------------------------------------
Growth Fund .05% .70% N/A
-------------------------------------------------------------------------------
International Equity Fund .10% .75% .75%
-------------------------------------------------------------------------------
Small Cap Fund .10% .75% .75%
-------------------------------------------------------------------------------
Strategic Growth Fund .10% .75% .75%
-------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 63
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements with
various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services each Fund pays as follows:
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Balanced Fund .25% .25% N/A
-------------------------------------------------------------------------------
Diversified Equity Income Fund .30% .30% N/A
-------------------------------------------------------------------------------
Equity Value Fund .25% .25% .25%
-------------------------------------------------------------------------------
Growth Fund .30% .30% N/A
-------------------------------------------------------------------------------
International Equity Fund .25% .25% .25%
-------------------------------------------------------------------------------
Small Cap Fund .25% .25% .25%
-------------------------------------------------------------------------------
Strategic Growth Fund .25% .25% .25%
-------------------------------------------------------------------------------
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.
. Gregg Giboney, CFA
With Wells Fargo since 1978.
. Chris Greene
Joined Wells Fargo in 1997. Worked for Hambrecht & Quist from 199497 and for
GB Capital Management for two years prior to that. Worked for Wood Island
Associates prior to GB Capital.
64 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Jon R. Hickman
Managing Director
With Wells Fargo since 1986.
. Kelli Hill
With Wells Fargo since 1987.
. Stacey Ho
With Wells Fargo since 1997. Worked for Clemente Capital Management from 1995
to 1996, and Edison International from 1990 through 1995.
. Kenneth Lee
With Wells Fargo since 1993. Was with Wells Fargo Nikko Investment Advisors
and Dean Witter prior to 1993.
. Katherine Schapiro, CFA
President, Security Analysts of San Francisco
With Wells Fargo since 1992.
. Scott Smith, CFA
With Wells Fargo since 1988.
. Rex Wardlaw, CFA
With Wells Fargo since 1986.
. Allen Wisniewski, CFA
With Wells Fargo since 1987.
Stagecoach Equity Funds Prospectus 65
<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, with the exception of the Class A calender-year returns
or as indicated. The financial statements are included in each Fund's most
recent Annual or Semi-Annual Report and are available free of charge by
calling 1-800-222-8222. Other auditors audited statements for the Balanced
Fund and 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 more detailed definition.
Net Investment Income-- Net investment income is calculated by subtracting the
aggregate Fund expenses from the Funds' 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
Funds.
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.
66 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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
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 67
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and perform
other tasks.
American Depository Receipts ("ADRs")
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically
held in bank vaults. The ADR's owner is entitled to any capital gains or
dividends. ADRs are one way of owning an equity interest in foreign companies.
Annual and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "total return".
Capitalization
When referring to the size of a company, capitalization means the total number
of a company's outstanding shares of stock multiplied by the price per share.
This is an accepted method of determining a company's size and is sometimes
referred to as "market capitalization".
Capital Structure
Refers to how a company has raised money to operate. Can include, for example,
borrowing or selling stock.
Commercial Paper
Debt instruments issued by banks, corporations and other issuers to finance
short-term credit needs. Commercial paper typically is of high credit quality
and offers below market interest rates.
Convertible Debt Securities
Bonds or notes that are exchangeable for equity securities at a set price on a
set date or at the election of the holder.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "total return".
68 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 of 1940, 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 Funds' 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 international financial
organizations, such as the International Finance Corporation and the
International Bank for Reconstruction and Development, and the international
financial community to have an "emerging" stock market. Such markets may be
under-capitalized, have less-developed legal and financial systems or may have
less stable currencies than markets in the developed world.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
Stagecoach Equity Funds Prospectus 69
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Hedge
Strategy used to offset investment risk. A perfect hedge is one eliminating the
possibility of future gain or loss.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Initial Public Offering
The first time a company's stock is offered for sale to the public.
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at a fair price.
Moody's
A nationally recognized ratings organization.
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 NYSE 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 may also be based on the
movement of an index such as the S&P 500.
70 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Public Offering Price (POP)
The NAV with the sales load added.
Price-to-Earnings Ratio
The ratio between a stock's price and its historical, current or anticipated
earnings. Low ratios typically indicate a high yield. High ratios are
characteristic of growth stocks which generally have low current yields.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Russell 2000 Index
An index comprised of the 2000 smallest firms listed on the Russell 3000 Index.
The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell
Company that is intended to be representative of the U.S. economy. The Russell
2000 is considered a "small cap" index.
Selling Agent
A person who has an agreement with the Funds' distributors that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
S&P, S&P 500 Index
Standard and Poors, a nationally recognized ratings organization. S&P'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 Equity Funds Prospectus 71
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Funds.
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 price.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Value Strategy
A strategy of investing which tries to identify and buy undervalued stocks under
the assumption that the stock will eventually rise to its "fair market"
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.
72 Stagecoach Equity Funds Prospectus
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STAGECOACH FUNDS/R/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
provides certain financial and other important information for the most recent
reporting period and each Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
=======================================================================
STAGECOACH FUNDS:
-----------------------------------------------------------------------
. are NOT insured by the FDIC.
. are NOT obligations or deposits of Wells Fargo Bank, nor guaranteed
by the Bank.
. involve investment risk, including possible loss of principal.
=======================================================================
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC EQ P (8/98)
<PAGE>
[WELLS FARGO LOGO]
-----------------------------
PROSPECTUS
-----------------------------
CALIFORNIA TAX-FREE MONEY MARKET TRUST
August 1, 1998
<PAGE>
PROSPECTUS
STAGECOACH FUNDS
CALIFORNIA TAX-FREE 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 California Tax-Free Money Market Trust (the "Fund").
The CALIFORNIA TAX-FREE MONEY MARKET TRUST seeks to obtain a high level of
income exempt from federal income tax and California personal income tax, while
preserving capital and liquidity, by investing in high-quality, short-term U.S.
dollar-denominated money market instruments, primarily municipal obligations.
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 August 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 Investor
Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA 94120-7066
or by calling 800-260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE
AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISOR AND ADMINISTRATOR AND PROVIDES THE
FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED. (WELLS CAPITAL
MANAGEMENT, INC. ("WCM"), A WHOLLY OWNED SUBSIDIARY OF WELLS FARGO BANK,
IS THE INVESTMENT SUB-ADVISOR. STEPHENS INC. ("STEPHENS"), WHICH IS NOT
AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S SPONSOR, CO-
ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED AUGUST 1, 1998
<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 11
Investing in the Fund 13
Dividend and Capital Gain Distributions 14
How to Redeem Shares 15
Management and Servicing Fees 16
Taxes 20
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 you wish 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 Fund seeks to obtain a high level of income exempt from federal income
tax and California personal income tax, while preserving capital and
liquidity, by investing in high-quality, U.S. dollar-denominated money
market instruments, primarily municipal obligations. Under normal market
conditions, substantially all of the Fund's assets will be invested in
municipal obligations that are exempt from federal income tax and California
personal income tax. 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. Since substantially all the Fund's assets are
invested in securities issued by California, its agencies and
municipalities, events in California are more likely to affect the Fund's
investments. Also, the Fund is nondiversified, which means that its assets
may be invested among fewer issuers and therefore the value of its assets
may be subject to greater impact by events affecting one of its investments.
The 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 Funds Work -- Risk Factors" and "Additional Permitted Investment
Activities" in the SAI for further information about the Funds' investments
and related risks.
Q.WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment advisor, manages the Fund's
investments. Wells Fargo Bank also provides the Fund with administration,
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
1 PROSPECTUS
<PAGE>
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 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>
CALIFORNIA TAX-
FREE
MONEY MARKET TRUST
------------------
<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>
CALIFORNIA TAX-
FREE
MONEY MARKET TRUST
------------------
<S> <C>
Management Fee/1/........................................ 0.00%
Rule 12b-1 Fee/2/........................................ 0.00%
Other Expenses (after waivers or reimbursements)/3/...... 0.20%
----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/4/...................................... 0.20%
====
</TABLE>
--------------
/1/Management Fees (before waivers or reimbursements) would be payable at
a maximum annual rate of 0.50%.
/2/The Fund has adopted a defensive distribution plan under Rule 12b-1 of
the Investment Adviser's Act of 1940 (the 1940 Act), which does not
result in any added expenses to the Fund.
/3/Other Expenses (before waivers or reimbursements) would be 0.35%.
/4/Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.85%.
Note: The tables do not reflect any charges that may be imposed by Wells
Fargo Bank or another Bank directly on certain customer accounts in
connection with an investment in the Fund.
3 PROSPECTUS
<PAGE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual return and redemption at the end of each time period
indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
California Tax-Free 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 you pay when you buy or sell
Fund shares. There are no shareholder transaction expenses imposed by the
Company. However, the Company reserves the right to impose a charge for wiring
redemption proceeds.
ANNUAL FUND OPERATING EXPENSES for Fund shares are based on applicable
contract amounts restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue to reduce expenses during the
Company's current year, except that "Other Expenses" is based on estimated
amounts for the current year. Any waivers or reimbursements would reduce the
Fund's total expenses. There can be no assurance that waivers or reimbursements
will continue after that time. For more complete descriptions of the various
costs and expenses you can expect to incur as an investor in the Fund, please
see "Management and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of the
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
PROSPECTUS 4
<PAGE>
Financial Highlights
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the period from May 5, 1997 to March 31,
1998. This information is provided to assist you in evaluating the Fund's
historical performance. The Fund's financial statements were audited by KPMG
Peat Marwick LLP. This information should be read in conjunction with the
Fund's 1998 financial statements and the notes thereto. The Fund's SAI has been
incorporated by reference into this prospectus.
CALIFORNIA TAX-FREE MONEY MARKET TRUST
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998
--------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 1.00
--------
Income from Investment Operations:
Net Investment Income...................................... 0.03
Net Realized and Unrealized Gain (Loss) on Investments..... 0.00
--------
Total from Investment Operations............................. 0.03
Less Distributions:
Dividends from Net Investment Income....................... (0.03)
Distributions from Net Realized Gain....................... 0.00
--------
Total from Distributions..................................... (0.03)
--------
Net Asset Value, End of Period............................... $ 1.00
========
Total Return (not annualized)................................ 2.94%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......................... $636,441
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets.................... 0.20%
Ratio of Net Investment Income to Average Net Assets....... 3.18%
Ratio of Expenses to Average Net Assets Prior to Waived
Fees and Reimbursed Expenses............................. 0.85%
Ratio of Net Investment Income to Average Net Assets Prior
to Waived Fees and Reimbursed Expenses................... 2.53%
</TABLE>
--------------
/1/The Fund commenced operations on May 5, 1997.
5 PROSPECTUS
<PAGE>
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PROSPECTUS 6
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Fund.
The Fund seeks to obtain a high level of income exempt from federal income
tax and California personal income tax, while preserving capital and liquidity,
by investing in high-quality, short-term U.S. dollar-denominated money market
instruments, primarily municipal obligations. This investment objective is
fundamental and cannot be changed without shareholder approval. There can be no
assurance that the Fund will achieve its investment objective. Wells Fargo
Bank, as investment advisor to the Fund, pursues the Fund's objective by
investing (under normal market conditions) substantially all of the Fund's
assets in the following types of municipal obligations that pay interest which
is exempt from both federal income tax and California personal income tax:
bonds, notes, and commercial paper issued by or on behalf of the State of
California, its cities, municipalities, political subdivisions and other public
authorities. The Fund also may invest in obligations issued by the U.S. Virgin
Islands, Puerto Rico and Guam, the interest on which also is exempt from
federal income tax and California personal income tax.
The 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 as determined in
accordance with Rule 2a-7 under the 1940 Act and the dollar-weighted average
maturity of the Fund's investments is 90 days or less.
As a matter of fundamental policy, at least 80% of the Fund's net assets are
invested (under normal market conditions) in municipal obligations that pay
interest which is exempt from federal income tax and not subject to the federal
alternative minimum tax (or in other open-end tax-free money market funds with
a similar fundamental policy). At least 80% of the Fund's total assets are
invested (under normal market conditions) in municipal obligations that pay
interest which is exempt from California personal income tax. The Fund's
investment advisor may rely either on the opinion of counsel to the issuer of
the municipal obligations or bond counsel regarding the tax treatment of these
obligations. In addition, the Fund may invest 25% or more of its assets in
California municipal obligations that are related in such a way that an
economic, business or political development or change affecting one such
obligation would also affect the other obligations; for example, the Fund may
own different municipal obligations which pay interest based on the revenues of
similar types of projects. For additional descriptions of the types of
securities and investment practices used by the Fund, see "Risk Factors" and
"Prospectus Appendix -- Additional
7 PROSPECTUS
<PAGE>
Investment Policies" in this Prospectus and "Investment Restrictions" and
"Additional Permitted Investment Activities" in the SAI.
The Fund may temporarily invest some of its assets in certain high-quality,
taxable money market instruments or may engage in certain other investment
activities as described in this Prospectus. The Fund may elect to invest
temporarily up to 20% of its net assets in certain permitted taxable
investments, which include cash reserves, U.S.
Government obligations, obligations of domestic and foreign banks, foreign
securities, rated commercial paper, taxable municipal obligations and
repurchase agreements. Such temporary investments would most likely be made
when there is an unexpected or abnormal level of investor purchases or
redemptions of Fund shares or because of unusual market conditions. The income
from these temporary investments and investment activities may be subject to
federal income tax and California personal income tax. However, as stated
above, Wells Fargo Bank seeks to invest substantially all of the Fund's assets
in securities exempt from federal income tax and California personal income
tax. A more complete description of the Funds' investments and investment
objectives is contained in "Prospectus Appendix -- Additional Investment
Policies" and 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. The Fund may invest in illiquid
securities (including certain restricted securities) which 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. 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. Of course, the Fund cannot guarantee
a $1.00 share price. 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 two rating categories by the requisite NRSROs or, if unrated,
determined to be of comparable quality to such rated
PROSPECTUS 8
<PAGE>
securities). These determinations are made by Wells Fargo Bank, as the Fund's
investment advisor, 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. In addition, the Fund emphasizes safety of principal and high
credit quality. In particular, the internal investment policies of the Fund's
investment advisor, 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 ("COFI") 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 or LIBOR,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates ("PSA") floaters or JJ Kenney index floaters.
Since the Fund invests primarily in securities issued by California and its
agencies and municipalities, events in California are more likely to affect the
Fund's investments. While the Fund seeks to reduce risk by investing its assets
in securities of various issuers, the Fund is considered to be nondiversified
for purposes of the 1940 Act.
9 PROSPECTUS
<PAGE>
However, the Fund will comply with the Internal Revenue Code of 1986, as
amended from time to time (the "Code"), diversification requirements, as
described in the "Prospectus Appendix -- Additional Investment Policies"
section below.
California experienced recurring budget deficits for four of its five fiscal
years ended June 30, 1992, caused by lower than anticipated tax revenues and
increased expenditures for certain programs. The budget deficits of the early
1990's depleted the state's available cash resources, and the state had to use
a series of external borrowings to meet its cash needs. As a consequence,
between 1991 and 1994, three of the agencies rating California's long-term debt
lowered their rating of the state's general obligation bonds between. In
particular, on July 15, 1994, Moody's Investors Service lowered its rating from
"Aa" to "A1," Standard & Poor's Ratings Group lowered its rating from "A+" to
"A" and termed its outlook as "stable," and Fitch Investors Service lowered its
rating from "AA" to "A." Such downgrading may impair issuers of California
municipal obligations from paying interest on or repaying the principal of such
California municipal obligations. Although further downgrading and other
factors may impact the availability of securities that meet the Fund's
investment policies and restrictions, California has had operating surpluses
for its past four fiscal years ended June 30, 1996 and has forecast a balanced
1996-1997 fiscal year budget. On July 30, 1996, Standard & Poors upgraded its
rating of California municipal obligations back to "A+," reflecting
California's economic improvement. However, the rating agencies continue to
monitor events in the state and the state and local governments' responses to
budget shortfalls. The Fund's investment advisor continues to monitor and
evaluate the Fund's investments in light of the events in California and the
Fund's investment objective and investment policies. See "Special
Considerations Affecting California Municipal Obligations" in the SAI.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900. Most of the services provided to the Stagecoach Fund
depends on the smooth functioning of computer systems. Any failure to adapt
these systems in time could hamper the Fund's operations and services. The
Fund's principal service providers have advised the Fund that they are working
on necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations, the companies
or entities in which the Fund invests also could be adversely impacted by the
Year 2000 issue. The extent of such impact cannot be predicted.
PERFORMANCE
The performance of the Fund may be advertised from time to time in terms of
current yield, effective yield, and average annual total return. In addition,
the Fund's performance may be advertised in terms of tax-equivalent yield or
effective
PROSPECTUS 10
<PAGE>
tax-equivalent yield. 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 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. The tax-equivalent and effective tax-
equivalent yields assume that a stated income tax rate has been applied to
determine the tax-equivalent figures. Application of a stated income-tax rate
results in higher yield and effective yield figures.
Average annual return is based on the overall dollar or percentage change of
an investment in the Fund and assumes the investment is at NAV and all
dividends and distributions are also 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
yields and effective yields for a 30-day period 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 the Company at 1-800-260-5969 or by writing the
Company at the address shown on the front cover of the Prospectus.
The Fund and Management
The Fund is one of over 30 Funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991. For
information on another Fund, please call Investor Services at 1-800-260-5969 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 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.
11 PROSPECTUS
<PAGE>
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment advisor, 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
August 1, 1998, Wells Fargo Bank provided investment advisory services for
approximately $63 billion of assets of individuals, trusts, estates and
institutions. Wells Fargo Bank also serves as the investment advisor or sub-
advisor to other separately managed series of the Company, and to five other
registered, open-end, management investment companies which consist of several
separately managed investment portfolios. Wells Fargo Bank, a wholly owned
subsidiary of Wells Fargo & Company, is located at 525 Market Street, San
Francisco, California 94105.
Wells Fargo & Company, the parent company of Wells Fargo Bank, has signed a
definitive agreement to merge with Norwest Corporation. The proposed merger is
subject to certain regulatory approvals and must be approved by shareholders of
both holding companies. The merger is expected to close in the second half of
1998. The combined company will be called Wells Fargo & Company. Wells Fargo
Bank has advised the Funds that the merger will not reduce the level or quality
of advisory and other services provided by Wells Fargo Bank to the Funds.
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.
PROSPECTUS 12
<PAGE>
Investing in the Fund
SHARE PRICE
The price of a Fund share is its "net asset value" or NAV. The NAV of shares
of the Fund 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. All expenses, including fees paid to the
investment advisor and co-administrators, are accrued daily and taken into
account for the purposes of computing NAV, which is expected to fluctuate
daily. 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.
Wells Fargo Bank calculates the Fund's NAV as of 12:00 Noon (Pacific time)
each Business Day. All transaction orders are processed at the NAV next
determined after the order is received.
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment from
the date of purchase until maturity rather than actual changes in market value.
The Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
Shares of the Fund are sold without a sales load on a continuous basis to
Customers who maintain qualified accounts with the trust division of a Bank.
Customers may include individuals, trusts, partnerships and corporations. All
share purchases are effected through a Customer's account at a Bank through
procedures established in connection with the requirements of the account, and
confirmations of share purchases and redemptions are sent to the Bank involved.
A Bank (or its nominee) is normally the 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 or call 1-800-260-5969.
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 no later than
12:00 Noon
13 PROSPECTUS
<PAGE>
(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 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 advisor, 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. Payment for
orders which 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.
Shares of a tax-free fund such as the Fund may not be suitable investments
for tax-exempt institutions or tax-deferred retirement plans, since such
investors would not benefit from the exempt status of the Funds' dividends. For
additional information on tax-deferred accounts, please contact a shareholder
servicing agent or selling agent or call 1-800-260-5969. In addition, Fund
shares are not available in all states.
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a statement after any account activity, including transactions,
dividends or capital gains, and at year-end 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, which is also
filed with the IRS, with tax information for the previous year to assist you in
tax return preparation. At least twice a year, 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
PROSPECTUS 14
<PAGE>
purchase order is effective and continue to earn dividends through the day
prior to the date you redeem such shares. Dividends for a Saturday, Sunday or
Holiday are credited on the preceding Business Day. If you redeem shares before
a dividend payment date, any dividends credited to you are paid on the
following dividend payment date unless you have redeemed all of the shares in
your account, in which case you receive your accrued dividends together with
your redemption proceeds. The Fund distributes any capital gains at least
annually. The Fund does not make distributions from net realized securities
gains unless capital loss carryovers, if any, have been utilized or have
expired.
Dividends declared in a month generally are distributed on the last Business
Day of that month. All dividend and capital gain distributions are reinvested
automatically in additional shares of the Fund at NAV or, at the option of the
investor, paid in cash. In all cases, distributions will be made in a manner
that is consistent with the provisions of the 1940 Act.
How to Redeem Shares
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Shares held by a
Bank on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the Customer's accounts at the Bank.
The Bank is responsible for 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 15 days after it receives a redemption order if, in the
judgment of the investment advisor, 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.
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
15 PROSPECTUS
<PAGE>
signature guarantee. Signature guarantees by notaries public are not
acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
All redemptions of Fund shares are made in cash, except that the commitment
to redeem shares in cash extends only to redemption requests made by an
investor during any 90-day period of up to the lesser of $250,000 or 1% of the
NAV of the Fund at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of redemption requests by
investors in excess of such amounts, the Board of Directors reserves the right
to have the Fund make payment, in whole or in part, in securities or other
assets, in case of an emergency or any time a cash distribution would impair
the liquidity of the Fund to the detriment of the existing shareholders. In
this event, the securities would be valued in the same manner as the Fund's
securities 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 advisor, 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
0.50% of the Fund's average daily net assets, and may waive such fee in whole
or in part. Any such waiver will reduce the Fund's expenses and, accordingly,
have a favorable impact on the Fund's yield. 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.
INVESTMENT SUB-ADVISOR
WCM, a wholly-owned subsidiary of Wells Fargo Bank, is the sub-advisor for
the Fund. As of August 1, 1998, WCM provided investment advice for assets
aggregating in excess of $32 billion. For providing sub-advisory services to
the Fund, WCM is entitled to receive from Wells Fargo Bank 0.05% of the Fund's
assets up to the first $960 million and 0.04% of all assets above $960 million.
WCM receives a minimum annual sub-advisory fee of $120,000 from the Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by
the Fund to Wells Fargo Bank.
PROSPECTUS 16
<PAGE>
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 servicing plan and related shareholder servicing
agreement with Wells Fargo Bank and may enter into similar agreements with
other Banks ("Shareholder Servicing Agents"). Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide shareholder administrative and liaison servicing
with respect to Fund shares, which include, without limitation, aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For these
services, a Shareholder Servicing Agent is entitled to receive a fee at the
annual rate of up to 0.20% of the average daily net assets attributable to the
shares owned of record or beneficially by investors with whom the Shareholder
Servicing Agent maintains a servicing relationship. In no case shall payments
exceed any maximum amount that may be deemed applicable under applicable laws,
regulations or rules, including the Conduct Rules of the National Association
of Securities Dealers ("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
17 PROSPECTUS
<PAGE>
Bank and Stephens also furnish office space and certain facilities to conduct
the Fund's business, and Stephens compensates the Company's Directors and
officers who are affiliated with Stephens. For these administrative services,
Wells Fargo Bank and Stephens are entitled to receive a monthly fee at the
annual rate of 0.03% and 0.04%, respectively, of the Fund's average daily net
assets. Wells Fargo Bank and Stephens may delegate certain of their respective
administrative duties to sub-administrators.
DISTRIBUTOR
Stephens 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. Stephens may, from time to time, pay
additional compensation to selling agents that will not exceed the maximum
compensation permitted under Rule 12b-1.
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.
DEFENSIVE 12B-1 PLAN
The Fund has entered into a "defensive" Distribution Plan under Rule 12b-1 of
the 1940 Act (the "Plan"). The Plan reflects that, to the extent any fees paid
pursuant to the Servicing Plan are deemed to be "primarily intended to result
in the sale of shares" of the Fund, such fees are approved pursuant to the
Plan. The Plan will not result in any separate payment of fees by the Fund.
PROSPECTUS 18
<PAGE>
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
advisor, 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, including the Fund, in a manner proportionate to the net assets
of each fund, on a transactional basis, or on such other basis as the Company's
Board of Directors deems equitable.
19 PROSPECTUS
<PAGE>
Taxes
Dividends distributed from the Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Such dividends will
also be exempt from California personal income tax to the extent such dividends
are attributable to instruments that pay interest which would be exempt from
California personal income taxes, if such instruments were held directly by an
individual. Dividends attributable to the Fund's interest income from taxable
securities and net short-term capital gains, if any, and capital gain
distributions will be taxable when paid, whether you take such distributions in
cash or have them automatically reinvested in additional Fund shares. However,
such distributions declared in October, November, and December and distributed
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 the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the 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 and California tax considerations generally affecting the
Fund and its shareholders. It is not intended as a substitute for careful tax
planning; you should consult your tax advisor with respect to your specific tax
situation as well as with respect to foreign, state and local taxes. Additional
tax considerations, including the federal alternative minimum tax, are
discussed in the SAI.
PROSPECTUS 20
<PAGE>
Prospectus Appendix --
Additional Investment Policies
FUND INVESTMENTS
The California Tax-Free Money Market Trust Fund may invest in the following
municipal obligations with remaining maturities not exceeding thirteen months:
(i) long-term municipal bonds rated at the date of purchase "MIG 1" or
"MIG 2" or, if no medium- or short-term rating is available, "Aa" or
better by Moody's or "AA" or better by S&P;
(ii) medium-term municipal notes rated at the date of purchase "MIG 1" or
"MIG 2" (or "VMIG 1" or "VMIG 2" in the case of an issue having a
variable rate with a demand feature) by Moody's or "SP-1+" or "SP-1"
by S&P; and
(iii) short-term municipal commercial paper rated at the date of purchase
"P-1" by Moody's or "A-1+" or "A1-+" by S&P.
Pending the investment of proceeds from the sale of Fund shares or proceeds
from sales of portfolio securities or in anticipation of redemptions or to
maintain a "defensive" posture when, in the opinion of Wells Fargo Bank, as
investment advisor, it is advisable to do so because of market conditions, the
Fund may elect to invest temporarily up to 20% of the current value of its
total assets in cash reserves or the following taxable high-quality money
market instruments:
(i) U.S. Government obligations;
(ii) bank instruments;
(iii) rated commercial paper;
(iv) repurchase agreements;
(v) foreign bank obligations;
(vi) high-quality municipal obligations, the income from which may or may
not be exempt from federal income taxes; and
(vii) certain securities issued by other investment companies.
Moreover, the 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
A-1 PROSPECTUS
<PAGE>
posture or in an effort to improve after-tax yield to the Fund's shareholders
when, in the opinion of Wells Fargo Bank, as investment advisor, it is
advisable to do so because of unusual market conditions.
Municipal Obligations
Subject to the maturity and other restrictions of Rule 2a-7, the Fund may
invest in Municipal Obligations. Municipal bonds generally have a maturity at
the time of issuance of up to 40 years. Medium-term municipal notes are
generally issued in anticipation of the receipt of tax funds, of the proceeds
of bond placements, or of other revenues. The ability of an issuer to make
payments on notes is therefore especially dependent on such tax receipts,
proceeds from bond sales or other revenues, as the case may be. Municipal
commercial paper is a debt obligation with a stated maturity of 270 days or
less that is issued to finance seasonal working capital needs or as short-term
financing in anticipation of longer-term debt. From time to time, the Fund may
invest 25% or more of the current value of its total assets in certain "private
activity bonds," such as pollution control bonds; provided, however, that such
investments will be made only to the extent they are consistent with the Fund's
fundamental policy of investing, under normal circumstances, at least 80% of
its net assets in municipal obligations that are exempt from federal income tax
and not subject to the federal alternative minimum tax.
The Fund will invest in the following municipal obligations with remaining
maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of purchase "Aa" or
better by Moody's or "AA" or better by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1" or "MIG 2" (or
"VMIG 1" or "VMIG 2" in the case of an issue having a variable rate
with a demand feature) by Moody's or "SP-1+", "SP-1" or "SP-2" by
S&P; and
(iii) short-term municipal commercial paper rated at the date of purchase
"P-1" by Moody's or "A-1+", or "A-1" or "A-2" by S&P.
For a further discussion of factors affecting purchases of municipal
obligations by the Fund, see "Special Considerations Affecting California
Municipal Obligations" in the SAI.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and
PROSPECTUS A-2
<PAGE>
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.
Custodial Receipts for Treasury Securities
The Fund may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by the Fund in
such participations will not exceed 5% of the value of the Fund's total assets.
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 money market funds of unaffiliated investment
companies. Wells Fargo Bank will waive its advisory fees for that portion of
the Fund's assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition. The Fund also may
purchase shares of exchange listed, closed-end funds.
Floating- and Variable-Rate Instruments
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in
the amount of interest received on the debt instruments. The floating- and
variable-rate instruments that the Fund may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
A-3 PROSPECTUS
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
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 20% 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 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.
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Fund 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,
the Fund may elect to invest temporarily up to 20% of the current value of its
net assets in cash
PROSPECTUS A-4
<PAGE>
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 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 shareholders when, in the opinion of Wells Fargo Bank, as investment
advisor, it is advisable to do so because of unusual market conditions.
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund may not hold more than 10% of the value
of its net assets in securities that are illiquid or such lower percentage as
may be required by the states in which the Fund sells its shares. Repurchase
agreements and time deposits that do not provide for payment to the Fund within
seven days after notice, guaranteed investment contracts and some commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act") (other than variable amount master
demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans may be subject to this limitation.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities which are not registered under the 1933 Act but which
can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act. Any such security will not be considered illiquid so long
as it is determined by the Company's Board of Directors, acting under
guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in the "How the Funds Work --
Investment Objective and Policies" section, is fundamental. Accordingly, such
investment objective and policies 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
A-5 PROSPECTUS
<PAGE>
determines, however, that the Fund's investment objective can best be achieved
by a substantive change in a nonfundamental investment policy or strategy, the
Company's Board may make such a change without 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
the net assets exists); (ii) not make loans of portfolio securities or other
assets, except that loans for purposes of this restriction will not include the
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in a public or private offering; and (iii) not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding, (a)
investments in municipal securities by the Fund (for the purpose of this
restriction, private activity bonds shall not be deemed municipal securities if
the payments of principal and interest on such bonds is the ultimate
responsibility of nongovernmental users), (b) U.S. Government obligations, and
(c) obligations of domestic banks (for purposes of this restriction, domestic
bank obligations do not include obligations of foreign branches of U.S. banks
and obligations of U.S. branches of foreign banks).
As matters of nonfundamental policy, the Fund may not invest more than 10% of
the current value of its net assets in repurchase agreements having maturities
of more than seven days, illiquid securities and fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days. It may be possible that the Company would own more than 10% of the
outstanding voting securities of an issuer.
For purposes of complying with the Code, the Fund will diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of
the market value of the Fund's assets is represented by cash, U.S. Government
obligations and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or of two or more issuers which the taxpayer controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.
In addition, at least 65% of the Fund's total assets are invested (under
normal market conditions) in municipal obligations that pay interest that is
exempt from California personal income tax. However, as a matter of general
operating policy, the Fund seeks to have substantially all of its assets
invested in such municipal obligations.
PROSPECTUS A-6
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET 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 a fund will meet this goal. Yields will vary
with market conditions.
[RECYCLE LOGO]
Printed on Recycled Paper SC 0218 (8/98)
<PAGE>
[LOGO OF STAGECOACH FUNDS]
------------------------------
PROSPECTUS
------------------------------
NATIONAL TAX-FREE MONEY MARKET TRUST
August 1, 1998
<PAGE>
STAGECOACH FUNDS(R)
NATIONAL TAX-FREE 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 NATIONAL TAX-FREE MONEY MARKET TRUST (the "Fund").
The NATIONAL TAX-FREE MONEY MARKET TRUST seeks to obtain a high level of
income exempt from federal income tax, while preserving capital and liquidity.
The Fund seeks to achieve this objective by investing in high-quality, U.S.
dollar-denominated money market instruments, primarily municipal 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 August 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 800-260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, 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 ADVISOR AND ADMINISTRATOR AND
PROVIDES THE FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED.
WELLS CAPITAL MANAGEMENT INC. ("WCM"), A WHOLLY OWNED SUBSIDIARY OF
WELLS FARGO BANK, IS THE INVESTMENT SUB-ADVISOR. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE
FUND'S SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED AUGUST 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
Finanical Highlights 5
How the Fund Works 6
The Fund and Management 9
Investing in the Fund 10
Dividends and Capital Gain Distributions 12
How to Redeem Shares 12
Management and Servicing Fees 13
Taxes 16
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 to the identified Prospectus sections and generally to the Fund's
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The Fund seeks to obtain a high level of income exempt from federal income
tax, while preserving capital and liquidity. The Fund seeks to achieve this
objective by investing in high-quality, U.S. dollar-denominated money market
instruments, primarily municipal obligations. Under normal market
conditions, substantially all of the Fund's assets are invested in municipal
obligations that are exempt from federal income tax. The Fund invests in
securities with remaining maturities not exceeding 397 days (13 months), as
determined in accordance with Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). See "How the Fund Works --Investment
Objectives and Policies" and "Prospectus Appendix -- Additional Investment
Policies" for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the 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 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 advisor, manages the Fund's
investments. Wells Fargo Bank also provides the Fund with administration,
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.
1 PROSPECTUS
<PAGE>
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 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. Shares
of the Fund may not be suitable investments for tax-exempt institutions or
tax-exempt retirement plans, since such investors generally would not
benefit from the tax-exempt status of the Fund's dividends. 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>
<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
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (after waivers or reimbursements)/1/.................. 0.00%
Rule 12b-1 Fee/2/.................................................... 0.00%
Other Expenses (after waivers or reimbursements)/3/.................. 0.20%
-----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)/4/... 0.20%
</TABLE>
--------------
/1/Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
/2/The Fund has adopted a defensive distribution plan under Rule 12b-1 of
the 1940 Act, which does not result in any added expenses to the Fund.
/3/Other Expenses (before waivers or reimbursements) would be 0.38%.
/4/Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.63%.
Note: The table does not reflect any charges that may be imposed by Wells
Fargo Bank or another Bank directly on certain customer accounts in
connection with an investment in the Fund.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual return and redemption at the end of each time period
indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
National Tax-Free Money Market Trust....... $ 2 $ 6 $11 $26
</TABLE>
3 PROSPECTUS
<PAGE>
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 you pay when you buy or sell Fund
shares. There are no Shareholder Transaction Expenses for the Fund. However,
the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES for Fund shares are based on applicable
contract amounts restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue to reduce expenses during the
current year, except that "Other Expenses" is based on estimated amounts for
the current year. Any waivers or reimbursements would 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 lesser 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 period from November 10, 1997
(commencement of operations) to March 31, 1998, which were audited by KPMG Peat
Marwick LLP. This information is provided to assist you in evaluating the
Fund's historical performance. This information should be read in conjunction
with the Fund's 1998 financial statements and the notes thereto. The Fund's SAI
has been incorporated by reference into this prospectus.
NATIONAL TAX-FREE MONEY MARKET TRUST/1/
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998
--------------
<S> <C>
Net Asset Value, beginning of period............................ $ 1.00
--------
Income from Investment Operations:
Net Investment Income.......................................... 0.01
Net realized gain on investments............................... 0.00
--------
Total from Investment Operations............................. 0.01
Less Distributions:
Dividends from net investment income........................... (0.01)
Distributions from net realized gain........................... 0.00
--------
Total from Distributions..................................... (0.01)
--------
Net Asset Value, end of period.................................. $ 1.00
========
Total Return (not annualized)................................ 1.30%
Ratios/Supplemental Data:
Net Assets, end of period (000s)............................... $229,447
Ratios to average net assets (annualized):
Ratio of expenses to average net assets........................ 0.20%
Ratio of net investment income to average net assets........... 3.32%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses....................................... 0.63%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................... 2.89%
</TABLE>
- --------------
/1/The Fund commenced operations on November 10, 1997.
5 PROSPECTUS
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Fund.
The Fund seeks to obtain a high level of income exempt from federal income tax
while preserving capital and liquidity. This investment objective is
fundamental and cannot be changed without shareholder approval. The Fund seeks
to achieve its objective by investing in high-quality, short-term U.S. dollar-
denominated money market instruments, primarily municipal obligations with
remaining maturities not exceeding thirteen (13) months.
Wells Fargo Bank, as investment advisor to the Fund, pursues the Fund's
objective by investing (under normal market conditions) substantially all of
the Fund's assets in the following types of municipal obligations that pay
interest which is exempt from federal income tax: bonds, notes and commercial
paper issued by or on behalf of states, territories, and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies, instrumentalities (including government-sponsored
enterprises) and authorities, the interest on which, in the opinion of counsel
to the issuer or bond counsel, is exempt from federal income tax. These
municipal obligations and the taxable investments described below may bear
interest at rates that are not fixed ("floating- and variable-rate
instruments").
The Fund may temporarily invest some of its assets in cash reserves or certain
high-quality, taxable money market instruments, or may engage in other
investment activities as described in this Prospectus. The Fund may elect to
invest temporarily up to 20% of its net assets in certain permitted taxable
investments, including cash reserves, U.S. Government obligations, obligations
of domestic banks, commercial paper, taxable municipal obligations and
repurchase agreements. The Fund also may invest in U.S. dollar-denominated
obligations of foreign banks and foreign securities. Such temporary investments
most likely would be made when there is an unexpected or abnormal level of
investor purchases or redemptions of interests in the Fund or because of
unusual market conditions. The income from these temporary investments and
investment activities may be subject to federal income tax. However, as stated
above, Wells Fargo Bank seeks to invest substantially all of the Fund's assets
in securities exempt from such tax.
As a matter of fundamental policy which can not be changed without shareholder
approval, at least 80% of the net assets of the Fund are invested (under normal
market conditions) in municipal obligations that pay interest which is exempt
from federal income tax and is not subject to the federal alternative minimum
tax. However, as a matter of general operating policy, the Fund seeks to invest
substantially all of its assets in such municipal obligations. The Fund's
investment adviser may rely either on the opinion of
PROSPECTUS 6
<PAGE>
counsel to the issuer of the municipal obligations or bond counsel regarding
the tax treatment of these obligations. In addition, the Fund may invest 25% or
more of its assets in municipal obligations that are related in such a way that
an economic, business or political development or change affecting one such
obligation would also affect the other obligations; for example, the Fund may
own different municipal obligations which pay interest based on the revenues of
similar types of projects.
Additional information about the Fund's investment activities is contained in
the "Prospectus Appendix -- Additional Investment Policies."
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.
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 two rating categories
by the requisite Nationally Recognized Statistical Rating Organizations
("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 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
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 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 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. These risks should be
lessened because the Fund invests in high-quality, short-term securities.
YEAR 2000 RISKS
Many computer software systems in use today cannot distinguish the Year 2000
from the Year 1900. Most of the services provided to the Fund depend on the
smooth functioning of computer systems. Any failure to adapt these systems in
time could hamper the Fund's operations and services. The Fund's principal
service providers have advised the Fund that they are working on necessary
changes to their systems and that they expect their systems to be adapted in
time. There can, of course, be no assurance of success. In addition, because
the Year 2000 issue affects virtually all organizations, the companies or
entities in which the Fund invests also could be adversely impacted by the Year
2000 issue. The extent of such impact cannot be predicted.
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 the Fund's investment
policies and risks.
PERFORMANCE
The performance of the Fund may be advertised from time to time in terms of
current yield, effective yield and average annual total return. In addition,
the Fund's performance may be advertised in terms of tax-equivalent yield or
effective tax-equivalent yield. Performance figures are based on historical
results and are not intended to indicate future performance.
PROSPECTUS 8
<PAGE>
Yield refers to the income generated by an investment in the Fund 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. The tax-equivalent and effective tax-
equivalent yields assume that a stated income tax rate has been applied to
determine the tax-equivalent figures.
Average annual total return is based on the overall dollar or percentage
change of an investment in the Fund and assumes that the investment is at NAV
and all dividends and distributions are also 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
yields and effective yields for a 30-day period or, in sales literature,
distribution rates.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report. The SAI and the Annual Report (when
available) may be obtained upon request without charge by calling the Company
at 1-800-260-5969 or by writing the Company at the address shown on the back
cover of the Prospectus.
The Fund and Management
The Fund is one fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of over 30 other Funds. For information on another fund, please call
Investor Services at 1-800-260-5969 or write the Company at the address shown
on the back 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 changing the 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 advisor, 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
9 PROSPECTUS
<PAGE>
the largest banks in the United States, was founded in 1852 and is the oldest
bank in the western United States. As of August 1, 1998, Wells Fargo Bank
provided investment advisory services for approximately $63 billion of assets
of individuals, trusts, estates and institutions. Wells Fargo Bank also serves
as the investment advisor or sub-advisor to 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.
Wells Fargo & Company/Norwest Merger the parent company of Wells Fargo Bank,
has signed a definitive agreement to merge with Norwest Corporation. The
proposed merger is subject to certain regulatory approvals and must be
approved by shareholders of both holding companies. The merger is expected to
close in the second half of 1998. The combined company will be called Wells
Fargo & Company. Wells Fargo Bank has advised the Funds that the merger will
not reduce the level or quality of advisory and other services provided by
Wells Fargo Bank to the Funds.
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
SHARE VALUE
The price of a Fund share is its "net asset value" or NAV. The NAV of shares
of the Fund 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. All expenses, including fees paid to the
investment adviser and co-administrators, are accrued daily and taken into
account for the purposes of computing NAV, which is expected to fluctuate
daily. 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.
PROSPECTUS 10
<PAGE>
Wells Fargo Bank calculates the Fund's NAV as of 9:00 a.m. (Pacific time) each
Business Day. All transaction orders are processed at the NAV next determined
after the order is received.
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment from
the date of purchase until maturity rather than actual changes in market value.
The Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
Shares of the Fund are sold without a sales load on a continuous basis to
Customers who maintain qualified accounts with the trust division of a Bank.
Customers may include individuals, trusts, partnerships and corporations. All
share purchases are effected through a Customer's account at a Bank through
procedures established in connection with the requirements of the account, and
confirmations of share purchases and redemptions are sent to the Bank involved.
A Bank (or its nominee) is normally the 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 or call 1-800-260-5969.
Purchase orders for shares in the Fund must be received by the Fund by 9:00
a.m. (Pacific time) on a Business Day. Payment for such shares must also be
made in federal funds or other funds immediately available no later than 9:00
a.m. (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.
Each Bank is responsible for transmitting orders for purchases by 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, at
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. Payment for
orders which 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.
11 PROSPECTUS
<PAGE>
Shares of a tax-free fund, such as the Fund, may not be suitable investments
for tax-exempt institutions or tax-deferred retirement plans, since such
investors would not benefit from the exempt status of the Funds' dividends. For
additional information on tax-deferred accounts, please contact a shareholder
servicing agent or selling agent or call 1-800-260-5969. In addition, Fund
shares are not available in all states.
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a statement after any account activity, including transactions,
dividends, or capital gains, and at year-end. Every January, investors will be
provided a statement, which is also filed with the IRS, with tax information
for the previous year to assist 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 9:00 a.m. (Pacific time). If your purchase order
is received before 9:00 a.m. on any Business Day, you begin earning dividends
on the day your purchase order is effective and continue to earn dividends
through the day prior to the date you redeem such shares. Dividends for a
Saturday, Sunday or Holiday are credited on the preceding Business Day. If you
redeem shares before a dividend payment date, any dividends credited to you are
paid on the following dividend payment date unless you have redeemed all of the
shares in your account, in which case you receive your accrued dividends
together with your redemption proceeds. The Fund distributes any capital gains
at least annually. The Fund does not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized or
have expired.
Dividends declared in a month generally are distributed on the last Business
Day of that month. All dividend and capital gain distributions are reinvested
automatically in additional shares of the Fund at NAV or, at the option of the
investor, paid in cash. In all cases, distributions will be made in a manner
that is consistent with the provisions of the 1940 Act.
How to Redeem Shares
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Shares held by a
Bank on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the Customer's accounts at the Bank.
The Bank is responsible for transmitting redemption requests to the Company and
crediting its Customers' accounts with the redemption proceeds on a
PROSPECTUS 12
<PAGE>
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 after it receives a redemption order if, in the judgment of the
investment advisor, 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.
To be accepted by the Company, a letter requesting redemption must include:
(i) the Fund's name and account registration from which the shares are being
redeemed; (ii) the account number; (iii) the amount to be redeemed; (iv) the
signatures of all registered owners; and (v) a signature guarantee by any
eligible guarantor institution. An "eligible guarantor institution" includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may be
requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
All redemptions of Fund shares are made in cash, except that the commitment
to redeem shares in cash extends only to redemption requests made by an
investor during any 90-day period of up to the lesser of $250,000 or 1% of the
NAV of the Fund at the beginning of such period. This commitment is
irrevocable without the prior approval of the SEC. In the case of redemption
requests by investors in excess of such amounts, the Board of Directors
reserves the right to have the Fund make payment, in whole or in part, in
securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as the Fund's securities are valued. If the recipient were to sell
such securities, the investor might incur brokerage charges.
Management and Servicing Fees
INVESTMENT ADVISOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment advisor, 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 Fund's average daily net assets, and may waive such fee in whole
or in part. Any such waiver will reduce the Fund's expenses and, accordingly,
have a favorable
13 PROSPECTUS
<PAGE>
impact on the Fund's yield. 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.
INVESTMENT SUB-ADVISOR
WCM, a wholly owned subsidiary of Wells Fargo Bank, is the sub-advisor for the
Fund. As of August 1, 1998, WCM provided investment advice for assets
aggregating in excess of $32 billion. For providing sub-advisory services to
the Fund, WCM is entitled to receive from Wells Fargo Bank 0.05% of the Fund's
assets up to the first $960 million and 0.04% of all assets above $960 million.
WCM receives a minimum annual sub-advisory fee of $120,000 from the Fund. The
minimum annual fee payable to WCM does not increase the advisory fee paid by
the Fund to Wells Fargo Bank. WCM is entitled to receive from Wells Fargo Bank
a minimum annual sub-advisory fee of $120,000. This minimum annual fee payable
to WCM does not affect the advisory fee paid by the Fund to Wells Fargo Bank.
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 adopted a servicing plan and entered into a related shareholder
servicing agreement with Wells Fargo Bank and may enter into similar agreements
with other Banks ("Shareholder Servicing Agents"). Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide shareholder administrative and liaison services
with respect to Fund shares, which include, without limitation, aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For these
services, a Shareholder Servicing Agent is entitled to receive a fee at the
annual rate of up to 0.20% 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 National Association
of Securities Dealers ("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
PROSPECTUS 14
<PAGE>
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 administrative duties to sub-
administrators.
SPONSOR AND DISTRIBUTOR
Stephens 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. Stephens may, from time to time, pay
additional compensation to selling agents that will not exceed the maximum
compensation permitted under Rule 12 b-1.
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.
15 PROSPECTUS
<PAGE>
DEFENSIVE 12B-1 PLAN
The Fund has adopted a "defensive" Distribution Plan under Rule 12b-1 of the
1940 Act (the "Plan"). The Plan reflects that, to the extent any fees paid
pursuant to the Servicing Plan are deemed to be "primarily intended to result
in the sale of shares" of the Fund, such fees are approved pursuant to the
Plan. The Plan will not result in any separate payment of fees by the Fund.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, each fund of the Company bears all
costs of its operations, including its pro rata portion of Company expenses
such as fees and expenses of its independent auditors and legal counsel;
compensation of the Company's directors who are not affiliated with the
adviser, administrator or any of their affiliates; advisory, transfer agency,
custody and administration fees; and any extraordinary expenses. Expenses
attributable to each fund or class are charged against the assets of the fund
or class. General expenses of the Company are allocated among all of the funds
of the Company, including the Fund, in a manner proportionate to the net assets
of each fund, on a transactional basis, or on such other basis as the Company's
Board of Directors deems equitable.
Taxes
Dividends distributed from the Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends attributable
to the Fund's interest income from taxable securities and net short-term
capital gains, if any, and capital gain distributions will be taxable when
paid, whether you takes such distributions in cash or have them automatically
reinvested in additional Fund shares. However, such 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 the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Additional tax
considerations, including the federal alternative minimum tax, are discussed in
the SAI.
As long as the Fund continually maintains a $1.00 NAV, you ordinarily will
not recognize a taxable gain or loss on the redemption or exchange of your
Fund shares.
PROSPECTUS 16
<PAGE>
Prospectus appendix --
Additional investment policies
FUND INVESTMENTS
Set forth below is a description of certain permissible investments and
investment policies of the Fund. Additional information about the Fund's
investments is contained in the Fund's SAI.
The Fund may invest in the following:
(i) certain municipal obligations;
(ii) certain U.S. Government obligations;
(iii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other obligations of U.S. banks (including foreign
branches) that have more than $1 billion in total assets at the time
of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC;
(iv) commercial paper rated at the date of purchase P-1 by Moody's or
"A-1+" or "A-1" by S&P;
(v) certain floating- and variable-rate instruments;
(vi) certain repurchase agreements;
(vii) foreign bank obligations; and
(viii) certain securities issued by other investment companies.
Municipal Obligations
The Fund may invest in various types of municipal obligations. Municipal bonds
generally have a maturity at the time of issuance of up to 40 years. Medium-
term municipal notes are generally issued in anticipation of the receipt of tax
funds, of the proceeds of bond placements, or of other revenues. The ability of
an issuer to make payments on notes is therefore especially dependent on such
tax receipts, proceeds from bond sales or other revenues, as the case may be.
Municipal commercial paper is a debt obligation with a stated maturity of 270
days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. From time to time,
the Fund may invest 25% or more of the current value of its total assets in
certain "private activity bonds," such as pollution control bonds; provided,
however, that such investments will be made only to the extent they are
consistent with the Fund's fundamental policy of investing, under normal
circumstances, at least 80% of its net assets in municipal obligations that are
exempt from federal income tax and not subject to the federal alternative
minimum tax.
A-1 PROSPECTUS
<PAGE>
The Fund will invest in the following municipal obligations with remaining
maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of purchase "Aa" or
better by Moody's or "AA" or better by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1" or "MIG 2" (or
"VMIG 1" or "VMIG 2" in the case of an issue having a variable rate
with a demand feature) by Moody's or "SP-1+" "SP-1" or "SP-2" by
S&P; and
(iii) short-term municipal commercial paper rated at the date of purchase
"P-1" by Moody's or "A-1+", or "A-1" or "A-2" by S&P.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government Obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their
structure or contract terms.
Other Investment Companies
Subject to the limitations set forth below and in the 1940 Act, the Fund may
invest in securities of other investment companies. For temporary investments,
the Fund may invest in shares of other open-end investment companies that
invest exclusively in high-quality short-term securities subject to the limits
set forth under Section 12 of the 1940 Act, provided however, that any such
company has a policy of investing, under normal market conditions, at least 80%
of its net assets in obligations that are exempt from federal income tax and
are not subject to the federal alternative minimum tax. Such investment
companies can be expected to charge management fees and other operating
expenses that would be in addition to those charged to the Fund.
Floating- and Variable-Rate Instruments
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These
PROSPECTUS A-2
<PAGE>
adjustments generally limit the increase or decrease in the amount of interest
received on the debt instruments. The floating- and variable-rate instruments
that the Fund may purchase include certificates of participation in such
instruments. Floating- and variable-rate instruments are subject to interest-
rate risk and credit risk.
Repurchase Agreements
The Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collaterallized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
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 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.
A-3 PROSPECTUS
<PAGE>
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Fund or
proceeds from sales of portfolio securities or in anticipation of redemptions
or to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank,
as investment adviser, it is advisable to do so because of market conditions,
the 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 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 shareholders when, in the opinion of Wells Fargo Bank, as investment
adviser, it is advisable to do so because of unusual market conditions.
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund may not hold more than 10% of the value
of its net assets in securities that are illiquid or such lower percentage as
may be required by the states in which the Fund sells its shares. Repurchase
agreements and time deposits that do not provide for payment to the Fund within
seven days after notice, guaranteed investment contracts and some commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act") (other than variable amount master
demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans may be subject to this limitation.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities which are not registered under the 1933 Act but which
can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act. Any such security will not be considered illiquid so long
as it is determined by the Company's Board of Directors, acting under
guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security.
PROSPECTUS A-4
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in the "How the Funds Work --
Investment Objective and Policies" section, is fundamental. Accordingly, such
investment objective and policies may not be changed without approval by the
vote of the holders of a majority of the Fund's outstanding voting securities,
as described under "Capital Stock" in the SAI. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
Company's Board of Directors determines, however, that the Fund's investment
objective can best be achieved by a substantive change in a nonfundamental
investment policy or strategy, the Company's Board may make such a change
without shareholder approval and will disclose any such material changes in the
then-current prospectus. Additional information about the Fund's investment
policies and restrictions is contained in the SAI under "Investment
Restrictions."
As matters of fundamental policy, the Fund may not: (1) purchase the
securities of issuers conducting their principal business activity in the same
industry if, immediately after the purchase and as a result thereof, the value
of the Fund's investments in that industry would be 25% or more of the current
value of the Fund's total assets, provided that there is no limitation with
respect to investments in (i) municipal securities (for the purpose of this
restriction, private activity bonds and notes shall not be deemed municipal
securities if the payments of principal and interest on such bonds or notes is
the ultimate responsibility of non-governmental issuers), (ii) obligations of
the United States Government, its agencies or instrumentalities, 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) issue senior securities,
except as permitted by applicable law; or (3) purchase securities of any issuer
(except securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, including government-sponsored enterprises) if, as a
result, 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.
As matters of non-fundamental policy the Fund may not: (1) purchase securities
on margin (except for short-term credits necessary for the clearance of
transactions) or make short sales of securities; (2) 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; (3) make investments for the purpose of exercising control or
management; (4) borrow money, 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);
(5) make loans, except to the extent permitted by applicable law; or (6) write,
A-5 PROSPECTUS
<PAGE>
purchase or sell puts, calls, options, warrants or any combination thereof,
except that the Fund may purchase securities with put rights in order to
maintain liquidity.
As a matter of general operating policy, the Fund may invest in shares of
other open-end, management investment companies, subject to the limitations of
Section 12(d)(1) of the 1940 Act, provided that any such purchases will be
limited to temporary investments in shares of unaffiliated investment
companies. These unaffiliated investment companies must have a fundamental
investment policy of investing at least 80% of their net assets in obligations
that are exempt from federal income taxes and are not subject to the federal
alternative minimum tax. In addition, the Fund reserves the right to invest up
to 10% of the current value of its net assets in fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days, repurchase agreements maturing in more than seven days, illiquid
securities and restricted securities.
PROSPECTUS A-6
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET 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 a fund will meet this goal. Yields will vary
with market conditions.
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC 657 (8/98)
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Funds
Prospectus
National Tax-Free Please read this Prospectus and keep it for
Money Market Fund future reference. It is designed to provide you
with important information and to help you
Prime Money Market decide if a Fund's goals match your own.
Fund
Treasury Plus Money These securities have not been approved or
Market Fund disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities
Institutional Class commission or any other regulatory authority,
nor have any of these authorities passed upon
Investment Advisor the accuracy or adequacy of this Prospectus.
and Administrator: Any representation to the contrary is a
criminal offense.
Wells Fargo Bank
Distributor and Fund shares are NOT deposits or other
Co-Administrator: obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Stephens Inc. Fargo Bank"), Wells Capital Management
Incorporated ("Wells Capital Management" or
"WCM"), or any of their affiliates. Fund shares
are NOT insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve Board
or any other govern-mental 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
PERCENT
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 the 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 about 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. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds National Tax-Free Money Market Fund 8
This section contains Prime Money Market Fund 11
important information
about the individual Treasury Plus Money Market Fund 16
Funds.
General Investment Risks 20
- --------------------------------------------------------------------------------
Your Account Your Fund Account 24
Turn to this section How to Buy Shares 25
for information on how
to open and maintain How to Sell Shares 26
your account, including
how to buy, sell and Exchanges 27
exchange Fund shares.
Other Information 28
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 31
Look here for details
on the organization of How to Read the Financial Highlights 34
the Funds and term
definitions. Glossary 35
<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 the risk 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. ("Stagecoach").
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 23.
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. Capital gains, if any, are
distributed at least annually.
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 Plus
- --------------------------------------------------------------------------------
<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 Plus
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee
(after waivers) 0.10% 0.07% 0.10%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.15% 0.23% 0.15%
- --------------------------------------------------------------------------------
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) 0.16% 0.23% 0.15%
- --------------------------------------------------------------------------------
Total fund operating expenses
(before waivers or reimbursements) 0.41% 0.53% 0.40%
- --------------------------------------------------------------------------------
<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 National
the end of each period. Prime Tax-Free Treasury Plus
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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 Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- -------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The National Tax-Free Money Market Fund seeks to 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 Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. 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
nation ally 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 Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 20 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 Additional Fund Facts
ADDITION
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>
National Tax-Free
Money Market Fund Financial Highlights/1/
See "Historical Fund Information" on page 29.
See "How to Read the Financial Highlights" on page 34.
- --------------------------------------------------------------------------------
===============================================================================
FOR A SHARE OUTSTANDING
===============================================================================
March 31,
For the period ended: 1998
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain
on investments 0.00
- -------------------------------------------------------------------------------
Total from investment operations 0.01
- -------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01)
Distributions from net
realized gain 0.00
- -------------------------------------------------------------------------------
Total from distributions (0.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- -------------------------------------------------------------------------------
Total return (not annualized) 0.91%
- -------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $54,302
- -------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 0.30%
Ratio of net investment income
to average net assets 3.05%
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived fees
and reimbursed expenses 0.52%
- -------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses 2.83%
- -------------------------------------------------------------------------------
/1/ The Institutional Class shares commenced operations on December 15, 1997.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
Prime Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Prime Money Market 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:
. 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.
Stagecoach Money Market Funds Prospectus 11
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
ARROW]
You should consider both the General Investment Risks beginning
on page 20 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.
12 Stagecoach Money Market Funds Prospectus
<PAGE>
This page intentionally left blank
- -------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 13
<PAGE>
Prime Money Market Fund Financial Highlights
See "Historical Fund Information" on page 29.
See "How to Read the Financial Highlights" on page 34.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON AUGUST 11, 1995 (PRIOR YEARS-SERVICE CLASS)
-------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Mar. 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1995 1994/3/ 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 0.05 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 0.05 0.03 0.05 0.01 0.05 0.02 0.03
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.05) (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: (0.05) (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) 5.58% 2.64% 5.39% 5.65% 5.60% 3.71%/5/ 3.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 802,511 $ 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 5.46% 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
- -----------------------------------------------------------------------------------------------------------------------------------
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 5.30% 5.12% 4.98% 5.24% 5.20% 3.19% 2.48%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1994
===================================================================================================================================
Returns for other share classes may vary due to different 3.88%
fees and expenses. These returns reflect waivers and
reimbursements, do not reflect sales loads, are not a
guarantee of future performance and have not been audited./4/
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from December 31 to September 30.
/4/ For periods prior to August 11, 1995, these figures reflect the performance
and expenses of the Service Class Shares.
/5/ Annualized.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
Prime Money Market Fund Financial Highlights
See "Historical Fund Information" on page 29.
See "How to Read the Financial Highlights" on page 34.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
FOR A SHARE OUTSTANDING
=========================================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON AUGUST 11, 1995 (PRIOR YEARS-SERVICE)
---------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31,
For the period ended: 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
- -------------------------------------------------------------------------------------------------------------------------
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>
=========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1993 1992 1991 1990 1989 1988
=========================================================================================================================
Returns for other share classes may vary due 3.00% 3.61% 5.85% 8.03% 9.04% 7.31%
to different fees and expenses. These returns
reflect waivers and reimbursements, do not
reflect sales loads, are not a guarantee of
future performance and have not been audited./4/
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from December 31 to September 30.
/4/ For periods prior to August 11, 1995, these figures reflect the performance
and expenses of the Service Class Shares.
/5/ Annualized.
Stagecoach Money Market Funds Prospectus 15
<PAGE>
Treasury Plus Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Treasury Plus Money Market 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.
16 Stagecoach Money Market Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 20 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 17
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" on page 29.
See "How to Read the Financial Highlights" on page 34.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==============================================================================================
FOR A SHARE OUTSTANDING
==============================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON AUGUST 11, 1995 (PRIOR YEARS-SERVICE CLASS)
------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1995 1994/3/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.03 0.05 0.01 0.05 0.02
Net realized and
unrealized gain
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------
Total from investment
operations 0.05 0.03 0.05 0.01 0.05 0.02
- ----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.05) (0.03) (0.05) (0.01) (0.05) (0.02)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------
Total from distributions (0.05) (0.03) (0.05) (0.01) (0.05) (0.02)
- ----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
Total return (not
annualized) 5.41% 2.58% 5.26% 5.51%/4/ 5.42% 3.75%/4/
- ----------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $501,494 $449,647 $540,689 $36,443 $1,001,707 $690,630
- ----------------------------------------------------------------------------------------------
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%
Ratio of net investment
income to average
net assets 5.28% 5.11% 5.21% 5.42% 5.32% 3.72%
- ----------------------------------------------------------------------------------------------
Portfolio turnover 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 0.40% 0.39% 0.59% 0.69% 0.66% 0.90%
- ----------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets prior to
waived fees and
reimbursed expenses 5.13% 4.97% 4.87% 4.99% 5.08% 3.25%
- ----------------------------------------------------------------------------------------------
<CAPTION>
==============================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1994
==============================================================================================
Returns for other share classes may vary due to different fees and expenses. 3.84%
These returns reflect fee waivers and reimbursements, do not reflect sales
loads, are not a guarantee of future performance and have not been audited./5/
- ----------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
/4/ Annualized.
/5/ For periods prior to August 11, 1995, these figures reflect the performance
and expenses of the Service Class Shares.
18 Stagecoach Money Market Funds Prospectus
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" on page 29.
See "How to Read the Financial Highlights" on page 34.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================================
FOR A SHARE OUTSTANDING
===========================================================================================================
INSTITUTIONAL CLASS SHARES -- COMMENCED
ON AUGUST 11, 1995 (PRIOR YEARS-SERVICE CLASS)
------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31, March 31,
For the period ended: 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 0.07 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 0.05 0.07 0.08 0.07 0.06
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.03) (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 0.00
- -----------------------------------------------------------------------------------------------------------
Total from distributions (0.03) (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 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Total return (not
annualized) 2.81% 3.13% 5.03% 7.42% 8.58% 7.63% 6.20%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $654,950 $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% 0.43% 0.45% 0.48% 0.56% 0.63% 0.69%
Ratio of net investment
income to average
net assets 2.77% 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 N/A
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.90% 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 2.30% 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 2.88% 3.32% 5.65% 7.75% 8.78% 7.06%
may 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./5/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
/4/ Annualized.
/5/ For periods prior to August 11, 1995, these figures reflect the performance
and expenses of the Service Class Shares.
Stagecoach Money Market Funds Prospectus 19
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk 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;
20 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 and the risks associated
with them. 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.
Stagecoach Money Market Funds Prospectus 21
<PAGE>
General Investment Risk
- --------------------------------------------------------------------------------
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.
Year 2000 Risk-- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided to
the Funds depend on the proper functioning of computer systems. Any failure to
adapt these systems in time could hamper the Funds' operations and services. The
Funds' principal service providers have advised the Funds that they are working
on the necessary changes to their systems and that they expect their systems to
be adapted in time. There can, of course, be no assurance of success. In
addition, because the Year 2000 issue affects virtually all organizations and
governments, the companies or entities in which the Funds invest also could be
adversely impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
========================================================================
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.
=======================================================================
22 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL TREASURY
TAX-FREE PRIME PLUS
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
<S> <C> <C> <C> <C>
FLOATING AND VARIABLE
RATE DEBT
Instruments with interest Interest Rate and . . .
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which Credit and . . .
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed upon
time and price, usually
with interest.
- --------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment Market Risk . . .
in shares 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 Information, Liquidity . . .
obligations of foreign Political, Regulatory,
branches of U.S. banks and Diplomatic Risk
or U.S. branches of
foreign banks.
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning Credit, Leverage and . . .
securities to brokers, Counter-Party Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in accordance
with existing investment
policies.
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an Leverage Risk . . .
equivalent of 20% (10%
for the National Tax-Free
Money Market) of 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. Illiquid
securities are limited
to 10% of assets for
each Fund.
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market 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 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:
. $5,000,000 per Fund minimum initial investment for the Prime and Treasury
Plus Money Market Funds;
. $150,000 minimum initial investment for the National Tax-Free Money Market
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 Fund are generally processed at
12:00 noon on the same day. Requests we receive in proper form for the
Treasury Plus Money Market Fund before 2:00 PM(Pacific time) generally are
processed at 2:00 PM on the same day.
. Requests we receive from an Institution in proper form before 9:00 AM
(Pacific time) for the National Tax-Free Money Market Fund generally are
processed at 9:00 AM on the same day.
. Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM(Pacific time) from certain institutions with certain automated
arrangements in place generally are processed at 2:00 PM on the same day.
. Requests we receive after the above-specified times for each Fund are deemed
to be received and are processed the next business day at the applicable Net
Asset Value (NAV).
24 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Payment for shares may be made by Institutions in funds immediately available
to us no later than 1:00 PM (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.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption so that we may be reasonably certain that investments made by
check have been collected.
. 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 25
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
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 from an institution in proper form before
12:00 noon (Pacific time) on any business day for the Prime Money Market Fund
at the NAV determined as of 12:00 noon on the same business day. Requests we
receive in proper form for the Treasury Plus Market Fund before 12:00 noon
(Pacific time) generally are processed at 2:00 PM on the same day.
. We process requests we receive in proper form before 9:00 AM (Pacific time)
on any business day for the National Tax-Free Money Market Fund at the NAV
determined as of 9:00 AM on the same business day.
. Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM(Pacific time) from certain institutions with certain automated
arrangements in place generally are processed at 2:00 PM on the same day.
. Redemption proceeds are usually wired to the redeeming Institution the
following business day.
. Requests we receive after the above specified times are deemed to be received
and are processed the next business day at the applicable NAV.
. We reserve the right to delay payment of a redemption for up to 15 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 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 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. However, dividends distributed by the National Tax-Free Money Market
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.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
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.
28 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Historical Fund Information
National Tax-Free Money Market 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 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 or about September 6, 1996, the Fund
was reorganized as the Prime Money Market 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 Plus Money Market Fund-- Prior to August 1, 1990, the Treasury Plus
Money Market 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.
Stagecoach Money Market Funds Prospectus 29
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Funds.
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.
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.
30 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.
================================================================================
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 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 Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of
activities dividends
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market Street San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the Funds'
assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 31
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, or amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of 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 U.S. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of August 1, 1998,
Wells Fargo Bank and its affiliates managed over $63 billion in assets. The
Funds paid Wells Fargo Bank the following for advisory services (after fee
waivers) for the fiscal period ended March 31, 1998:
- --------------------------------------------------------------------------------
National Tax-Free Money Market Fund .07%
- --------------------------------------------------------------------------------
Prime Money Market Fund .10%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .10%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of $32
billion. For providing sub-advisory services to the Funds, WCMis entitled to
receive from Wells Fargo Bank 0.05% of each Fund's assets up to the first $960
million and 0.04% of all assets above $960 million. WCM is entitled to receive
from Wells Fargo Bank a minimum annual sub-advisory fee of $120,000. This
minimum annual fee payable to WCM does not affect the advisory fee paid by the
Funds to Wells Fargo Bank.
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.
32 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The Distributor and Co-Administrator
Stephens is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator.
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 Fund .20%
- --------------------------------------------------------------------------------
Prime Money Market Fund .25%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .25%
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 33
<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, with the exception of the Institutional Class Calendar-
year returns, or 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 and Treasury Plus Money Market 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 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.
34 Stagecoach Money Market Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
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.
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.
Stagecoach Money Market Funds Prospectus 35
<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 a fair price.
Moody's
A nationally recognized ratings organization.
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 Fund is
determined each business day at 12:00 noon (Pacific time). The NAVper share of
the Treasury Plus Money Market Fund is determined each day at 2:00 PM(Pacific
time). The NAV per share of the National Tax-Free Money Market Funds is
determined each business day at 9:00 AM (Pacific time).
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.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Weighted Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
36 Stagecoach Money Market Funds Prospectus
<PAGE>
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- --------------------------------------------------------------------------------
<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 MONEY MARKET 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 MMI P (8/98)
<PAGE>
[LOGO OF STAGECOACH FUNDS]
-----------------------------
PROSPECTUS
-----------------------------
MONEY MARKET TRUST
August 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 August 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 SEC, 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 ADVISOR AND ADMINISTRATOR AND
PROVIDES THE FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED.
WELLS CAPITAL MANAGEMENT INC. ("WCM"), A WHOLLY OWNED SUBSIDIARY OF
WELLS FARGO BANK, IS THE INVESTMENT SUB-ADVISOR. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS
THE FUND'S CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED AUGUST 1, 1998
PROSPECTUS
<PAGE>
PROSPECTUS
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
<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 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 advisor, manages your
investments. Wells Fargo Bank also provides the Fund with administration,
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 5% annual return and 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 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 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 period ending March 31, 1998, which
were audited by KPMG Peat Marwick LLP. This information is provided to assist
you in evaluating the Fund's historical performance. This information should be
read in conjunction with the Fund's 1998 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>
YEAR SIX MONTHS FOUR MONTHS PERIOD
ENDED ENDED YEAR ENDED ENDED FOR THE YEAR ENDED MAY 31, ENDED
MARCH 31, MAR. 31, SEPT. 30, SEPT. 30, -------------------------------------- MAY 31,
1998 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... 0.05 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.............. 0.05 0.03 0.05 0.02 0.05 0.03 0.03 0.05 0.05
Less Distributions:
Dividends from net
investment income....... (0.05) (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........... (0.05) (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)............. 5.62% 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)........... $630,770 $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.................. 5.46% 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................ 5.05% 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 approved
by the Company's Board of Directors. Certain types of commercial paper are
7 PROSPECTUS
<PAGE>
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 default on the payment of principal and/or interest.
Interest-rate risk is the risk that
PROSPECTUS 8
<PAGE>
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.
YEAR 2000 RISK-
Many computer software systems in use today cannot distinguish the Year 2000
from the Year 1900. Most of the services provided to the Fund depends on the
proper functioning of computer systems. Any failure to adapt these systems in
time could hamper the Fund's operations and services. The Fund's principal
service providers have advised the Funds that they are working on the necessary
changes to their systems and that they expect their systems to be adapted in
time. There can, of course, be no assurance of success. In addition, because
the Year 2000 issue affects virtually all organizations and governments, the
companies or entities in which the Fund invests also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be predicted.
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.
9 PROSPECTUS
<PAGE>
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.
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 back 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 over 30 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 advisor, 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
PROSPECTUS 10
<PAGE>
of the largest banks in the United States, was founded in 1852 and is the
oldest bank in the western United States. As of August 1, 1998, Wells Fargo
Bank provided investment advisory services for approximately $63 billion of
assets of individuals, trusts, estates and institutions. Wells Fargo Bank also
serves as the investment advisor or sub-advisor to three 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.
From October 1, 1995 until its acquisition by Wells Fargo & Company on April
1, 1996, Wells Fargo Investment Management Incorporated (formerly, First
Interstate Capital Management, Inc.) served as investment advisor 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 advisor to the Fund.
Wells Fargo & Company/Norwest Merger the parent company of Wells Fargo Bank,
has signed a definitive agreement to merge with Norwest Corporation. The
proposed merger is subject to certain regulatory approvals and must be approved
by shareholders of both holding companies. The merger is expected to close in
the second half of 1998. The combined company will be called Wells Fargo &
Company. Wells Fargo Bank has advised the Fund that the merger will not reduce
the level or quality of advisory and other services provided by Wells Fargo Bank
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
11 PROSPECTUS
<PAGE>
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 may 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.
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.
PROSPECTUS 12
<PAGE>
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.
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a statement after any account activity, including transactions,
dividends or capital gains, and at year-end. 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 ADVISOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment advisor, 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 year ended March 31, 1998, the Fund paid no
advisory fees.
INVESTMENT SUB-ADVISOR
WCM, a wholly-owned subsidiary of Wells Fargo Bank, is the sub-advisor for the
Fund. As of August 1, 1998, WCM provided investment advice for assets
aggregating in excess of $32 billion. For providing sub-advisory services to
the Fund, WCM is entitled to receive from Wells Fargo Bank 0.05% of the Fund's
assets up to the first $960 million and 0.04% of all assets above $960 million.
WCM receives a minimum annual sub-advisory fee of $120,000 from the Fund. The
minimum annual fee payable to WCM does not increase the advisory fee paid by
the Fund to Wells Fargo Bank.
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.
15 PROSPECTUS
<PAGE>
SHAREHOLDER SERVICING AGENTS
The Fund has entered into a shareholder servicing agreement with Wells Fargo
Bank and may enter into similar agreements with other Banks ("Shareholder
Servicing Agents"). Under such agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree, as agents for their customers, to provide
shareholder administrative and liaison servicing with respect to Fund shares,
which include, without limitation, aggregating and transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For these services, a Shareholder
Servicing Agent is entitled to receive a fee at the annual rate of up to 0.20%
of the average daily net assets attributable to the shares owned of record or
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.
PROSPECTUS 16
<PAGE>
DISTRIBUTOR
Stephens 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. Stephens may, from time to time, pay
additional compensation to selling agents that will not exceed the maximum
compensation permitted under Rule 12b-1.
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
advisor, 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.
As long as the Fund continually maintains a $1.00 NAV, you ordinarily will not
recognize a taxable gain or loss on the redemption or exchange of Fund
shares.
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 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 a fund will meet this goal. Yields will vary
with market conditions.
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC 645 P (8/98)
<PAGE>
AUGUST 1, 1998
Stagecoach Funds
Stagecoach
Equity Index Fund
Prospectus
Class A and Class B Please read this Prospectus and keep it for future
reference. It is designed to provide you with
important information and to help you decide if
Investment Advisor the Fund's goals match your own.
and Administrator:
These securities have not been approved or
Wells Fargo Bank disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities
Investment Sub-Advisor commission or any other regulatory authority, nor
have any of these authorities passed upon the
Barclays Global Fund accuracy or adequacy of this Prospectus. Any
Advisors representation to the contrary is a criminal
offense.
Distributor and
Co-Administrator:
Stephens Inc. Fund shares are NOT deposits or other obligations
of, or issued, endorsed or guaranteed by, Wells
Fargo Bank, N.A. ("Wells Fargo Bank"), Barclays
Global Investors, N.A., or any of their
affiliates. Fund shares are NOT insured or
guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation ("FDIC"), the
Federal Reserve Board or any other governmental
agency. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
About This Prospectus
- --------------------------------------------------------------------------------
What Is a Prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and
understand.
How is the Fund Information organized?
After important summary information and the expense fee table, the Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about the Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
What is the Fund trying to achieve? How do we intend to invest your
money? Look for the arrow icon to find out.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for this Fund? This will include the
factors described in "General Investment Risks" together with any
special risk factors for the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Provides additional information about the Fund.
- --------------------------------------------------------------------------------
Why is italicized print used throughout the Prospectus?
Words appearing in italicized print and highlighted in color are defined in the
Glossary.
What else do I need to understand about this Fund?
The Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Fund is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Key Information 4
Summary of Expenses 5
- --------------------------------------------------------------------------------
The Fund Equity Index Fund 8
This section contains General Investment Risks 12
important information
about the Fund.
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 16
Turn to this section for Reduced Sales Charges 18
information on how to
open and maintain Your Account 22
your account, including
how to buy, sell and How To Buy Shares 24
exchange Fund shares.
Selling Shares 25
Exchanges 27
Additional Services and
Other Information 28
- --------------------------------------------------------------------------------
Reference Organization and
Management of the Fund 33
Look here for details
on the organization How to Read the Financial Highlights 36
of the Fund and
term definitions. Glossary 38
</TABLE>
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Equity Index Fund
The Fund described in this Prospectus seeks to approximate the total rate of
return of substantially all the common stocks comprising the S&P 500 Index. The
Fund's investment objective is fundamental and cannot be changed without a
majority vote of the shareholders.
Should you consider investing in this Fund? yes, if:
. you are looking to add equity investments to your portfolio;
. you are interested in adding an index investment to your portfolio;
. you have an investment horizon of at least three to five years; and
. you are willing to accept the risks of equity investing, including the risk
that share prices may rise and fall significantly.
You should not invest in this Fund if:
. you are looking for FDIC insurance coverage or guaranteed rates of return;
. you are unwilling or unable to accept the risk that you may lose the money
you invest;
. you are unwilling to accept the risks of investing in the securities
markets;
. you are looking for an actively managed equity fund; or
. you are seeking monthly dividend income.
Who are "We"?
In this Prospectus, "We" generally means the Stagecoach Funds. "We" sometimes
refers to the Investment Advisor or other companies hired by the Fund to perform
services. The section on "Organization and Management of the Fund" further
explains how the Fund is organized.
Who are "You"?
In this Prospectus, "You" means the potential investor or the shareholder.
What is the "Fund"?
In this Prospectus the "Fund" refers to the Stagecoach Equity Index Fund. The
"Funds" also may refer to other mutual funds offered by Stagecoach Funds, Inc.
("Stagecoach").
Key Terms
"Index Funds" are mutual funds that attempt to match the total return of a
particular index or list of securities. Index Funds are not "actively managed"
in that individual securities are not analyzed by traditional methods.
Dividends
We pay dividends, if any, quarterly. Capital gains, if any, are distributed at
least annually.
4 Stagecoach Equity Index Fund Prospectus
<PAGE>
Equity Idex 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.
- --------------------------------------------------------------------------------
Equity Index
----------------------------
CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None
- --------------------------------------------------------------------------------
Maximum sales charge on a:
Redemptions during first year None 5.00%
Redemptions after first year None 4.00%
- --------------------------------------------------------------------------------
Exchange fees None None
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
================================================================================
Expenses shown have been restated to reflect contract amounts and amounts
payable by the Fund. Expenses shown "after waivers and reimbursements" reflect
voluntary fee waivers and reimbursements that may be discontinued without prior
notice. Long-term Class B shareholders may pay more than the equivalent of the
maximum front-end sales charge allowed by the National Association of
Securities Dealers, Inc.
- --------------------------------------------------------------------------------
Equity Index
----------------------------
CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C>
Rule 12b-1 Fee 0.00% 0.75%
- --------------------------------------------------------------------------------
Management fee 0.25% 0.25%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.46% 0.45%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.71% 1.45%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursement) 0.70% 0.64%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.95% 1.64%
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Index Fund Prospectus 5
<PAGE>
Equity Index Fund Summary of Expenses
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
================================================================================
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000
INVESTMENT ASSUMING A 5% ANNUAL RETURN AND THAT Equity Index
-----------------------
YOU REDEEM YOUR SHARES AT THE END OF EACH PERIOD. CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C>
1 YEAR $ 52 $ 65
- --------------------------------------------------------------------------------
3 YEARS $ 67 $ 76
- --------------------------------------------------------------------------------
5 YEARS $ 83 $ 99
- --------------------------------------------------------------------------------
10 YEARS $129 $135
- --------------------------------------------------------------------------------
<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 DO NOT REDEEM YOUR SHARES AT THE END OF EACH Equity Index
-----------------------
PERIOD. CLASS A CLASS B
- --------------------------------------------------------------------------------
1 YEAR $ 52 $ 15
- --------------------------------------------------------------------------------
3 YEARS $ 67 $ 46
- --------------------------------------------------------------------------------
5 YEARS $ 83 $ 79
- --------------------------------------------------------------------------------
10 YEARS $129 $135
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Equity Index Fund Prospectus
<PAGE>
This page intentionally left blank
- -------------------------------------------------------------------------------
<PAGE>
Equity Index Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Equity Index Fund seeks to approximate to the extent
practicable the total rate of return of substantially all common
stocks comprising the Standard & Poor's 500 Composite Stock Index
(the "S&P 500 Index").
Investment Policies
In attempting to approximate the total rate of return of the S&P
500 Index, we use a statistical process known as "sampling." We
select and hold a relative sample of the common stocks listed on
the S&P 500 Index and attempt to achieve a 95% correlation between
the price and total return performance of the S&P 500 Index and our
investment results, before expenses. This correlation is sought
regardless of market conditions.
A precise duplication of the performance of the S&P 500 Index would
mean that the net asset value of Fund shares, including dividends
and capital gains, would increase or decrease in exact proportion
to changes in the S&P 500 index. Such a 100% correlation is not
feasible. Our ability to track the performance of the S&P 500 Index
may be affected by, among other things, transaction costs and
shareholder purchases and redemptions. We will regularly monitor
the performance and composition of the S&P 500 Index and adjust the
Fund's portfolio as necessary in order to achieve the 95%
correlation.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE Under normal market conditions, we invest:
SIGN]
. in a diversified portfolio of common stocks designed to provide
a relative sample of the stocks listed on the S&P 500 Index;
. in stock index futures and options on stock indexes as a
substitute for a comparable position in the underlying
securities; and
. in interest-rate futures contracts, options on interest rate
swaps and index swaps.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of other
8 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
mutual funds and repurchase agreements, or make other short-term
investments, either to maintain liquidity or for short-term
defensive purposes when we believe it is in the best interest of
shareholders to do so.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION You should consider both the General Investment Risks beginning on
POINT] page 12 and the specific risks listed below. They are equally
important to your investment choice.
The Fund attempts to match as closely as possible the total return
of the S&P 500 Index. Therefore, during periods when the S&P 500
Index is losing value, your investment will also lose value.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION The S&P 500 Index is an index of 500 widely held common stocks
SIGN] representing, among others, industrial, financial, utility and
transportation companies listed or traded on national exchanges or
over-the-counter markets. It is one of the most widely used
benchmarks of U.S. equity performance.
"Standard & Poor's(R)," "S & P(R)," "S & P 500(R)" and "Standard &
Poor's 500" are trademarks of McGraw-Hill, Inc. The Equity Index
Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund .
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
Stagecoach Equity Index Fund Prospectus 9
<PAGE>
<TABLE>
<CAPTION>
Equity Index Fund Financial Highlights
See "Historical Fund Information" on page 30. See "How to Read the Financial Highlights" on page 36.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON JANUARY 25, 1984
--------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
For the period ended: 1998 1997/1/ 1996/1/ 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $49.60 $46.24 $41.45 $31.42 $33.00 $31.40 $30.38 $23.60 $24.57
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.48 0.25 0.42 0.59 0.63 0.59 0.62 0.62 0.64
Net realized and unrealized gain
(loss) on investments 22.31 4.61 4.79 10.65 (0.50) 2.19 1.35 6.16 (1.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 22.79 4.86 5.21 11.24 0.13 2.78 1.97 6.78 (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.48) (0.25) (0.42) (0.59) (0.63) (0.59) (0.62) 0.00 0.00
Distributions from net realized
gain (1.59) (1.25) 0.00 (0.62) (1.08) (0.59) (0.33) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (2.07) (1.50) (0.42) (1.21) (1.71) (1.18) (0.95) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $70.32 $49.60 $46.24 $41.45 $31.42 $33.00 $31.40 $30.38 $23.60
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) (loss) 46.48% 10.63% 12.60% 35.99% 0.42% 8.91% 6.59% 28.72% (3.95)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $578,882 $406,739 $370,439 $327,208 $236,265 $258,327 $230,457 $204,926 $151,742
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets/3/ 0.89% 0.97% 1.01% 0.96% 0.97% 0.97% 0.93% 0.97% 0.97%
Ratio of net investment
to income to average net assets/3/ 0.80% 1.02% 1.28% 1.59% 1.92% 1.81% 2.05% 2.30% 2.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover/3/ 4% 2% 1%/4/ 6% 7% 5% 4% 4% 6%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 0.95% 1.07% 1.08% 1.00% 1.00% 0.99% 1.00% N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses (loss) 0.74% 0.92% 1.21% 1.55% 1.89% 1.79% 1.98% N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARE CALENDAR YEAR RETURNS 1997 1996 1995 1994 1993 1992 1991 1990
====================================================================================================================================
31.89% 21.66% 35.99% 0.42% 8.91% 6.59% 28.72% -3.95%
These returns reflect fee waivers and reimbursements,
do not reflect sales loads and are not a guarantee
of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
CLASS B SHARES -- COMMENCED
ON FEBRUARY 17, 1998
--------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, March 31,
For the period ended: 1994 1993 1992 1991 1990 1989 1988 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $33.00 $31.40 $30.38 $23.60 $24.57 $18.93 $16.44 $65.18
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.63 0.59 0.62 0.62 0.64 0.60 0.57 (0.01)
Net realized and unrealized gain
(loss) on investments (0.50) 2.19 1.35 6.16 (1.61) 5.04 1.92 5.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.13 2.78 1.97 6.78 (0.97) 5.64 2.49 5.23
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.63) (0.59) (0.62) 0.00 0.00 0.00 0.00 0.00
Distributions from net realized
gain (1.08) (0.59) (0.33) 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (1.71) (1.18) (0.95) 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $31.42 $33.00 $31.40 $30.38 $23.60 $24.57 $18.93 $70.41
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) (loss) 0.42% 8.91% 6.59% 28.72% (3.95)% 29.79% 15.15% 8.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $236,265 $258,327 $230,457 $204,926 $151,742 $153,126 $115,119 $3,811
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets/3/ 0.97% 0.97% 0.93% 0.97% 0.97% 1.04% 1.02% 1.45%
Ratio of net investment
to income to average net assets/3/ 1.92% 1.81% 2.05% 2.30% 2.71% 2.69% 3.17% (0.19)%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover/3/ 7% 5% 4% 4% 6% 6% 3% 4%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.00% 0.99% 1.00% N/A N/A N/A N/A 1.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses (loss) 1.89% 1.79% 1.98% N/A N/A N/A N/A (0.38)%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARE CALENDAR YEAR RETURNS 1994 1993 1992 1991 1990 1989 1988
====================================================================================================================================
0.42% 8.91% 6.59% 28.72% -3.95% 29.79% 15.15%
These returns reflect fee waivers and reimbursements,
do not reflect sales loads and are not a guarantee
of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed fiscal year-end from September 30 to March 31.
/2/ The Fund changed fiscal year-end from December 31 to September 30.
/3/ Reflects activity of the Master Portfolio from April 28, 1996 through
September 30, 1997.
/4/ Represents activity for the Fund's stand-alone period only. The portfolio
turnover rate for the Corporate Stock Master Portfolio for the period from
April 28, 1996 to September 30, 1996, was 396.
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider risks common to all mutual funds, including the
Stagecoach Funds. Chief among these risks are the following:
. Unlike bank deposits such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
. We cannot guarantee that we will meet our investment objectives.
. We do not guarantee the performance of the Fund, nor can we assure you that
the market value of your investment will not decline. We will not "make good"
any investment loss you may suffer, nor can anyone we contract with to
perform certain functions such as selling agents or investment advisors,
offer or promise to make good any such losses.
. Share prices--and therefore the value of your investment--will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as price volatility.
. Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
. An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Fund invests in securities that involve particular kinds of risk.
. The Fund invests in equities that are subject to equity market risk. This is
the risk that stock prices will fluctuate and can decline and reduce the
value of the portfolio. Certain types of stock and certain stocks selected
for the Fund's portfolio may underperform or decline in value more than the
overall market. As of the date of this Prospectus, the equity market, as
measured by the S&P 500 Index and other commonly used indexes, is trading at
or close to record levels. There can be no guarantee that these performance
levels will continue.
. The Fund may invest a portion of its assets in U.S. Government obligations.
It is important to recognize that the U.S. Government does not guarantee the
market value or current yield of those obligations. Not all U.S. Government
obligations are backed by the full faith and credit of the U.S. Treasury, and
the U.S. Government's guarantee does not extend to the Fund itself.
. The Fund may also use certain derivative instruments such as stock index
futures and options on stock index futures. The term "derivatives" covers a
wide number of investments, but in general it refers to any financial
12 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
instrument whose value is derived, at least in part, from the price of
another security or a specified index, asset or rate. Some derivatives may
be more sensitive to interest rate changes or market moves, and some may be
susceptible to changes in yields or values due to their structure or
contract terms.
What follows is a general list of the types of risks (some of which are
described above) that apply to the Fund's investments and a table showing some
of the additional investment practices that the Fund may use. Additional
information about these practices is available in the Statement of Additional
Information.
Counter-Party Risk-- The risk that the other party in a repurchase agreement or
the transaction will not fulfill its contract obligation.
Credit Risk-- The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Experience Risk-- The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
Information Risk-- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Leverage Risk-- The risk that a practice may increase the Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting the price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
Political Risk-- The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's industry,
government or markets.
Regulatory Risk-- The risk that changes in government regulations will adversely
affect the value of a security. Also the risk that an insufficiently regulated
market might be permit inappropriate trading practices.
Stagecoach Equity Index Fund Prospectus 13
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the Funds that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
Investment Practice/Risk
The following table lists some of the additional investment practices of the
Fund, including some not disclosed in the Investment Objective and Investment
Policies section of the Prospectus. THE RISKS INDICATED AFTER THE DESCRIPTION
OF THE PRACTICE ARE NOT THE ONLY POTENTIAL RISKS ASSOCIATED WITH THAT PRACTICE,
BUT ARE AMONG THE MORE PROMINENT. Market risk is assumed for each. See the
Investment Objective and Investment Policies for the Fund or the Statement of
Additional Information for more information on these practices.
In addition to the general risks discussed above, you should carefully consider
and evaluate any special risks that may apply to investing in the Fund. See the
"Important Risk Factors" in the summary for the Fund. You should also see the
Statement of Additional Information for additional discussion information about
the investment practices and risks particular to the Fund.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for the Fund remains within the parameters of its
objective.
14 Stagecoach Equity Index Fund Prospectus
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
INVESTMENT PRACTICE: RISK
==============================================================================================================
<S> <C> <C>
Other Mutual Funds
The temporary Investment in shares of another mutual fund. Market Risk .
A pro rata portion or the other fund's expenses, in addition
to the expenses paid by the Fund, will be borne by Fund shareholders.
- --------------------------------------------------------------------------------------------------------------
Options
The right or obligation to receive or deliver a security or cash Credit Information
payments depending on the security's price or the performance of and Liquidity Risk
and index or benchmark.
- --------------------------------------------------------------------------------------------------------------
Stock Index Futures .
Options on Stock Index Futures .
Index Swaps .
Interest Rate Futures .
Interest Rate swaps .
- --------------------------------------------------------------------------------------------------------------
Privately Issued Securities
Securities that are not publicly traded but which may be resold in Liquidity Risk .
accordance with Rule 144A of the Securities Act of 1933.
- --------------------------------------------------------------------------------------------------------------
Loans Of Portfolio Securities
The practice of loaning securities to brokers, dealers and financial
institutions to increase return on those securities. Loans may be Credit Counter-Party .
made in accordance with existing investment policies. Limited to and Leverage Risk
33 1/3% of assets.
- --------------------------------------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an equivalent of 20% of assets from Leverage Risk .
banks for temporary purposes to meet shareholder redemptions.
- --------------------------------------------------------------------------------------------------------------
Illiquid securities
A Security that cannot be readily sold, or cannot be readily Liquidity Risk .
sold without negatively affecting its fair price.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Index Fund Prospectus 15
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
. Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B shares.
. Class B Shares - with a contingent deferred sales charge ("CDSC") that
diminishes over time, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B shares. Please note that Class B shares convert to Class A
shares after six years to avoid the higher on-going expenses assessed against
Class B shares.
Please see the expenses listed for the Fund and the following sales charge
schedules before making your decision. You should also review the "Reduced Sales
Charges" section below. You may wish to discuss this choice with your financial
consultant.
16 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS A SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING SALES CHARGE
SCHEDULE:
==========================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS % DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERRING PRICE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- --------------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- --------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,000 3.50% 3.63% 3.125%
- --------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- --------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC if
they are redeemed within one year from the date of purchase. Charges are based
on the lower of the NAV on the date of purchase or the date of redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B Share
CDSC Reductions" and "Waivers for Certain Parties"). The CDSC schedule is as
follows:
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
==========================================================================================================================
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the Class B shares are converted to Class A
shares to reduce your future on-going expenses.
Stagecoach Equity Index Fund Prospectus 17
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B shares, particularly if you intend to invest greater amounts. You should
consider whether you are eligible for any of these potential reductions when you
are deciding which share class to buy.
Class A Share Reductions:
. You pay no sales charges on Fund shares you buy with reinvested
distributions.
. You pay a lower sales charge if you are investing an amount over a breakpoint
level. See the "Class A Share Sales Charge Schedule" above.
. By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint within
the next 13 months. We will hold in escrow shares equal to approximately 5%
of the amount you intend to buy. If you do not invest the amount specified in
the LOI before the expiration date, we will redeem enough escrowed shares to
pay the difference between the reduced sales load you paid and the sales load
you should have paid. Otherwise, we will release the escrowed shares when you
have invested the agreed amount.
. Rights of Accumulation (ROA) allow you to combine the amount you invest with
the total NAV of shares you own in other Stagecoach front- end load Funds in
order to reach breakpoint levels for a reduced load. We give you a discount
on the entire amount of the investment that puts you over the breakpoint
level.
. If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have 120
days to reinvest the proceeds of that redemption with no sales charge into a
Fund that charges the same or a lower front-end sales charge. If you use such
a redemption to purchase shares of a Fund with a higher front-end sales
charge, you will have to pay the difference between the lower and higher
charge.
. You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for which
Wells Fargo Bank acts as trustee provided the distribution occurred within
the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
18 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
. a family unit, consisting of a husband and wife and children under the age of
twenty-one or single trust estate;
. a trustee or fiduciary purchasing for a single fiduciary relationship; or
. the members of a "qualified group" which consists of a "Company" (as defined
in the Investment Company Act of 1940 ("1940 Act"), and related parties of
such a "Company", which has been in existence for at least six months and
which has a primary purpose other than acquiring Fund shares at a discount.
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in the Equity Index Fund in
installments over the next year, by signing a letter of intent you would pay
only a 3.50% sales load on the entire purchase. Otherwise, you might pay 4.50%
on the first $50,000, then 4.00% on the next $49,999!
Stagecoach Equity Index Fund Prospectus 19
<PAGE>
Reduced Sales Charge
- --------------------------------------------------------------------------------
Class B Share CDSC Reductions:
. You pay no CDSC on Funds shares you purchase with reinvested distributions.
. We waive the CDSC for all redemptions made because of scheduled or mandatory
distributions for certain retirement plans. (See your retirement plan
disclosure for details.)
. We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability" is
defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the direction of Stagecoach Funds
in order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
. Current and retired employees, directors and officers of:
. Stagecoach Funds and its affiliates;
. Wells Fargo Bank and its affiliates;
. Stephens Inc. ("Stephens") and its affiliates; and
. Broker-Dealers who act as selling agents.
. The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews,
fathers-in-law, mothers-in-law, brothers-in-law and sisters- in-law of either
the spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
20 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
If you acquire Class B shares through an exchange of Class B shares of another
Stagecoach Fund that you purchased prior to March 3, 1997, your CDSC is as
follows:
================================================================================
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- --------------------------------------------------------------------------------
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00%
================================================================================
The above schedules do not apply for any new shares purchased. If you exchange
Class B shares for Class B shares of another Fund, you will retain the above
CDSC schedule on your exchanged shares, but additional shares of the newly
purchased Fund will age at the higher CDSC schedule.
Stagecoach Equity Index Fund Prospectus 21
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment; or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and applications for the program through which
you intend to invest.
Important Information:
. Read this Prospectus carefully. Discuss any questions you have with your
Selling Agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from your
Selling Agent or by calling 1-800-222-8222.
. We process requests to buy or sell shares each business day as of the close
of regular trading on the New York Stock Exchange ("NYSE"), which is usually
1:00 PM Pacific time. Any request we receive in proper form before the close
of regular trading on the NYSE is processed the same day. Requests we receive
after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares or
the price you receive when you redeem shares is not determined until after a
request has been received in proper form.
22 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. We determine the NAV of each class of the Fund's shares each business day as
of the close of regular trading on the NYSE. We determine the NAV by
subtracting the Fund class' liabilities from its total assets, and then
dividing the result by the total number of outstanding shares of that class.
The Fund's assets are generally valued at current market prices. See the
Statement of Additional Information for further disclosure.
. We will process all requests to buy and sell shares of the first NAV
calculated after the request and proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-222-
8222) if you are investing directly with Stagecoach Funds, or speak to your
Selling Agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without requiring a new application.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
Stagecoach Equity Index Fund Prospectus 23
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How to Buy Shares:
The following section explains how you can buy Fund shares directly from
Stagecoach Funds. For Fund shares held through brokerage and other types of
accounts, please consult your selling agent.
================================================================================
BY MAIL
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest. Mail to:
- ------------------------------------------------------ Stagecoach Funds
Enclose a check for at least $1,000 made out PO Box 7066
in the full name and share class of the Fund. San Francisco, CA
For example, "Stagecoach Equity Index Fund, Class B". 94120-9201
- ------------------------------------------------------
You may start your account with $100 if you elect
the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ------------------------------------------------------ San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application.
You must wire at least $1,000. Be sure to Mail to:
indicate the Fund name and the share class Stagecoach Funds
into which you intend to invest. PO Box 7066
- ------------------------------------------------------ San Francisco, CA
Mail the completed application. 94120-9201
- ------------------------------------------------------ Fax to: 1-415-546-0280
You may also fax the completed application
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number:
name your account is registered in. 121000248
- ----------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated on
Application)
----------------------------------------
24 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
You can only make your first purchase of a
Fund by phone if you already have an
existing Stagecoach Account.
- ----------------------------------------------- Call:
Call Investor Services and instruct the 1-800-222-8222
representative to either:
. transfer at least $1,000 from a linked
settlement account, or
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
-------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds. For Fund shares held through brokerage and other
types of accounts, please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption you
wish to receive (or write "Full Redemption").
- -----------------------------------------------
Make sure all the account owners sign
the request.
- -----------------------------------------------
You may request that redemption proceeds be Mail to:
sent to you by check, by ACH transfer into a Stagecoach Funds
bank account, or by wire ($5,000 minimum). PO Box 7066
Please call Investor Services regarding San Francisco, CA
requirements for linking bank accounts or for 94120-9201
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- -----------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage
house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
Stagecoach Equity Index Fund Prospectus 25
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption
of at least $100. Be prepared to provide your
account number and Taxpayer Identification Number.
- ----------------------------------------------------
Unless you have instructed us otherwise, only one
account owner needs to call in redemption
requests.
- ----------------------------------------------------
You may request that redemption proceeds be
sent to you by check, by transfer into an
ACH-linked bank account, or by wire
($5,000 minimum). Please call Investor
Services regarding requirements for linking
bank accounts or for wiring funds. We reserve
the right to charge a fee for wiring funds
although it is not currently our practice to do so. Call:
1-800-222-8222
- -------------------------------------------------------
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or
subsequently in writing.
- -------------------------------------------------------
Phone privileges allow us to accept
transaction instructions by anyone representing
themselves as the shareholder and who provides
reasonable confirmation of their identity, such
as providing the Taxpayer Identification Number
on the account. We will not be liable for any
losses incurred if we follow telephone
instructions we reasonably believe to be
genuine.
- -------------------------------------------------------
Telephone requests are not accepted if
the address on your account was changed
by phone in the last 15 days.
- -------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process all requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the NYSE are processed on the same business day.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of the NYSE, which is generally
1:00 PM Pacific time.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There may be special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 days so that
we may be reasonably certain that investments made by check or autosaver 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 to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
26 Stagecoach Equity Index Fund 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.
. You may make exchanges between like share classes. You may also exchange
between Class A or B shares and non-institutional class shares of a money
market fund.
. If you exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the maximum
3% load schedule and the maximum 4.5% schedule).
. If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
. Exchanges between Class B shares or between Class B shares and a Stagecoach
money market fund will not trigger the CDSC. The new shares will continue to
age according to their original schedule while in the new Fund and will be
charged the CDSC applicable to the original shares upon redemption. This also
applies to exchanges of Class A shares that are subject to a CDSC.
. Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be borne
by other shareholders, we reserve the right to limit or reject exchange
orders. Generally, we will notify you 60 days in advance of any changes in
your exchange privileges.
Stagecoach Equity Index Fund Prospectus 27
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. Autosaver - you need only specify an amount of at least $100 and a day of the
month. We will automatically transfer that amount from your linked bank
account each month to purchase additional shares. We will transfer the amount
on or about the day you specify, or on or about the 20th of each month if you
have not specified a day. Please call Investor Services at 1-800-222-8222 if
you wish to change or add linked accounts.
. Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or transfer
it into your linked bank account. In order to set up a Systematic Withdrawal
Program, you:
. must have a Fund account valued at $10,000 or more;
. must have distributions reinvested; and
. may not simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the linked
account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option - Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
. Fund Purchase Plan - Uses your distributions to buy shares at NAV of another
Stagecoach Fund of the same share class or a money market fund. You must have
already satisfied the minimum investment requirements of the Fund into which
your distributions are being transferred in order to participate.
. Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the ACH
system. If your specified bank account is closed, we will reinvest your
distributions.
28 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Check Payment Option - Allows you to receive checks for distributions mailed
to your address of record or to another name and address which you have
specified in written, signature guaranteed instructions. If checks remain
uncashed for six months or are undeliverable by the Post Office, we will
reinvest the distributions at the earliest date possible.
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed. Also, distributions on new shares shortly after purchase
would be in effect a return of capital, although the distribution may still
be taxable to you.
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by the Fund as dividend distributions. These are taxable to you as
ordinary income. Corporate U.S. shareholders may be able to exclude a portion of
such distributions from their taxable income.
We will pass on to you any net capital gains earned by the Fund as capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains, which may qualify for taxation at preferential rates in the
hands of non-corporate shareholders.
In general, all distributions will be taxable to you when paid, even if they are
paid 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 on December 31 of the year in which they were declared. We
will notify you annually as to the status of your Fund distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. The Fund has built up, and has the potential to continue to build up,
high levels of unrealized appreciation.
Stagecoach Equity Index Fund Prospectus 29
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Your redemption and exchange of Fund shares 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 taxes. In certain circumstances, U.S.
shareholders may be subject to back-up withholding taxes.
Historical Fund Information
From the period from April 28, 1996 to December 15, 1997, the Fund invested all
of its assets in a Master Portfolio with a corresponding investment objective;
the Fund no longer invests in a Master Portfolio. Currently, and for periods
prior to April 28, 1996, the Fund invests directly in a portfolio of securities.
Performance information for periods prior to January 1, 1992, reflects the
performance of the Equity Index Fund of the Wells Fargo Investment Trust for
Retirement Programs. The Fund's manager has voluntarily waived fees or
reimbursed expenses to the Fund; without these reductions the Fund's performance
would have been lower.
Wells Fargo & Company/Norwest Merger--Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and musts be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level or quality of advisory and other
services provided by Wells Fargo Bank to the Funds.
Share Class-- This Prospectus contains information about Class A and Class B
shares. The Fund may offer additional share classes with different expenses and
returns than those described here. Call Stephens at 1-800-643-9691 for
information on these or other investment options in Stagecoach Funds.
Conversion of Class B Shares-- We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed to
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the Fund will have the same NAV on a given date,
the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value-- Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to
30 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
market conditions). You will be given an opportunity to make additional
investments to prevent account closure before any action is taken.
Statements-- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees-- Stephens, as the Fund's distributor,
will pay the portion of the Class A share sales charge shown as the dealer
allowance to the selling agent, if any. Stephens also compensates selling agents
for the sale of Class B shares and is reimbursed through Rule 12b-1 fees and
contingent deferred sales charges. Selling agents may receive different
compensation for sales of Class A and Class B shares of the Fund. Stephens may,
from time to time, pay additional compensation to selling agents that will not
exceed the maximum compensation permitted under Rule 12b-1.
Statement of Additional Information-- Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
the Fund. The Statement of Additional Information should be read along with this
Prospectus and may be obtained free of charge by calling Investor Services at 1-
800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Fund and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future federal
or state laws may prevent these entities from continuing in their roles.
Stagecoach Equity Index Fund Prospectus 31
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
VOTING RIGHTS-- All shares of the Fund have equal voting rights and are voted in
the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
32 Stagecoach Equity Index Fund Prospectus
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
A number of different entities provide services to the Fund. This section shows
how the Fund is organized, the entities that perform different services, and how
they are compensated. Further information is available in the Statement of
Additional Information for the Fund.
About Stagecoach
The Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach was organized on
September 9, 1991, as a Maryland Corporation.
The Board of Directors of Stagecoach supervises the Fund's activities and
approves the selection of various companies hired to manage the Fund's
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT SERVICING AGENTS
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Fund, Manages the Fund's Maintains records of Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Fund's business paying of dividends
activities
- --------------------------------------------------------------------------------
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Barclays Global Fund Advisor's 45 Fremont Street, San Francisco, CA
Manages the Fund's Investment activities
- --------------------------------------------------------------------------------
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Markets St. Barclays Global Investors, N.A.,
San Francisco, CA 45 Fremont St.
Manages the Fund's investment activities San Francisco, CA
Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
33 Stagecoach Equity Index Fund Prospectus
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members or amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Fund class on an annual basis for the services
described. The Statement of Additional Information has more detailed information
about the Investment Advisor and the other service providers and plans described
here.
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 August 1, 1998 Wells
Fargo Bank and its affiliates managed over $63 billion in assets. The Fund paid
Wells Fargo Bank the following for advisory services (after fee waivers) for the
fiscal period ended March 31, 1998:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Index Fund .25%
- --------------------------------------------------------------------------------
The Sub-Advisor
Barclays Global Fund Advisors ("BGFA"), a wholly owned subsidiary of Barclays
Global Investors and an indirect subsidiary of Barclays Bank PLC, is the sub-
advisor for the Fund. BGFA was created from the reorganization of Wells Fargo
Nikko Investment Advisors, a former affiliate of Wells Fargo Bank. As of April
30, 1998, BGFA managed or provided investment advice for assets aggregating in
excess of $575 billion. For its sub-advisory services, BGFA is entitled to
receive from Wells Fargo Bank .02% of the Fund's assets up to $500 million and
.01% of the Fund's assets in excess of $500 million. The Fund paid BGFA the
following for sub-advisory services for the fiscal period ended March 31,
1998:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Index Fund .06%
- --------------------------------------------------------------------------------
34 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The Administrator
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid .03%
of the Fund's assets for this service.
The Distributor and Co-Administrator
Stephens is the Fund's distributor and co-administrator. Stephens receives .04%
of the Fund's assets for its role as co-administrator. Stephens also receives
all loads, CDSCs and distribution plan fees. It uses a portion of these amounts
to compensate selling agents for their role in marketing the Fund's shares.
Distribution Plan
We have adopted a distribution plan for the Class B Shares of the Fund. This
plan is used to pay for distribution-related services, including on-going
compensation to selling agents. The Fund may participate in joint distribution
activities with other Stagecoach Funds. The cost of these activities is
generally allocated among the Funds. Funds with higher asset levels pay a higher
proportion of these costs. The fee paid under this plan is .75%.
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Fund. We have agreements with
various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services the Fund pays as follows:
- --------------------------------------------------------------------------------
Class A Class B
Equity Index Fund .25% .25%
- --------------------------------------------------------------------------------
Stagecoach Equity Index Fund Prospectus 35
<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 with the exception of the Class A Calendar-Year Returns or
as indicated. The financial statements are included in the Fund's most recent
Annual Report and are available free of charge by calling 1-800-222-8222. Other
auditors audited statements for periods prior to January 1, 1992.
Here is an explanation of some terms that will help you read these charts. Net
Asset Value (NAV)-- The net value of one share of a class of the Fund. See the
Glossary for a more detailed 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 From Net Realized Gains."
Net Assets-- The value of the investments in the Fund's portfolio (after
accounting for expenses) that are attributable to a particular class of the
Fund.
Ratio of Expenses to Average Net Assets-- This ratio reflects the amount paid by
the Fund to cover the costs of its daily operations, and includes advisory,
administration and other operating expenses. It is expressed as a percentage of
the average daily net assets of a class.
Ratio of Net Investment Income (Loss) to Average Net Assets-- This ratio is the
result of dividing net investment income (or loss) by average net assets.
36 Stagecoach Equity Index Fund 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 50% portfolio turnover has sold and bought half of its
investment portfolio during the given period.
Total Return-- The annual return on an investment, including any appreciation or
decline in share value, assumes reinvestment of all dividends and capital gains,
reflects fee waivers and excludes sales loads.
Stagecoach Equity Index Fund Prospectus 37
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and perform
other tasks.
Annual and Semi-Annual Report
A document that provides certain financial and other information for the most
recent reporting period and the Fund's portfolio of investments.
Business Day
Any day the NYSE is open is a business day for the Fund.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund or portfolio, as defined by the Investment Company Act of
1940, is one that invests in cash, Government securities, other investment
companies, and no more than 5% of its total assets in a single issuer. These
policies must apply to 75% of the Fund's total assets.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Interest Rate Futures
The Agreements to buy or sell finance instruments or cash at a particular time
and price based on movements in interest rate. Unlike Options, in which the
holder may or may not execute the right, a futures contract must be
fulfilled.
Interest Rate Swaps
Involve the exchange between parties of their respective commitments to pay or
receive interest.
38 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Index Swaps
The exchange with another party of cash flows based on the performance of an
index of securities or a portion of an index that usually includes dividends or
income.
Liquidity
The ability to readily sell a security at its fair price.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV is calculated separately for each class of the
Fund, and is determined as of the close of regular trading on each business day
the NYSE 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 may also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreements
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
An entity appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
Stagecoach Equity Index Fund Prospectus 39
<PAGE>
Glossary
- --------------------------------------------------------------------------------
S&P 500 Index
An unmanaged index of stocks comprised of 500 companies, including industrial,
financial, utility and transportation companies.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Stock Index Futures and Options on Stock Index Futures
A Stock index future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is
made.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Fund.
Turnover Ratio
The percentage of the securities held in a Fund's portfolio, other than short-
term securities, that were bought or sold within a year.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
40 Stagecoach Equity Index Fund Prospectus
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<PAGE>
STAGECOACH FUNDS/TM/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
provides certain financial and other important information for the most recent
reporting period and the Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
===========================================================================
STAGECOACH FUNDS:
---------------------------------------------------------------------------
. are NOT insured by the FDIC
. are NOT obligations or deposits of Wells Fargo Bank, nor guaranteed by
the Bank
. involve investment risk, including possible loss of principal.
==========================================================================
[LOGO OF RECYCLED PAPER] SC IX P (8/98)
Printed On Recycled Paper
<PAGE>
August 1, 1998
STAGECOACH FUNDS(R)
Stagecoach
Income Funds
Prospectus
Corporate Please read this Prospectus and keep it for future
Bond Fund reference. It is designed to provide you with
important information and to help you decide if a
Short-Intermediate Fund's goals match your own.
U.S. Government
Income Fund
Strategic These securities have not been approved or
Income Fund disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities
U.S. Government commission or any other regulatory authority, nor
Income Fund have any of these authorities passed upon the
accuracy or adequacy of this Prospectus. Any
Variable Rate representation to the contrary is a criminal
Government Fund offense.
Class A, Class B and
Class C
Fund shares are NOT deposits or other obligations
Investment Advisor of, or issued, endorsed or guaranteed by, Wells
and Administrator: Fargo Bank, N.A. ("Wells Fargo Bank"), or any of
its affiliates. Fund shares are NOT insured or
Wells Fargo Bank guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation ("FDIC"), the
Investment Federal Reserve Board or any other governmental
Sub-Advisor: agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Wells Capital
Management
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- ------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and
understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 the 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 about these Funds?
Each Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. "The Statement of Additional Information" and
other information for the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Corporate Bond Fund 10
This section contains Short-Intermediate U.S. Government
important information Income Fund 12
about the individual
Funds. Strategic Income Fund 16
U.S. Government Income Fund 18
Variable Rate Government Fund 24
General Investment Risks 28
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 35
Turn to this section for Reduced Sales Charges 38
information on how to
open and maintain Your Account 41
your account, including
how to buy, sell and How to Buy Shares 43
exchange Fund shares.
Selling Shares 44
Exchanges 46
Additional Services and
Other Information 47
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 52
Look here for details on the
organization of the Funds How to Read the Financial Highlights 57
and term definitions.
Glossary 59
</TABLE>
<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 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 the risk that you may lose the money you
invest;
. you are unwilling to accept the risks of investing in the bond markets; or
. you are looking for returns characteristic of equity investments.
Who are "We"?
In this Prospectus, "We" generally means the Stagecoach Funds. "We" sometimes
refers to the Investment Advisor or other companies hired by the Funds 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. ("Stagecoach").
4 Stagecoach Income Funds Prospectus
<PAGE>
- ------------------------------------------------------------------------------
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, and distribute capital gains, if any, at
least annually.
Stagecoach Income Funds Prospectus 5
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corporate Bond Fund Short-Intermed.
U.S. Govt. IF
------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None None 3.00% None
- -----------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None
- -----------------------------------------------------------------------------------------
Maximum sales charge on a:
Redemption during first year None 5.00% 1.00% None 5.00%
Redemption after first year None 4.00% None None 4.00%
- -----------------------------------------------------------------------------------------
Exchange fees None None None None None
<CAPTION>
=========================================================================================
ANNUAL FUND OPERATING EXPENSES (AS PERCENTAGE OF AVERAGE NET ASSETS)
=========================================================================================
Expenses shown reflect contract amounts and amounts payable by each Fund. The
expenses shown under "Other Expenses" and "Total Fund Operating Expenses"
have been restated to reflect current fees. Expenses shown "after waivers and
reimbursements" reflect fee waivers and reimbursements that generally may be
discontinued without prior notice. Long-term shareholders may pay more than
the equivalent of the maximum front-end sales charge allowed by the National
Association of Securities Dealers, Inc.
- -----------------------------------------------------------------------------------------
Corporate Bond Fund Short-Intermed.
U.S. Govt. IF
-----------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rule 12b-1fee 0.05% 0.75% 0.75% 0.05% 0.75%
- -----------------------------------------------------------------------------------------
Management fee
(after waivers) 0.50% 0.50% 0.50% 0.40% 0.40%
- -----------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.45% 0.50% 0.50% 0.51% 0.51%
- -----------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 1.00% 1.75% 1.75% 0.96% 1.66%
- -----------------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50% 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.75% 0.75% 0.75% 0.76% 0.76%
- -----------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 1.30% 2.00% 2.00% 1.31% 2.01%
- -----------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategic Income U.S. Government Variable
Fund Income Rate Govt.
- ------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None None 4.50% None None 3.00%
- -----------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None None None
- -----------------------------------------------------------------------------------------------------
Maximum sales charge imposed on a:
Redemption during first year None 5.00% 1.00% None 5.00% 1.00% None
Redemption after first year None 4.00% None None 4.00% None None
- -----------------------------------------------------------------------------------------------------
Exchange fees None None None None None None None
=====================================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Strategic Income U.S. Government Variable
Fund Income Rate Govt.
- -----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A
<S> <C> <C> <C> <C> <C> <C> <C>
Rule 12b-1fee 0.05% 0.75% 0.75% 0.05% 0.70% 0.75% 0.25%
- -----------------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.60% 0.60% 0.60% 0.50% 0.50% 0.50% 0.41%
- -----------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.45% 0.50% 0.50% 0.41% 0.46% 0.34% 0.12%
- -----------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 1.10% 1.85% 1.85% 0.96% 1.66% 1.66% 0.78%
- -----------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.60% 0.60% 0.60% 0.50% 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.75% 0.75% 0.75% 0.41% 0.67% 1.81% 0.34%
- -----------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 1.40% 2.10% 2.10% 0.96% 1.87% 3.06% 1.09%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Stgaecoach Income Funds Prospectus 7
<PAGE>
Income Funds Summary of Expenses (continued)
- --------------------------------------------------------------------------------
================================================================================
EXAMPLE OF EXPENSES -- THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
================================================================================
<TABLE>
<CAPTION>
You would pay the following expenses on
a $1,000 investment assuming a 5% Corporate Bond Short-Intermed.
annual return and that you redeem your Fund U.S. Govt. IF
---------------------------------------------------
shares at the end of each period. CLASS A CLASS B CLASS C CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR $55 $68 $28 $40 $67
- -----------------------------------------------------------------------------------------------------
3 YEARS $75 $85 $55 $60 $82
- -----------------------------------------------------------------------------------------------------
5 YEARS $98 $115 $95 $81 $110
- -----------------------------------------------------------------------------------------------------
10 YEARS $162 $168 $206 $144 $161
=====================================================================================================
<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% Corporate Bond Short-Intermed.
annual return and that you do not redeem Fund U.S. Govt. IF
------------------------------------------------
your shares at the end of each period. CLASS A CLASS B CLASS C CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR $55 $18 $18 $40 $17
- -----------------------------------------------------------------------------------------------------
3 YEARS $75 $55 $55 $60 $52
- -----------------------------------------------------------------------------------------------------
5 YEARS $98 $95 $95 $81 $90
- -----------------------------------------------------------------------------------------------------
10 YEARS $162 $168 $206 $144 $161
- -----------------------------------------------------------------------------------------------------
</TABLE>
8 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.
Strategic Income U.S. Government Variable
Fund Income Rate Govt.
------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $56 $69 $29 $54 $67 $27 $38
- -----------------------------------------------------------------------------------------------------
3 YEARS $78 $88 $58 74 $82 $52 $54
- -----------------------------------------------------------------------------------------------------
5 YEARS $103 $120 $100 $96 $110 $90 $72
- -----------------------------------------------------------------------------------------------------
10 YEARS $173 $179 $217 $158 $161 $197 $124
<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.
Strategic Income U.S. Government Variable
Fund Income Rate Govt.
------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $56 $19 $19 $54 $17 $17 $38
- -----------------------------------------------------------------------------------------------------
3 YEARS $78 $58 $58 $74 $52 $52 $54
- -----------------------------------------------------------------------------------------------------
5 YEARS $103 $100 $100 $96 $90 $90 $72
- -----------------------------------------------------------------------------------------------------
10 YEARS $173 $179 $217 $158 $161 $197 $124
- -----------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Income Funds Prospectus 9
<PAGE>
Corporate Bond Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Graham Allen (since 4/98)
John Burgess (since 8/98)
Jacqueline Flippin (since 4/98)
Daniel Kokoska (since 8/98)
Scott Smith (since 4/98)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Corporate Bond Fund seeks a high level of current income
consistent with prudent investment risk.
Investment Policies
We seek a high rate of current income by actively managing a
diversified portfolio consisting primarily of corporate debt
securities. When purchasing these securities we consider, among
other things, the yield differences for various corporate
sectors, and the current economic cycle's potential effect on the
various types of bonds. We may invest in securities of any
maturity. Under normal market conditions, we expect to maintain a
dollar-weighted average maturity for portfolio securities of
between 10 and 15 years. We also may invest in U.S. Government
obligations.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. at least 65% of our total assets in corporate debt securities;
. in U.S. Government obligations;
. no more than 25% of our total assets in debt securities that
are below investment grade; and
. no more than 25% of our total assets in securities of foreign
issuers.
We may temporarily hold assets in cash or 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 purposes when we believe it is in the best interests
of shareholders to do so.
10 Stagecoach 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.
We may invest in securities regardless of their rating or in
securities that are unrated, or in default at the time of
purchase.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
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 or repurchase agreements collateralized by U.S.
Government obligations;
. in investment grade corporate debt securities including asset-
backed securities;
. no more than 5% of our total assets in securities downgraded
below investment grade after we acquired them;
. up to 25% of our assets in dollar-denominated debt of U.S.
branches of foreign banks or foreign branches of U.S. banks;
and
. in stripped Treasury securities, adjustable-rate mortgage
securities, adjustable portions of collateralized mortgage
obligations.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other
short-term investments, either to maintain liquidity or for
short-term defensive purposes when we believe it is in the best
interest of shareholders to do so.
12 Stagecoach 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 equally
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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN This Fund is also available in a Class B share. See "A Choice of
Share Classes" on page 35 for details.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Income Funds Prospectus 13
<PAGE>
Short-Intermediate U.S. Government Income Fund
See "Historical Fund Information" on page 49.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES -- COMMENCED
ON OCTOBER 27, 1993
-----------------------------------
MAR. 31, MAR. 31 SEPT. 30
For the period ended 1998 1997/1/ 1996/2/
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.64 $9.73 $10.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.51 0.34 0.41
Net realized and unrealized gain (loss) on investments 0.31 (0.09) (0.27)
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.82 0.25 0.14
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.51) (0.34) (0.41)
Distributions from net realized gain 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------
Total from distributions (0.51) (0.34) (0.41)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $9.95 $9.64 $9.73
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) (loss) 8.69% 2.57% 1.34%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $29,694 $33,920 $37,465
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.78% 0.71% 0.76%
Ratio of net investment income to average net assets 5.19% 6.96% 5.60%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 48% 52% 389%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.30% 1.12% 1.21%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses 4.67% 6.55% 5.15%
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CLASS A SHARE CALENDAR YEAR RETURNS 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Returns for other share classes may 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. 7.57% 3.61% 12.67% -1.42%
- ----------------------------------------------------------------------------------------------------
</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.
14 Stagecoach Income Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 57.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================
CLASS A SHARES -- COMMENCED
ON OCTOBER 27, 1993
------------------------------------------
Dec. 31, Dec. 31, Dec. 31,
FOR THE PERIOD ENDED: 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.39 $9.99 $10.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.55 0.46 0.06
Net realized and unrealized gain (loss) on investments 0.61 (0.60) (0.01)
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.16 (0.14) 0.05
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.55) (0.46) (0.06)
Distributions from net realized gain 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------
Total from distributions (0.55) (0.46) (0.06)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $9.39 $9.99
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) (loss) 12.67% (1.42)% 0.40%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $39,928 $11,602 $8,557
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.71% 0.25% 0.00%
Ratio of net investment income to average net assets 5.64% 4.75% 3.49%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 472% 288% N/A
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.67% 2.28% 2.45%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses 4.68% 2.72% 1.04%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Income Funds Prospectus 15
<PAGE>
Strategic Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS: Graham Allen (since 7/98)
John Burgess (since 7/98)
Jacqueline Flippin (since 7/98)
Daniel Kokoszka (since 7/98)
Paul Single (since 7/98)
Scott Smith (since 7/98)
Allen Wisniewski (since 7/98)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Strategic Income Fund seeks to maximize income while maintaining
prospects for capital appreciation.
Investment Policies
We actively manage a diversified portfolio of debt securities and
income-producing equity securities selected with particular
consideration for their potential to generate current income. We
shift assets between such debt and equity securities based on our
assessment of the potential income available. We may buy debt
securities that are below investment grade (sometimes referred to as
"junk bonds"), as well as debt rated in the lower investment grade
categories. Our equity focus will be on securities issued by
companies in industries that tend to pay high ongoing dividends, such
as utilities. We may buy preferred stock and other convertible
securities, as well as common stock of any size company. Any capital
appreciation will come primarily from the income-producing equity
portion of the portfolio.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN]
Under normal market conditions, we invest:
. at least 25% of our total assets in corporate and government bonds;
. up to 60% of our total assets in a wide range of income-producing
equity securities;
. up to 50% of our total assets in debt securities that are below
investment grade, including "high risk" securities;
. no more than 25% of our total assets in securities of foreign
issuers;
16 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We will generally invest in debt securities that are rated at least
"Caa" by Moody's or "CCC" by S&P, or that are unrated but deemed by
the adviser to be of comparable quality. The average credit quality
of this portion of the portfolio is expected to be "BB" as rated by
S&P(TM).
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT]
You should consider both the General Investment Risks listed on page
28 and the specific risks listed below. They are both important to
your investment choice.
We may invest in debt securities that are in low or below investment
grade categories, or are unrated or in default at the time of
purchase. Such debt securities have a much greater risk of default
(or in the case of bonds currently in default, of not returning
principal) and are more volatile than higher-rated securities of
similar maturity. The value of such debt securities will be affected
by overall economic conditions, interest rates, and the
creditworthiness of the individual issuers. Additionally, these
lower rated debt securities may be less liquid and more difficult to
value than higher rated securities.
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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN]
Scott Smith and Jacqueline Flippin are the managers of the income
portion of the Fund, Allen Wisniewski is the manager of the income-
producing equity portions of the Fund, and Graham Allen manages the
international and below investment grade portions of the Fund. They
jointly determine the Fund's asset allocation.
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
- --------------------------------------------------------------------------------
Portfolio Managers: Scott Smith (since 12/97)
Paul Single (since 5/95)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The U.S. Government Income Fund seeks a long-term total rate of
return through preserving capital and earning high interest income
by investing principally in a portfolio of U.S. Government mortgage
pass-through securities, consisting primarily of securities issued
by GNMA, FNMA and FHLMC.
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 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.
- --------------------------------------------------------------------------------
[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 equally
important to your investment choice.
The U.S. 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.
18 Stagecoach Income Funds Prospectus
<PAGE>
________________________________________________________________________________
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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Mortgage pass-through securities are residential home mortgages
bundled together and sold as a single security. Mortgage payments are
"passed through" the issuing agency to the security's holder as
interest and principal payments.
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 19
<PAGE>
<TABLE>
<CAPTION>
U.S. Government Income Fund/1/ Financial Highlights
See "Historical Fund Information" on page 49.
___________________________________________________________________________________________________________________________________
FOR SHARES OUTSTANDING
====================================================================================================================================
CLASS A SHARES -- COMMENCED
ON APRIL 7, 1988
----------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 30,
For Period Ended: 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.65 $ 11.34 $ 10.16 $ 11.44 $ 11.11 $ 11.54
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.64 0.66 0.73 0.74 0.78 0.83
Net realized and unrealized gain
(loss) on investments 0.23 (0.69) 1.18 (1.28) 0.38 (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.87 (0.03) 1.91 (0.54) 1.16 0.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.64) (0.66) (0.73) (0.74) (0.78) (0.83)
Distributions from net realized gain 0.00 0.00 0.00 0.00 (0.05) (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.64) (0.66) (0.73) (0.74) (0.83) (1.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.88 $ 10.65 $ 11.34 $ 10.16 $ 11.44 $ 11.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 8.73% (0.11)% 19.32% (4.81)% 10.67% 6.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $207,558 $ 77,239 $ 30,471 $ 35,838 $ 50,301 $ 40,883
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.88% 0.89% 0.88% 0.76% 0.53% 0.47%
Ratios of net investment income to
average net assets 6.01% 6.07% 6.79% 6.84% 6.79% 6.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 306% 240% 95% 50% 115% 128%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed 0.96% 1.24% 1.24% 1.08% 1.01% 1.31%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
fees and reimbursed expenses
average net assets prior to waived 5.93% 5.72% 6.44% 6.52% 6.31% 5.60%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARE CALENDAR YEAR RETURNS 1997 1996 1995 1994 1993 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Returns for other share classes may vary due 8.73% -0.11% 19.32% -4.81% 10.67% 6.27%
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/ Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds,
and Stagecoach Fund.
/2/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
20 Stagecoach Income Funds Prospectus
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
See "How to Read The Financial Highlights" on page 57.
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 30, Dec. 30, Dec. 30, Dec. 30,
1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.84 $ 10.75 $ 10.29 $ 10.52
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.90 0.92 0.95 0.57
Net realized and unrealized gain
(loss) on investments 0.95 0.11 0.53 (0.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.85 1.02 1.47 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.90) (0.94) (0.95) (0.57)
Distributions from net realized gain (0.24) 0.00 (0.06) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (1.15) (0.94) (1.01) (0.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 11.54 $ 10.84 $ 10.75 $ 10.29
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 18.08% 10.17% 14.82% 3.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 20,457 $ 11,116 $ 4,238 $ 3,264
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.00% 0.07% 0.54% 0.29%
Ratios of net investment income to
average net assets 8.30% 8.65% 8.89% 7.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 100% 4% 11% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed 1.87% 2.72% 4.45% 7.31%
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived fees 6.43% 6.00% N/A N/A
and reimbursed expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================
CLASS A SHARE CALENDAR YEAR RETURNS 1991 1990 1989
========================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary due 18.08% 10.17% 14.82%
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/ Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds,
and Stagecoach Fund.
/2/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
Stagecoach Income Funds Prospectus 21
<PAGE>
<TABLE>
<CAPTION>
U. S. Government Income Fund/1/ Financial Highlights
See "Historical Fund Information" on page 49. See "How to Read the Financial Highlights" on page 57.
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
FOR SHARES OUTSTANDING
=================================================================================================================================
CLASS B SHARES CLASS C SHARES -- COMMENCED
COMMENCED ON ON JULY 1, 1993/1/
DECEMBER 15,
1997
--------------------------------------------------------------------------
For the period ended: Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 30, Dec. 30,
1997 1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.72 $ 10.49 $ 11.17 $ 10.01 $ 11.26 $ 11.37
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.55 0.58 0.64 0.65 0.32
Net realized and unrealized gain
(loss) on investments (0.02) 0.22 (0.68) 1.16 (1.25) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.01 0.77 (0.10) 1.80 (0.60) 0.26
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.55) (0.58) (0.64) (0.65) (0.32)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.03) (0.55) (0.58) (0.64) (0.65) (0.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.70 $ 10.71 $ 10.49 $ 11.17 $ 10.01 $ 11.26
- ---------------------------------------------------------------------------------------------------------------------------------
Total return/2/ 0.08% 7.56% (0.79)% 18.54% (5.45)% 2.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $26,401 $ 1,772 $ 2,290 $ 2,793 $ 3,722 $ 9,594
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Ratio of expenses to average net assets 1.58% 1.62% 1.62% 1.62% 1.37% 0.90%
Ratio of net investment income to
average net assets 5.75% 5.27% 5.50% 6.07% 6.14% 5.90%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 306% 306% 240% 95% 50% 115%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed 1.87% 3.06% 3.39% 2.29% 1.87% 2.03%
expenses
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived 5.46% 3.83% 3.73% 5.40% 5.64% 4.77%
fees and reimbursed expenses
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds and
Stagecoach Funds.
/2/ Total returns do not include any sales charges. Total
returns for periods less than one year are not annualized.
22 Stagecoach Income Funds Prospectus
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
_____________________________________________
Stagecoach Income Funds Prospectus 23
<PAGE>
Variable Rate Government Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Paul Single (since 11/90)
Scott Smith (since 10/93)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Variable Rate Government Fund seeks to earn a high
level of current income, while reducing principal
volatility, by investing primarily in adjustable rate
mortgage securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
Investment Policies
We actively manage a diversified portfolio primarily of
adjustable rate mortgage securities, also known as
"ARMS". We invest in obligations of any maturity, but
under ordinary conditions we will maintain a dollar-
weighted average maturity of between 10 to 30 years. In
unusual circumstances, the dollar-weighted average
maturity may be below 10 years. We also may invest in
U.S. Treasury securities with remaining maturities of
up to 5 years.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. at least 65% of our total assets in ARMS issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;
. in adjustable rate portions of collarteralized
mortgage obligations ("CMOs") issued by U.S.
Government agencies and CMO's rated "AAA" by S &
P, or "Aaa" by Moody's; and
. no more than 5% of our assets in securities
purchased on a "when-issued" basis.
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.
24 Stagecoach 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 equally important to your investment
choice.
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.
- --------------------------------------------------------------------------------
[LOGO OF ADDITIONAL FUND FACTS
ADDITION Adjustable rate mortgages ("ARMs") have interest rates
SIGN] tied to an index, such as U.S. Treasury bill rates or
the federal funds target rate, so that payments may be
periodically reset according to changes in the index.
Individual ARMs are bundled together and sold as
securities. Unlike conventional debt securities, which
typically make semi-annual interest payments and repay
principal at maturity, ARMs provide a monthly payment
of a pro-rated share of both interest payments and
payments and pre-payments of principal. Since ARMs
adjust to interest rate changes, they may be less
sensitive to interest rate changes than their weighted-
average maturity might suggest.
For information on Fund fees and expenses, see "Summary
of Expenses" on page 6.
Stagecoach Income Funds Prospectus 25
<PAGE>
<TABLE>
<CAPTION>
Variable Rate Government Fund Financial Highlights
See "Historical Fund Information" on page 49. See "How to Read the Financial Highlights" on page 57
- ------------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
FOR SHARES OUTSTANDING
==================================================================================================================================
CLASS A SHARES -- COMMENCED
ON NOVEMBER 1, 1990
----------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 30, Dec. 30, Dec. 30,
For Period Ended: 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.25 $ 9.35 $ 9.19 $ 9.99 $ 9.95 $ 10.13 $ 10.12 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.51 0.50 0.53 0.43 0.44 0.59 0.78 0.08
Net realized and unrealized gain
(loss) on investments (0.02) (0.10) 0.16 (0.80) 0.04 (0.18) 0.01 0.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.49 0.40 0.69 (0.37) 0.48 0.41 0.79 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.51) (0.46) (0.53) (0.43) (0.44) (0.59) (0.78) (0.08)
Distributions from net realized gain 0.00 (0.04) 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.51) (0.50) (0.53) (0.43) (0.44) (0.59) (0.78) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.23 $ 9.25 $ 9.35 $ 9.19 $ 9.99 $ 9.95 $ 10.13 $ 10.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total return/1/ 5.43% 4.41% 7.69% (3.81)% 4.87% 4.23% 8.60% 2.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $227,353 $393,948 $653,897 $1,215,546 $1,949,013 $2,559,363 $566,840 $ 6,858
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratios of expenses to average net
assets 0.81% 0.88% 0.84% 0.79% 0.76% 0.75% 0.50% 0.00%
Ratio of net investment income to
average net assets 5.55% 5.36% 5.71% 4.40% 4.37% 5.62% 7.36% 4.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 92% 277% 317% 164% 201% 197% 250% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and reimbursed
expenses 1.09% 0.98% 0.96% 0.94% 0.95% 0.94% 1.08% 5.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses 5.27% 5.26% 5.59% 4.25% 4.18% 5.43% 6.78% (0.55)%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARE CALENDAR RETURNS 1997 1996 1995 1994 1993 1992 1991
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Returns for other share classes 5.43% 4.41% 7.69% -3.81% 4.87% 4.23% 8.60%
may 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/ Total returns do not include any sales charges. Total returns for periods
less than one year are not annualized.
26 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 risks 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 certain
services for a Fund, such as selling agents or investment advisors, offer or
promise to make good any such losses.
. Share prices--and therefore the value of your investment--will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as price 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 instruments, 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 instruments 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 instruments with
longer maturities are generally more sensitive to interest rate changes than
those with shorter maturities. Changes in market interest rates do not affect
the rate payable on debt instruments held in a Fund, unless the instrument
has adjustable or variable rate features. Changes in market interest rates
may also extend or shorten the duration of certain types of instruments, such
as asset-backed securities, thereby affecting their value and the return on
your investment. Each Fund may continue to hold debt instruments that cease
to be rated by a nationally recognized ratings organization or whose rating
falls below the levels permitted for such
28 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Fund, provided Wells Fargo Bank deems the securities to be of comparable
quality to rated or higher-rated securities. 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 enter into forward currency exchange contracts ("forward
contracts") to try to reduce currency exchange risks to the Funds from
foreign securities investments. A forward contract is an obligation to buy or
sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers.
. 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 derivative 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 market value of lower rated, fixed-income securities and unrated
securities of comparable quality tends to reflect individual
developments
Stagecoach Income Funds Prospectus 29
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
affecting the issuer to a greater extent than the market value of higher
rated securities, which react primarily to fluctuations in the general level
of interest rates. Lower rated securities also tend to be more sensitive to
economic conditions than higher rated securities. These lower rated fixed-
income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation
and generally involve more credit risk than securities in the higher rating
categories. Even securities rated "BBB" by S&P or by Moody's, ratings which
are considered investment grade, possess some speculative
characteristics.
. The Strategic Income Fund invests in income-producing 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 Strategic Income Fund may invest in smaller companies, foreign companies
(including investments made through American Depositary Receipts and similar
instruments), and in emerging markets that are subject to additional risks,
including less liquidity and greater volatility. The 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.
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 and the risks associated
with them. 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.
30 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 U.S. 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.
Stagecoach Income Funds Prospectus 31
<PAGE>
- --------------------------------------------------------------------------------
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.
Year 2000 Risks-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the Funds that they are working on
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
32 Stagecoach Income 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 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 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 investment objective.
Stagecoach Income Funds Prospectus 33
<PAGE>
<TABLE>
<CAPTION>
CORPO- SHORT STRAT- U.S. VARI-
RATE INTERM- EGIC GOVT ABLE
BOND EDIATE INCOME INCOME RATE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE RISKS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are adjusted either on a Interest Rate and . . . . .
schedule or when an index or benchmark changes. Credit Risk
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a security agrees to buy Credit and . . . . .
back a security at an agreed upon time and price usually with Counter-Party Risk
interest.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of another mutual fund. Market Risk . . . . .
A pro rata portion of the other fund's expenses, in addition
to the expenses paid by the Funds, will be borne by Fund
shareholders.
- ------------------------------------------------------------------------------------------------------------------------------------
STRIPPED OBLIGATIONS
Securities that give ownership to either future payments of Interest Rate Risk . . . .
interest or a future payment of principal, but not both.
These securities tend to have greater interest rate sensitivity
that conventional debt obligations. Each Fund may invest up
to 20% of assets in interest only or principal only obligations,
or a combination thereof.
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, or cannot be readily sold Liquidity Risk . . . . .
without negatively affecting its fair price. Limited to 10% of
assets for the Variable Rate Government Fund and 15% of assets
for all other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to brokers, dealers and Credit, Leverage and . . . . .
financial institutions to increase return on those securities. Counter-Party Risks
Loans may be made in accordance with existing investment policies.
(Loans may not exceed 33 1/3%.)
- ------------------------------------------------------------------------------------------------------------------------------------
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND
DELAYED DELIVERY TRANSACTIONS Interest Rate, . . . . .
Securities bought or sold for delivery at a later date or bought Leverage, Credit and
or sold for a fixed price at a fixed date. Experience Risk
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of 10% (20% for the US Leverage Risk . . . . .
Government Income Fund) of total assets from banks for
temporary purposes to meet shareholder redemptions.
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Securities consisting of an undivided fractional interests in pools Interest Rate Credit . . . . .
of consumer loans, such as car loans or credit card debt, or and Experience Risk
receivables held in trust.
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES
Securities issued by a non-U.S. company or debt of a foreign Information, . . .
government in the form of an American Depositary Receipt or Political, Regulatory, Diplomatic
similar instrument. Limited to 25% of assets. Liquidity and Currency Risk
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD SECURITIES
Fixed-income securities of lower quality that produce generally Interest Rate and . .
higher rates of return. Those securities tend to be more sensitive Credit Risk
to economic conditions and during sustained periods of rising
Interest rates, may experience interest and/or principal defaults.
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS
Debt obligations that represent a portion of a larger loan made by Credit Risk . .
a bank. Generally sold without guarantee or recourse, some
participations sell at a discount because of the borrower's credit
problems. Limited to 5% of total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVATELY ISSUED SECURITIES
Securities that are not publicly traded but which may be resold Liquidity Risk . .
in accordance with Rule 144A of the Securities Act of 1933.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
A CHOICE OF SHARE CLASSES
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
. CLASS A SHARES - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
. CLASS B SHARES - with a contingent deferred sales charge ("CDSC") that
diminishes over time, and higher on-going expenses than Class A
shares.
. CLASS C SHARES - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B or Class C shares. Please note that Class B shares convert
to Class A shares after six years to avoid the higher on-going expenses assessed
against Class B shares. The Variable Rate Government Fund is not available in
Class B shares.
Class C shares are available for the Corporate Bond, Strategic Income and U.S.
Government Income Funds only. They are similar to Class B shares, with some
important differences. Unlike Class B shares, Class C shares do not convert to
Class A shares. The higher on-going expenses will be assessed as long as you
hold the shares. The choice between Class B and Class C shares may depend on how
long you intend to hold Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following sales charge
schedule before making your decision. You should also review the "Reduced Sales
Charges" section below. You may wish to discuss this choice with your financial
consultant.
CLASS A SHARE SALES CHARGE SCHEDULE
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
Statecoach Income Funds Prospectus 35
<PAGE>
A Choice of Share Classes
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A SHARES FOR THE CORPORATE BOND, STRATEGIC INCOME AND U.S. GOVERNMENT INCOME FUNDS HAVE THE FOLLOWING SALES CHARGE
SCHEDULE:
====================================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.125%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS A SHARES FOR THE SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME, AND VARIABLE RATE GOVERNMENT FUNDS HAVE THE FOLLOWING SALES
CHARGE SCHEDULE:
====================================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.65%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 2.25% 2.30% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 1.50% 1.52% 1.30%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 0.60% 0.60% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC if
they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
36 Stagecoach Income Funds Prospectus
<PAGE>
________________________________________________________________________________
CLASS B SHARE CDSC SCHEDULE
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B and
Class C Share CDSC Reductions" and "Waivers for Certain Parties"). The CDSC
schedule is as follows:
<TABLE>
<CAPTION>
==========================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
==========================================================================================
REDEMPTION WITHIN: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC 5.00% 4.00% 4.00% 3.00% 2.00% 1.00%
- ------------------------------------------------------------------------------------------
</TABLE>
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the Class B shares are converted to Class A
shares to reduce your future on-going expenses.
CLASS C SHARE CDSC SCHEDULE
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of 1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Stagecoach Income Funds Prospectus 37
<PAGE>
REDUCED SALES CHARGES
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of these potential
reductions when you are deciding which share class to buy.
CLASS A SHARE REDUCTIONS:
. You pay no sales charges on Fund shares you buy with reinvested
distributions.
. You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
. By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
. RIGHTS OF ACCUMULATION (ROA) allow you to combine the amount you invest
with the total NAV of shares you own in other Stagecoach front-end load
Funds in order to reach breakpoint levels for a reduced load. We give you a
discount on the entire amount of the investment that puts you over the
breakpoint level.
. If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have
120 days to reinvest the proceeds of that redemption with no sales charge
into a Fund that charges the same or a lower front-end sales charge. If you
use such a redemption to purchase shares of a Fund with a higher front-end
sales charge, you will have to pay the difference between the lower and
higher charge.
. You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for
which Wells Fargo Bank acts as trustee provided the distribution occurred
within the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
38 Stagecoach Income Funds Prospectus
<PAGE>
________________________________________________________________________________
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
. a family unit, consisting of a husband and wife and children under the age
of twenty-one or single trust estate;
. a trustee or fiduciary purchasing for a single fiduciary relationship; or
. the members of a "qualified group" which consists of a "Company" (as
defined in the Investment Company Act of 1940 ("1940 Act"), and related
parties of such a "Company", which has been in existence for at least six
months and which has a primary purpose other than acquiring Fund shares at
a discount.
HOW A LETTER OF INTENT CAN SAVE YOU MONEY!
If you plan to invest, for example, $100,000 in the Corporate Bond Fund in
installments over the next year, by signing a letter of intent you would
pay only a 3.50% sales load on the entire purchase. Otherwise, you might
pay 4.50% on the first $50,000, then 4.00% on the next $49,999!
CLASS B AND CLASS C SHARE CDSC REDUCTIONS
. You pay no CDSC on Funds shares you purchase with reinvested distributions.
. We waive the CDSC for all redemptions made because of scheduled or
mandatory distributions for certain retirement plans. (See your retirement
plan disclosure for details.)
. We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability"
is defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the direction of Stagecoach
Funds, in order to, for example, complete a merger or close an account
whose value has fallen below the minimum balance.
. We waive the Class C share CDSC for certain types of accounts.
WAIVERS FOR CERTAIN PARTIES
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
. CURRENT AND RETIRED EMPLOYEES, directors and officers of:
. Stagecoach Funds and its affiliates;
Stagecoach Income Funds Prospectus 39
<PAGE>
REDUCED SALES CHARGES
- --------------------------------------------------------------------------------
. Wells Fargo Bank and its affiliates;
. Stephens Inc. and its affiliates; and
. Broker-Dealers who act as selling agents.
. The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews,
fathers-in-law, mothers-in-law, brothers-in-law and sisters-in-law of either
the spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions governing that account. These directions may supersede the terms
and conditions discussed here.
Class B shares you purchased prior to March 3, 1997, are subject to a CDSC if
they are redeemed within four years of purchase. The CDSC schedule for these
shares is below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
REDEMPTION 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC 2.00% 2.00% 1.00% 1.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------
</TABLE>
The above schedule does not apply for any new shares purchased.
If you exchange Class B shares for Class B shares of another Fund, you will
retain the above CDSC schedule on your exchanged shares, but additional shares
of the newly purchased Fund will age at the higher CDSC schedule.
40 Stagecoach Income Funds Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment, or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and applications for the program through
which you intend to invest.
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your selling agent or by calling 1-800-222-8222.
. We process requests to buy or sell shares each business day as of the close
of regular trading on the New York Stock Exchange ("NYSE"), which is
usually 1:00 PM (Pacific time. )Any request we receive in proper form
before the close of regular trading on the NYSE is processed the same day.
Requests we receive after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
. We determine the Net Asset Value (NAV) of each class of the Funds' shares
each business day as of the close of regular trading on the NYSE. 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
Stagecoach Income Funds Prospectus 41
<PAGE>
Your Account
- --------------------------------------------------------------------------------
market prices. See the Statement of Additional Information for further
disclosure.
. We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-
222-8222) if you are investing directly with Stagecoach Funds, or speak to
your Selling Agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the
same registration without completing a new application.
. We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We may also reserve the right to delay payment
of a redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
42 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
BY MAIL
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest.
- ------------------------------------------------ Mail to:
Enclose a check for at lease $1,000 made out Stagecoach Funds
in the full name and share class of the Fund. PO Box 7066
For example, "Stagecoach Corporate Bond San Francisco, CA
Fund, Class B". 94120-9201
- ------------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ------------------------------------------------ San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application. Mail to:
you must wire at least $1,000. Be sure to Stagecoach Funds
indicate the Fund name and the share class PO Box 7066
into which you intend to invest. San Francisco, CA
- ------------------------------------------------ 94120-9201
Mail the completed application. Fax to: 1-415-546-0280
- ------------------------------------------------
You may also fax the completed application
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number:
name your account is registered in. 121000248
- -----------------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated
on Application)
----------------------------------
Stagecoach Income Funds Prospectus 43
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST ITME:
- --------------------------------------------------------------------------------
You can only make your first purchase
of a Fund by phone if you already have
an existing Stagecoach Account.
- ---------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $1,000 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or by telephone. For Fund shares held
through brokerage and other types of accounts, please consult your Selling
Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption you
wish to receive (or write "Full Redemption").
- ---------------------------------------------------
Make sure all the account owners sign
the request.
- ---------------------------------------------------
You may request that redemption proceeds be Mail to:
sent to you by check, by ACH transfer into a Stagecoach Funds
bank account, or by wire ($5,000 minimum). PO Box 7066
Please call Investor Services regarding San Francisco, CA
requirements for linking bank accounts or for 94120-9201
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- ---------------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage
house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
44 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption of at least $100.
Be prepared to provide your account number and Taxpayer
Identification Number.
- -----------------------------------------------------------------
Unless you have instructed us otherwise, only one account owner
needs to call in redemption requests.
- -----------------------------------------------------------------
You may request that redemption proceeds be sent to you by check,
by transfer into an ACH-linked bank account, or by wire ($5,000
minimum). Please call Investor Services regarding requirements
for linking bank accounts or for wiring funds. We reserve the
right to charge a fee for wiring funds although it is not
currently our practice to do so.
- ----------------------------------------------------------------- CALL
Telephone privileges are automatically made available to you 1-800-222-8222
unless you specifically decline them on your application or
subsequently in writing.
- -----------------------------------------------------------------
Phone privileges allow us to accept transaction instructions by
anyone representing themselves as the shareholder and who
provides reasonable confirmation of their identity, such as
providing the Taxpayer Identification Number on the account. We
will not be liable for any losses incurred if we follow telephone
instructions we reasonably believe to be genuine.
- --------------------------------------------------------------------------------
Telephone requests are not accepted if the address on your account
was changed by phone in the last 15 days.
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We process requests to sell shares at the first NAV calculated after a request
in proper form is received. Requests received before the close of trading on
the NYSE are processed on the same business day.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of regular trading on the NYSE,
which is generally 1:00 P.M. (Pacific time).
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 days so that
we may be reasonably certain that investments made by check or AutoSaver 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 is for more
than $250,000 or 1% of the net assets of the Fund by a single shareholder over
any ninety-day period. If a request for a redemption is over these limits it may
be to the detriment of existing shareholders to pay such redemption in cash.
Therefore, we may pay all or part of the redemption in securities of equal
value.
- --------------------------------------------------------------------------------
Stagecoach Income Funds Prospectus 45
<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 exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the maximum
3% load schedule and the maximum 4.5% schedule).
. If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
. Exchanges between Class B shares, between Class C shares or between either
Class B or Class C shares and a Stagecoach money market fund will not trigger
the CDSC. The new shares will continue to age according to their original
schedule while in the new Fund and will be charged the CDSC applicable to the
original shares upon redemption. This also applies to exchanges of Class A
shares that are subject to a CDSC.
. Exchanges from any share class to a money market fund can only be re-
exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be borne
by other shareholders, we reserve the right to limit or reject exchange
orders. Generally, we will notify you 60 days in advance of any changes in
your exchange privileges.
. You may make exchanges between like share classes. You may also exchange from
Class A, B or C shares and non-institutional shares to a non-institutional
money market fund.
46 Stagecoach Income Funds Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. Autosaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each month
if you have not specified a day. Please call Investor Services at 1-800-222-
8222 if you wish to change or add linked accounts.
. Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or transfer
it into your linked bank account. In order to set up a Systematic Withdrawal
Program, you:
. must have a Fund account valued at $10,000 or more;
. must have distributions reinvested; and
. may not simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the linked
account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option - Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
. Fund Purchase Plan - Uses your distributions to buy shares at NAV of another
Stagecoach Fund of the same share class or a money market fund. You must have
already satisfied the minimum investment requirements of the Fund into which
your distributions are being transferred in order to participate.
Stagecoach Income Funds Prospectus 47
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
. Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the
ACH system. If your specified bank account is closed, we will reinvest
your distributions.
. Check Payment Option - Allows you to receive checks for distributions
mailed to your address of record or to another name and address which you
have specified in written, signature guaranteed instructions. If checks
remain uncashed for six months or are undeliverable by the Post Office, we
will reinvest the distributions at the earliest date possible.
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed. Also, distributions on new shares shortly after purchase
would be in effect a return of capital, although the distribution may still
be taxable to you.
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. A portion of such dividends may be excluded by corporate
shareholders when determining their federal 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 which may qualify for taxation at preferential rates in the
hands of non-corporate shareholders. Any distribution that is not from net
investment income, short term capital gains, or net capital gain may be
characterized as a return of capital to shareholders.
In general, all distributions will be taxable to you when paid even if they are
paid 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 on December 31 of the year in which they were declared. We
will notify you annually as to the status of your Fund distributions.
48 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
If you buy shares of a Fund shortly before it distributes its annual gains, your
distributions from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Your redemptions and exchanges of Fund shares 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 taxes. In certain circumstances,
U.S. residents will also be subject to back-up withholding taxes.
Historical Fund Information:
U.S. Government Income Fund-- Commenced operations on April 7, 1988, as the U.S.
Government Income Fund of Overland Express Funds, Inc. ("Overland"), 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. For accounting purposes, the Overland Express Fund is
considered the surviving entity and the financial highlights shown are for the
Class A and D shares of the Overland Fund. The Overland Fund did not offer Class
B shares. The Financial Highlights for the Class B shares reflect prior
performance of the Stagecoach Class B shares and are no longer part of the
Fund's formal financial statements.
Variable Rate Government Fund-- Commenced operations on November 1, 1990, as the
Variable Rate Government Fund of Overland another investment company advised by
Wells Fargo Bank. On December 12, 1997, the Overland Express Fund was
reorganized as a Fund of Stagecoach Funds. Performance for the period prior to
December 15, 1997, reflects the performance of the Overland Fund. The Fund's
manager has voluntarily waived or reimbursed expenses to the Funds; without
these reductions, the Fund's performance would have been lower.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank
Stagecoach Income Funds Prospectus 49
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
has advised the Funds that the merger will not reduce the level or quality of
advisory and other services provided by Wells Fargo Bank to the Funds.
Share Class-- This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds may offer additional share classes with
different expenses and returns than those described here. Call Stephens at
1-800-643-9691 for information on these or other investment options in
Stagecoach Funds.
Conversion of Class B shares-- We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed to
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value-- Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements-- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees-- Stephens as the Fund's distributor,
will pay the portion of the Class A share sales charge shown as the Dealer
Allowance to the selling agent, if any. Stephens also compensates selling agents
for the sale of Class B and Class C shares and is reimbursed through Rule 12b-1
fees and contingent deferred sales charges. Selling agents may receive different
compensation for sales of Class A, Class B and Class C shares of the same Fund.
Stephens may, from time to time pay additional compensation to selling agents
that will not exceed the maximum compensation permitted under Rule 12b-1.
50 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Statement of Additional Information-- Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statements 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 Income Funds Prospectus 51
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for each of the Funds.
About Stagecoach
Each Fund is one over 30 Funds of Stagecoach Funds, 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.
<TABLE>
<CAPTION>
===============================================================================================================
SHAREHOLDERS
===============================================================================================================
===============================================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
===============================================================================================================
Advise current and prospective shareholders on their Fund Investments
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT SERVICING AGENTS
===============================================================================================================
<S> <C> <C> <C>
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Funds' Maintains records of Provide services
distributes shares and business activities shares and supervises to customers
manages the Funds' the paying of dividends
business activities
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
INVESTMENT SUB-ADVISOR
===============================================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' Investment activities
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
INVESTMENT ADVISOR CUSTODIAN
===============================================================================================================
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
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
BOARD OF DIRECTORS
===============================================================================================================
Supervises the Funds' activities
===============================================================================================================
</TABLE>
52 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. Wells Fargo Bank, founded
in 1852, is the oldest bank in the western United States and is one of the
largest banks in the United States. Wells Fargo Bank is a wholly owned
subsidiary of Wells Fargo & Company, a national bank holding company As of
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion in
assets. The Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the last fiscal year:
- --------------------------------------------------------------------------------
Corporate Bond Fund .50%
- --------------------------------------------------------------------------------
Short- Intermediate U.S Government Income .40%
- --------------------------------------------------------------------------------
Strategic Income Fund .60%
- --------------------------------------------------------------------------------
U.S. Government Income Fund .50%
- --------------------------------------------------------------------------------
Variable Rate Government .41%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank N.A., is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets in excess of $32 billion. For
providing sub-advisory services to the Funds, WCM is entitled to receive from
Wells Fargo Bank N.A. .15% of each Fund's assets up to the first $400 million,
.125% of the next $400 million in assets, and .10% of all assets over $800
million. WCM is entitled to receive from Wells Fargo Bank a minimum annual sub-
advisory fee of $120,000. This minimum annual fee payable to WCM does not affect
the advisory fee paid by the Funds to Wells Fargo Bank.
Stagecoach Income Funds Prospectus 53
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator. Stephens also receives
all loads, CDSCs and distribution plan fees. It uses a portion of these amounts
to compensate selling agents for their role in marketing the Funds' shares.
Distribution Plan
We have adopted distribution plans for the Funds. For Class A shares of the
Short-Intermediate U.S. Government Income and U.S. Government Income Funds,
these plans are used to defray all or part of the cost of preparing and
distributing prospectuses and promotional materials. For Class A shares of the
Variable Rate Government Fund and the Class B shares of the Funds, these plans
are used to pay for distribution-related services including ongoing compensation
to Selling Agents. Each Fund may participate in joint distribution activities
with other Stagecoach Funds. The cost of these activities is generally allocated
among the Funds. Funds with higher assets levels pay a higher proportion of
these costs. The fees paid under these plans are as follows:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Corporate Bond Fund .05% .75% .75%
- --------------------------------------------------------------------------------
Short-intermediate U.S. Government Income .05% .75% N/A
- --------------------------------------------------------------------------------
Strategic Income Fund .05% .75% .75%
- --------------------------------------------------------------------------------
U.S. Government Income Fund .05% .70% .75%
- --------------------------------------------------------------------------------
Variable Rate Government .25% N/A N/A
- --------------------------------------------------------------------------------
54 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements
with various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services each Fund pays as follows:
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Corporate Bond Fund .25% .25% .25%
- --------------------------------------------------------------------------------
Short-Intermediate U.S. Government Income .30% .25% N/A
- --------------------------------------------------------------------------------
Strategic Income Fund .25% .25% .25%
- --------------------------------------------------------------------------------
U.S. Government Income Fund .30% .30% .25%
- --------------------------------------------------------------------------------
Variable Rate Government .25% N/A N/A
- --------------------------------------------------------------------------------
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.
. Madeleine Gish, CFA
With Wells Fargo since 1989.
. Paul Single
With Wells Fargo since 1988.
. Scott Smith, CFA
With Wells Fargo since 1988.
. Jeff Weaver
With Wells Fargo since 1994.
With Bankers Trust Company in New York since 1991.
Stagecoach Income Funds Prospectus 55
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
. Graham Allen
Joined Wells Fargo in January, 1998. Worked for Bradford & Marzec, Inc. as an
International Portfolio Manager from August, 1988, to January, 1998, and
worked for Heron Financial Corp. as a High Yield Portfolio Manager from June,
1985, to August, 1988.
. John (Jack) Burgess
Joined Wells Fargo in April 1998. Worked at an independent financial advisor
practice in Los Angeles from 1995 to 1998. Prior to that, he worked for
Aurora National Life Assurance; and associated companies Executive Life
Insurance Co and Sallis Advisors, Inc. where he managed both equity and fixed
income investments from 1988 to 1995. Jack has also held investment
management or analysis positions at Bradford & Marzec, Inc., Massachusetts
Capital Resources Co., and Bank of Boston.
. Jaqueline Flippin
Joined Wells Fargo in January, 1998. Worked for McMorgan & Co. as a Portfolio
Manager from October, 1994, to January, 1998, and worked for Teachers
Insurance Annuity Association, College Retirement Equity Fund as a Portfolio
Manager from August, 1986, to October, 1994.
. Daniel Kokoszka, CFA
Joined Wells Fargo in February 1998. Worked for Bradford & Marzec, Inc. where
he was on the international portfolio management team for more than four
years. Previously he worked for Lockheed Corporation in the corporate
finance, mergers and acquisitions and venture capital areas.
. Allen Wisniewski
With Wells Fargo since 1987.
56 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, with the exception of the Class A share
calendar returns or as indicated. The financial statements are included in each
Fund's most recent Annual or Semi-Annual Report and are available free of charge
by calling 1-800-222-8222. Other auditors audited statements for the
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 more detailed 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 Funds.
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 57
<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.
58 Stagecoach Income Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and
perform other tasks.
Annual and Semi-Annual Report
A document that provides certain financial and other information for the most
recent reporting period and 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.
Below Investment Grade
Securities rated BBB or lower by S&P or Baa or lower by Moody's Investor
Services, or that may be unrated securities or securities considered to be "high
risk".
Business Day
Any day the NYSE is open is a business day for the Funds.
Convertible Debt Securities
Bonds or notes that are exchangeable for equity securities at a set price on a
set date or at the election of the holder.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "Total Return".
Debt Securities
Generally, a promise to pay interest and repay principal by a single debtor or
group of single debtors sold as a security. The owner of the security is
entitled to receive any such payments. Examples include bonds and mortgage-
backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another
security or index. An example is a stock option.
Stagecoach Income Funds Prospectus 59
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
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.
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" are issued by the Federal National
Mortgage Association, and FHLMC securities as "Freddie Mac" and are issued by
the Federal Home Loan Mortgage Corporation.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Government National Mortgage Association.
Illiquid Security
A security which cannot be readily sold or cannot be readily sold without
negatively affecting their fair price.
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization such as Moody's or Standard & Poors. Generally
these are bonds whose issuers are considered to have a strong ability to pay
interest and repay principal, although some investment-grade bonds may have some
speculative characteristics.
60 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 NYSE is open, typically 1:00 p.m. Pacific Time.
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options can also be based on the
movement of an index such as the S&P 500.
Preservation of Capital
The attempt by a fund's manager to reduce drops in the net asset value of fund
shares in order to preserve the initial investment.
Principal Stability
The degree to which share prices for a fund remain steady. Money market funds
attempt to achieve the highest degree of principal stability by maintaining a
$1.00 per share net asset value. More aggressive funds may not consider
principal stability an objective.
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 Fund's distributor that allows them to
sell a Fund's shares.
Stagecoach Income Funds Prospectus 61
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Shareholder Servicing Agent
An entity appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
S&P
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.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Fund.
Turnover Ratio
The percentage of the securities held in a Fund's portfolio, other than short-
term securities, that were bought or sold within a year.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
62 Stagecoach Income Funds Prospectus
<PAGE>
STAGECOACH FUNDS(R)
You may wish to review the following documents:
Statement of Additional Information supplements the disclosures made by this
Prospectus. The Statement of Additional Information has been filed with the SEC
and is incorporated by reference into this Prospectus and is legally part of
this Prospectus.
Annual/Semi-Annual Report provides certain financial and other important
information for the most recent reporting period and each Fund's portfolio of
investments.
These are available free of charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
- --------------------------------------------------------------------------------
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
. are NOT insured by the FDIC.
. are NOT obligations or deposits of Wells Fargo Bank, nor guaranteed by the
Bank.
. involve investment risk, including possible loss of principal.
- --------------------------------------------------------------------------------
<PAGE>
August 1, 1998
STAGECOACH FUNDS/TM/
Stagecoach /R/
Money Market Funds
Prospectus
Money Market Please read this Prospectus and keep
Fund it for future reference. It is designed
to provide you with important information
California Tax-Free and to help you decide if a Fund's goals
Money Market match your own.
Fund
Government Money These securities have not been approved or
Market Fund disapproved by the U.S. Securities and
Exchange Commission ("SEC"), any state
National Tax-Free securities commission or any other regulatory
Money Market authority, nor have any of these authorities
Fund passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary
Treasury Plus Money is a criminal offense.
Market Fund
100% Treasury Money Fund shares are NOT deposits or other
Market Fund obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Class A Fargo Bank"), Wells Capital Management
Incorporated ("Wells Capital Management" or
Investment Advisor "WCM"), or any of their affiliates. Fund
and Administrator: shares are NOT insured or guaranteed by the
U.S. Government, the Federal Deposit
Wells Fargo Bank Insurance Corporation ("FDIC"), the Federal
Reserve Board or any other governmental
Investment agency. AN INVESTMENT IN A FUND INVOLVES
Sub-Advisor: CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. WE CANNOT ASSURE YOU THAT A FUND
Wells Capital WILL MAINTAIN A STABLE NET ASSET VALUE OF
Management $1.00 PER SHARE.
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and
understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 the 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 about these Funds?
Each Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 5
- --------------------------------------------------------------------------------
The Funds Money Market Fund 6
This section contains California Tax-Free Money Market
important information Fund 10
about the Funds.
Government Money Market
Fund 14
National Tax-Free Money Market
Fund 18
Treasury Plus Money Market Fund 22
100% Treasury Money Market Fund 26
General Investment Risks 28
- --------------------------------------------------------------------------------
Your Account Your Account 32
Turn to this section How to Buy Shares 34
for information on
how to open and Selling Shares 35
maintain your account,
including how to buy, Exchanges 37
sell and Exchange
Fund shares. Additional Services and
Other Information 38
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 42
Look here for details
on the organization of How to Read the Financial Highlights 46
the Funds and term
definitions. Glossary 48
<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 the risk 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 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 page of this Prospectus. The "Funds" also may refer to other mutual funds
offered by Stagecoach Funds, Inc. ("Stagecoach").
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 31.
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. Capital gains, if any, are
distributed at least annually.
4 Stagecoach Money Market Funds Prospectus
<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.
- --------------------------------------------------------------------------------------------------------
Money California National Treasury 100%
Market Tax-Free Government Tax-Free Plus Treasury
----------------------------------------------------------------
Class A Class A Class A Class A Class A Class A
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) None None None None None None
- --------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None None None
- --------------------------------------------------------------------------------------------------------
Maximum sales charge imposed on
redemptions None None None None None None
- --------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None
- --------------------------------------------------------------------------------------------------------
<CAPTION>
========================================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
========================================================================================================
Expenses shown "after waivers" reflect amounts paid by each Fund during the prior fiscal period. In
some cases, they have been restated to reflect expenses and fee waivers expected to be in effect
during the current fiscal year. Expenses shown "before waivers" reflect contract amounts and amounts
paid during the prior fiscal period. Expense waivers and reimbursements are voluntary and may be
discontinued without prior notice.
- --------------------------------------------------------------------------------------------------------
Money California National Treasury 100%
Market Tax-Free Government Tax-Free Plus Treasury
----------------------------------------------------------------
Class A Class A Class A Class A Class A Class A
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
- --------------------------------------------------------------------------------------------------------
Management fee
(after waivers) 0.22% 0.10% 0.05% 0.07% 0.10% 0.11%
- --------------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.48% 0.50% 0.65% 0.58% 0.50% 0.49%
- --------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.75% 0.65% 0.75% 0.70% 0.65% 0.65%
- --------------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.40% 0.50% 0.25% 0.30% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.48% 0.50% 0.70% 0.78% 0.55% 0.49%
- --------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 0.93% 1.05% 1.00% 1.13% 0.85% 0.79
- --------------------------------------------------------------------------------------------------------
<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 Money California National Treasury 100%
a $1,000 investment assuming a 5% annual Market Tax-Free Government Tax-Free Plus Treasury
return and that you redeem your shares ---------------------------------------------------------------
at the end of each period. Class A Class A Class A Class A Class A Class A
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 7 $ 8 $ 7 $ 7 $ 7
- --------------------------------------------------------------------------------------------------------
3 Years $24 $21 $24 $22 $21 $ 21
- --------------------------------------------------------------------------------------------------------
5 Years $42 $36 $42 $39 $36 $ 36
- --------------------------------------------------------------------------------------------------------
10 Years $93 $81 $93 $87 $81 $ 81
- --------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 5
<PAGE>
Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Money Market Fund seeks to provide investors with a high
level of income, while preserving capital and liquidity, by
investing in high quality, short-term instruments.
Investment Policies
We actively manage a portfolio 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 investments 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 deposits 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;
. municipal obligations; and
. shares of other money market funds.
6 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 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 Money Market Funds Prospectus 7
<PAGE>
Money Market Fund Financial Highlights
See "How to Read the Financial Highlights" on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS A SHARES -- COMMENCED
ON JULY 1, 1992
-------------------------------------------------------------------------------------
March 31, March 31, Sept 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1998 1997/1/ 1996/1/ 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.02 0.03 0.05 0.04 0.03 0.02
Net realized and unrealized
gain on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.02 0.03 0.05 0.04 0.03 0.02
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.05) (0.02) (0.03) (0.05) (0.04) (0.03) (0.02)
Distributions from net realized
gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.05) (0.02) (0.03) (0.05) (0.04) (0.03) (0.02)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 5.07% 2.36% 3.55% 5.34% 3.74% 2.70% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $6,711,584 $4,640,148 $3,799,908 $2,892,621 $2,343,942 $317,474 $236,269
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets 0.75% 0.75% 0.75% 0.75% 0.69% 0.58% 0.20%
Ratio of net investment income
to average net assets 4.95% 4.71% 4.66% 5.13% 4.12% 2.67% 2.98%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 0.93% 0.90% 0.88% 0.83% 0.89% 1.00% 0.94%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses 4.77% 4.56% 4.53% 5.05% 3.92% 2.25% 2.24%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
===================================================================================================================================
These returns reflect fee waivers and reimbursements, 5.00% 4.78% 5.34% 3.74% 2.70%
and are not a guarantee of future performance.
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
8 Stagecoach Money Market Funds Prospectus
Stagecoach Money Market Funds Prospectus 9
<PAGE>
California Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The California Tax-Free Money Market Fund seeks to obtain a high
level of income exempt from federal income tax and California
personal income tax, while preserving capital and liquidity, by
investing in high-quality, short-term, U.S. dollar-denominated
money market instruments, primarily municipal obligations.
Investment Policies
We actively manage a portfolio of bonds, notes and commercial
paper issued by or on behalf of the state of California, its
cities, municipalities, political subdivisions and other public
authorities. Under normal market conditions we invest
substantially all of our assets in debt obligations with
remaining maturities of 397 days or less that are exempt from
federal and California personal income tax. 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:
. at least 80% of our assets in municipal obligations that
provide income exempt from federal income tax and not subject
to the federal alternative minimum tax;
. at least 65% of our assets in municipal obligations that pay
interest exempt from California personal income taxes,
although it is our intention to invest substantially all of
our assets in such obligations; and
. in obligations rated within the two highest categories by
nationally recognized ratings organizations.
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.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 and the specific risks listed below. They are both
important to your investment choice.
Since we invest heavily in California municipal obligations,
events in California are likely to affect the Fund's
investments. In addition, we may invest up to 25% or more of our
assets in California municipal obligations that are 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 Additional Fund Facts
ADDITION
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 5.
Stagecoach Money Market Funds Prospectus 11
<PAGE>
California Tax-Free Money Market Fund Financial Highlights
See "How to Read the Financial Highlights" on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS A SHARES -- COMMENCED
ON JULY 1, 1992
------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
For the period ended: 1998 1997/1/ 1996/1/ 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.01 0.02 0.03 0.02 0.02 0.03
Net realized and unrealized gain on
investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations: 0.03 0.01 0.02 0.03 0.02 0.02 0.03
----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.01) (0.02) (0.03) (0.02) (0.02) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.03) (0.01) (0.02) (0.03) (0.02) (0.02) (0.03)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 2.91% 1.36% 2.04% 3.23% 2.28% 1.89% 2.81%
----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $2,118,881 $1,384,310 $1,161,431 $1,031,004 $869,745 $793,420 $572,906
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.65% 0.65% 0.65% 0.65% 0.62% 0.55% 0.28%
Ratio of net investment income to average
net assets 2.85% 2.72% 2.69% 3.18% 2.26% 1.88% 2.41%
----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed expenses 1.05% 1.03% 1.02% 1.01% 1.08% 1.06% 1.03%
----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses 2.45% 2.34% 2.32% 2.82% 1.80% 1.37% 1.66%
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS
===================================================================================================================================
These returns reflect fee waivers and reimbursements, and 2.92% 2.76% 3.23% 2.28% 1.89% 2.81%
are not a guarantee of future performance.
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
12 Stagecoach Money Market Funds Prospectus
Stagecoach Money Market Funds Prospectus 13
<PAGE>
Government Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Government Money Market Fund seeks to provide investors with
as high a level of current income as is consistent with
preservation of capital and liquidity.
Investment Policies
We actively manage a portfolio exclusively composed of U.S.
Government obligations, or repurchase agreements collateralized
by such 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. Government obligations, and
. in repurchase agreements collateralized by U.S. Government
obligations.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 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. Government does not directly or
indirectly insure or guarantee the performance of the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Obligations issued or guaranteed by the U.S. Government 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 obligations, including U.S. government
obligations, in the Fund's portfolio to fluctuate.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
Stagecoach Money Market Funds Prospectus 15
<PAGE>
Government Money Market Fund Financial Highlights
See "Historical Fund Information See "How to Read the Financial Highlights"
on page 39. on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================================
FOR A SHARE OUTSTANDING
=====================================================================================================
CLASS A SHARES -- COMMENCED
ON APRIL 26, 1988
- -----------------------------------------------------------------------------------------------------
Mar. 31, Mar. 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1998 1997/1/ 1996/1/ 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.02 0.05 0.05 0.03 0.03
Net realized and
unrealized gain (loss)
on investments 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------
Total from investment
operations 0.05 0.02 0.05 0.05 0.03 0.03
- -----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.05) (0.02) (0.05) (0.05) (0.03) (0.03)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00
Total from distributions (0.05) (0.02) (0.05) (0.05) (0.03) (0.03)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
Total return (not
annualized) 4.93% 2.32% 4.75% 5.22% 3.16% 2.77%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $76,868 $60,224 $65,036 $109,368 $194,276 $188,934
- -----------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.75% 0.75% 0.77% 0.79% 0.77% 0.83%
Ratio of net investment
income to average net
assets 4.83% 4.62% 4.74% 5.08% 3.07% 2.73%
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 1.00% 1.00% 0.80% 0.81% 0.79% 0.84%
- -----------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses 4.58% 4.37% 4.71% 5.06% 3.05% 2.72%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
=====================================================================================================
These returns reflect fee waivers and 4.85% 4.73% 5.33% 3.65% 2.75%
reimbursements, and are not a guarantee
of future performance.
- -----------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
16 Stagecoach Money Market Funds Prospectus
<PAGE>
Government Money Market Fund Financial Highlights
See "Historical Fund Information See "How to Read the Financial Highlights"
on page 39. on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===============================================================================================
FOR A SHARE OUTSTANDING
===============================================================================================
CLASS A SHARES -- COMMENCED
ON APRIL 26, 1988
- -----------------------------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
For the period ended: 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------
<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 0.04 0.06 0.08 0.08 0.03
Net realized and
unrealized gain (loss)
on investments 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------
Total from investment
operations 0.04 0.06 0.08 0.08 0.03
- -----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.04) (0.06) (0.08) (0.08) (0.03)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00
Total from distributions (0.04) (0.06) (0.08) (0.08) (0.03)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------
Total return (not
annualized) 3.99% 6.30% 7.85% 8.71% 3.04%
- -----------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $184,705 $171,375 $160,436 $162,726 $125,856
- -----------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.82% 0.85% 0.73% 0.68% 0.66%
Ratio of net investment
income to average net
assets 3.85% 6.13% 7.60% 8.42% 6.94%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.82% 0.88% 0.83% 0.84% 0.92%
- -----------------------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses 3.85% 6.10% 7.50% 8.26% 6.68%
- -----------------------------------------------------------------------------------------------
<CAPTION>
===============================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS
===============================================================================================
These returns reflect fee waivers and 3.49% 5.68% 7.65% 8.76%
reimbursements, and are not a guarantee of
future performance.
- -----------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
Stagecoach Money Market Funds Prospectus 17
<PAGE>
National Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The National Tax-Free Money Market Fund seeks to 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 Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. 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
nationally recognized ratings organizations.
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.
18 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 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 Additional Fund Facts
ADDITION
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 5.
Stagecoach Money Market Funds Prospectus 19
<PAGE>
National Tax-Free
Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 39. Highlights" on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================
FOR A SHARE OUTSTANDING
===========================================================================================
CLASS A SHARES -- COMMENCED
ON APRIL 2, 1996
-----------------------------------
March 31, March 31, Sept. 30,
For the period ended: 1998 1997/1/ 1996/2/
- -------------------------------------------------------------------------------------------
<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 0.01 0.01
Net realized and unrealized gain (loss) on
investments 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------
Total from investment operations: 0.03 0.01 0.01
- -------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03) (0.01) (0.01)
Distributions from net realized gain 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------
Total from distributions: (0.03) (0.01) (0.01)
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
Total return (not annualized) 2.93% 1.36% 1.51%
- -------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $59,293 $35,253 $ 4,975
- -------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.70% 0.64% 0.62%
Ratio of net investment income to
average net assets 2.87% 2.68% 2.71%
- -------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses2 1.13% 1.58% 3.56%
- -------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses#2 2.44% 1.74% (0.23)%
- -------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996
===========================================================================================
These returns reflect fee waivers and reimbursements, 2.94% 4.23%
and are not a guarantee of future performance.
- -------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed fiscal year-end from September 30 to March 31.
/2/ This ratio includes income and expenses allocated from the Master Portfolio.
20 Stagecoach Money Market Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
Treasury Plus Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Treasury Plus Money Market 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.
22 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 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.
Unlike the 100% Treasury Money Market, the Treasury Plus Money
Market Fund may invest in repurchase agreements, the income from
which is not generally exempt from state or local taxes.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
Stagecoach Money Market Funds Prospectus 23
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 39. Highlights" on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================================================
FOR A SHARE OUTSTANDING
===========================================================================================================================
CLASS A SHARES -- COMMENCED
ON SEPTEMBER 30, 1995 (PRIOR YEARS SHOW SERVICE CLASS)
-----------------------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, Sept. 30, March 31, March 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994/3/ 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<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
(loss) 0.05 0.02 0.05 0.05 0.02 0.03 0.03
Net realized and
unrealized gain
(loss) on investments 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.05 0.02 0.05 0.05 0.02 0.03 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income (0.05) (0.02) (0.05) (0.05) (0.02) (0.03) (0.03)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.05) (0.02) (0.05) (0.05) (0.02) (0.03) (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) 5.06% 2.42% 4.95% 5.42% 3.75%/4/ 2.81% 3.13%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $381,594 $66,486 $53,706 $1,001,707 $690,630 $654,950 $614,237
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.62% 0.55% 0.55% 0.42% 0.43% 0.43% 0.43%
Ratio of net investment
income to average net assets 4.93% 4.81% 4.96% 5.32% 3.72% 2.77% 3.04%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.85% 0.75% 0.67% 0.66% 0.90% 0.90% 0.91%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses 4.70% 4.61% 4.84% 5.08% 3.25% 2.30% 2.56%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1997 1996
===========================================================================================================================
These returns reflect fee waivers and 5.03% 4.92%
reimbursements, and are not a guarantee
of future performance. Performance shown
since the inception of Class A Shares.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from December 31 to September 30.
/4/ Annualized.
24 Stagecoach Money Market Funds Prospectus
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 39. Highlights" on page 46.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================================================
FOR A SHARE OUTSTANDING
============================================================================================================
CLASS A SHARES -- COMMENCED
ON SEPTEMBER 30, 1995 (PRIOR YEARS SHOW SERVICE CLASS)
--------------------------------------------------------------------------------
March 31, March 31, Sept. 30, Sept. 30, Sept. 30, March 31,
For the period ended: 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) 0.05 0.07 0.08 0.07 0.06 0.06
Net realized and
unrealized gain
(loss) on investments 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.05 0.07 0.08 0.07 0.06 0.06
- ------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income (0.05) (0.07) (0.08) (0.07) (0.06) (0.06)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------
Total from distributions: (0.05) (0.07) (0.08) (0.07) (0.06) (0.06)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 5.03% 7.42% 8.58% 7.63% 6.20% 5.64%
- ------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $281,343 $118,623 $98,398 $90,672 $101,066 $134,375
- ------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.45% 0.48% 0.56% 0.63% 0.69% 0.69%
Ratio of net investment
income to average net assets 4.73% 7.10% 7.73% 7.36% 6.12% 5.50%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.93% 0.94% 0.97% 0.98% 1.05% 0.94%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses 4.25% 6.64% 7.32% 7.01% 5.76% 5.25%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 25
<PAGE>
100% Treasury Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The 100% Treasury Money Market Fund seeks to provide investors
with stability of principal and current income which is exempt
from most state and local personal income taxes.
Investment Policies
We actively manage a portfolio exclusively composed of
obligations issued or guaranteed by the U.S. Treasury. 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:
. 100% of assets in 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 a
substantially similar investment objective.
26 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 28 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.
Any capital gains realized by the Fund generally will not be
exempt from state and local taxes. For more information, see
"Taxes" on page 39, and the Statement of Additional Information.
- --------------------------------------------------------------------------------
[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.
Unlike the Treasury Plus Money Market Fund, the 100% Treasury
Money Market Fund may not invest in repurchase agreements; the
income from which is not generally exempt from state and local
taxes.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
Stagecoach Money Market Funds Prospectus 27
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk 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 Funds, the Selling Agents or Investment Advisors "make good" any
losses you might have.
. Investing in any mutual fund, including those deemed conservative,
involves certain 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 instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of a security will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value. Interest rate risk is
the possibility that interest rates may increase and reduce the resale value
of securities in a Fund's portfolio. Debt instruments with longer maturities
are generally more sensitive to interest rate changes than those with shorter
maturities. Interest rate risk does not affect the interest paid by a debt
instrument 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 number of
investments but in general it refers to any financial instrument whose value
is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to changes
in yields or values due to their structure or contract terms.
The 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;
28 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 and the risks associated
with them. 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.
Stagecoach Money Market Funds Prospectus 29
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
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.
Year 2000 Risk-- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided
to the Funds depend on the proper functioning of computer systems. Any failure
to adapt these systems in time could hamper the Funds' operations and services.
The Funds' principal service providers have advised the Funds that they are
working on the necessary changes to their systems and that they expect their
systems to be adapted in time. There can, of course, be no assurance of success.
In addition, because the Year 2000 issue affects virtually all organizations and
governments, the companies or entities in which the Funds invest also could be
adversely impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
========================================================================
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.
========================================================================
30 Stagecoach Money Market Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
MONEY CALIFORNIA NATIONAL TREASURY 100%
MARKET TAX FREE GOVERNMENT TAX FREE PLUS TREASURY
====================================================================================================================================
INVESTMENT PRACTICE: RISK:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are Interest Rate and . . . . .
adjusted either on a schedule or when an Credit Risk
index or benchmark changes.
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a Credit and . . . . .
security agrees to buy back as security Counter-Party Risk
at an agreed upon time and price, usually
with interest.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk . . . . . .
another money market fund. A pro rata
portion of the other fund's expenses, in
addition to the expenses paid by the Funds,
will be borne by Fund shareholders.
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN OBLIGATIONS
Dollar-denominated debt obligations Information, Liquidity, . . . .
of foreign branches of U.S. banks or U.S. Political, Regulatory,
branches of foreign banks. and Diplomatic Risk
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to Credit, Counter-Party . . .
brokers, dealers and financial institutions and Leverage Risk
to increase return on those securities.
Loans may be made in accordance with
existing investment policies.
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of Leverage Risk . . . . . .
10% (20% for the Treasury Plus Money Market
Fund) of assets from banks for temporary
purposes to meet shareholder redemptions.
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, Liquidity Risk . . . . . .
or cannot be readily sold without negatively
affecting its fair price. Illiquid securities are
limited to 10% of assets for each Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 31
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved Selling Agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 per Fund minimum initial investment; or
. $100 per Fund minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, as
"settlement accounts" for certain brokerage accounts or for certain classes
of shareholders as permitted by the SEC. Check the specific disclosure
statements and applications for the program through which you intend to
invest.
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
Selling Agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your Selling Agent or by calling 1-800-222-8222.
. We process requests to buy shares each business day. Requests we receive in
proper form for the Money Market and Government Money Market Funds before
12:00 noon (Pacific time) generally are processed at 12:00 noon on the same
day. Requests we receive in proper form for the Treasury Plus Money Market
Fund before 12:00 noon (Pacific time) generally are processed at 2:00 PM on
the same day .
. Requests we receive in proper form for the California Tax-Free Money
Market, National Tax-Free Money Market and 100% Treasury Money Market Funds
before 9:00 AM (Pacific time) generally are processed at 9:00 AM, on the
same day.
32 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM (Pacific time) from certain institutions with certain
automated arrangements in place generally are processed at 2:00 PM on the
same day.
. Requests we receive after the above-specified times are deemed to be
received and are processed the next business day at the applicable Net
Asset Value (NAV).
. As with all mutual fund investments, the price you pay to purchase shares or
the price you receive when you redeem shares is not determined until after a
request has been received in proper form.
. We determine the 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.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-
222-8222) if you are investing directly with Stagecoach Funds, or speak to
your Selling Agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the
same registration without completing a new application.
. On any day the trading markets for both U.S. government securities and money
market instruments close early, the Funds may close early.
. We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We may also reserve the right to delay payment
of a redemption until we are reasonably certain that investments made by
check have been collected.
Stagecoach Money Market Funds Prospectus 33
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest. Mail to:
- ---------------------------------------------- Stagecoach Funds
Enclose a check for at least $1,000 made out PO Box 7066
in the full name and share class of the Fund. San Francisco, CA
For example, "Money Market Fund, Class A". 94120-9201
- ----------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application.
You must wire at least $1,000. Be sure to Mail to:
indicate the Fund name and the share class Stagecoach Funds
into which you intend to invest. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Mail the completed application. 94120-9201
- ---------------------------------------------- Fax to: 1-415-546-0280
You may also fax the completed application
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number
name your account is registered in. 121000248
- ----------------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated on
Application)
--------------------------------
34 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
You can only make your first purchase of a
Fund by phone if you already have an
existing Stagecoach Account.
- ---------------------------------------------- Call:
Call Investor Services and instruct the 1-800-222-8222
representative to either:
. transfer at least $1,000 from a linked
settlement account, or
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Funds held through
brokerage and other types of accounts, please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption you
wish to receive (or write "Full Redemption").
- ---------------------------------------------
Make sure all the account owners sign
the request.
- ---------------------------------------------
You may request that redemption proceeds be Mail to:
sent to you by check, by ACH transfer into a Stagecoach Funds
bank account, or by wire ($5,000 minimum). PO Box 7066
Please call Investor Services regarding San Francisco, CA
requirements for linking bank accounts or for 94120-9201
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- ---------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage
house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 35
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption
of at least $100. Be prepared to provide your
account number and Taxpayer Identification Number.
- ---------------------------------------------------
Unless you have instructed us otherwise, only
one account owner needs to call in redemption
requests.
- ---------------------------------------------------
You may request that redemption proceeds be
sent to you by check, by transfer into an
ACH-linked bank account, or by wire
($5,000 minimum). Please call Investor
Services regarding requirements for linking
bank accounts or for wiring funds. We reserve
the right to charge a fee for wiring funds
although it is not currently our practice to do so. Call:
- --------------------------------------------------- 1-800-222-8222
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or
subsequently in writing.
- ---------------------------------------------------
Phone privileges allow us to accept
transaction instructions by anyone representing
themselves as the shareholder and who provides
reasonable confirmation of their identity, such
as providing the on the account. We will not
be liable for any losses incurred if we follow
telephone instructions we reasonably believe
to be genuine.
- ---------------------------------------------------
Telephone requests are not accepted if
the address on your account was changed
by phone in the last 15 days.
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We process requests to sell shares each business day. Requests we receive in
proper form for the Money Market and Government Money Market Funds before 12:00
noon (Pacific time) generally are processed at 12:00 noon on the same day.
Requests we receive in proper form for the treasury Plus Money Market Fund
before 12:00 noon (Pacific time) generally are processed at 2:00 PM on the same
day.
- --------------------------------------------------------------------------------
Requests we receive in proper form for the California Tax-Free Money Market,
National Tax-Free Money Market, and 100% Treasury Money Market Funds before
9:00 AM (Pacific time) generally are processed at 9:00 AM on the same day.
- --------------------------------------------------------------------------------
Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM (Pacific time) from certain institutions with certain automated
arrangements in place generally are processed at 2:00 PM on the same day.
- --------------------------------------------------------------------------------
Requests we receive after the above-specified times are deemed to be received
and are processed the next business day at the applicable NAV.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There may be special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption 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 Funds 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.
- --------------------------------------------------------------------------------
36 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.
. If you exchange between a money market fund and a Fund with a sales load,
you will buy shares at the Public Offering Price (POP) of the new Fund and
a sales load may be assessed.
. If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
. In order to discourage excessive fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes in your exchange privileges.
. You may exchange shares of the Funds for Class A, Class B or Class C shares
of a non-money market fund.
Stagecoach Money Market Funds Prospectus 37
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AutoSaver Plan-- you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Investor Services at
1-800-222-8222 if you wish to change or add linked accounts.
. Automatic Clearing House Option-- Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the
ACH system. If your specified bank account is closed, we will reinvest your
distributions.
. Check Payment Option-- Allows you to receive checks for distributions
mailed to your address of record or to another name and address which you
have specified in written, signature guaranteed instructions. If checks
remain uncashed for six months or are undeliverable by the Post Office, we
will reinvest the distributions at the earliest date possible.
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. In general, these are taxable to you
as ordinary income. However, dividends distributed by the California Tax-Free
Money Market and National Tax-Free Money Market Funds which are attributable to
the Funds' net interest income from tax-exempt securities will not be subject to
federal income tax. A substantial portion of dividends distributed by the
California Tax-Free Money Market Fund to noncorporate shareholders will also be
exempt from California income tax. Dividend distributions derived from net
investment income from the 100% Treasury Money Market Fund are exempt in most
jurisdictions from state and local personal income taxes, but may not be exempt
from state and local corporate income and/or franchise taxes.
38 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We will pass on to you any net capital gains earned by a Fund as capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains, which may qualify for taxation at preferential rates in the
hands of non-corporate shareholders. However, distributions declared in October,
November and December and distributed by the following January will be taxable
as if they were paid on December 31 of the year in which they were declared. We
will notify you annually as to the status of your Fund distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. residents will be subject to
back-up withholding taxes.
As long as the Fund continually maintains a $1.00 NAV, you ordinarily will not
recognize taxable gain or loss on the redemption or exchange of your Fund
Shares.
Historical Fund Information
Government Money Market Fund-- The Fund operated as a series of Pacifica Funds
Trust from its commencement of operations until it was reorganized as a series
of Stagecoach Funds on September 6, 1996. 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. Performance information for periods prior to September 6, 1996, reflects
the performance of the predecessor Pacifica Fund.
National Tax-Free Money Market Fund-- Prior to December 15, 1997, the Fund
invested all of its assets in a Master Portfolio with an identical investment
objective.
Stagecoach Money Market Funds Prospectus 39
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund-- Prior to August 1, 1990, the Fund was known as
the Short-Term Government Fund, which commenced operations on October 1, 1985,
and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government. The Fund operated as a portfolio of
Pacific American Funds through October 1, 1994, when it was reorganized as the
Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust.
In July 1995, the Fund was renamed the Pacifica Treasury Money Market Fund, and
on September 6, 1996, the Fund was reorganized as a 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.
100% Treasury Money Market Fund-- As of the date of this prospectus, this fund
has not commenced operations.
Wells Fargo & Co./Norwest Merger-- Wells Fargo & Company, the parent company of
Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Funds that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the 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 minimum balance due to redemptions (as opposed to market conditions).
You will be given an opportunity to make additional investments to prevent
account closure before any action is taken.
Statements-- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
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
40 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and
special counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that
Wells Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future
federal or state laws may prevent these entities from continuing in their roles.
Voting Rights-- All shares of the Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
Stagecoach Money Market Funds Prospectus 41
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for each Fund.
About Stagecoach Funds
Each Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach was organized on September 9, 1991,
as a Maryland Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT 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
Markets the Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
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' investment activities Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment activities
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
42 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote to items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information for each 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 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
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion in
assets. The Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the fiscal period ended March 31, 1998:
- --------------------------------------------------------------------------------
Money Market Fund .22%
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund .10%
- --------------------------------------------------------------------------------
Government Money Market Fund .05%
- --------------------------------------------------------------------------------
National Tax-Free Money Market Fund .07%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .10%
- --------------------------------------------------------------------------------
100% Treasury Money Market Fund N/A
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 43
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of
$32 billion. For providing sub-advisory services to the Funds, WCM is entitled
to receive from Wells Fargo Bank .05% of each Fund's assets up to the first $960
million and .04% of all assets above $960 million.
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator. Stephens also receives
all distribution plan fees.
Distribution Plan
We have adopted distribution plans for each of the Funds. For the Money Market
and California Tax-Free Money Market Funds, these plans are used to defray all
or part of the cost of preparing and distributing prospectuses and promotional
materials. For the Government Money Market, National Tax-Free Money Market,
Treasury Plus Money Market and 100% Treasury Money Market Funds, the plans are
used to pay for distribution-related services including ongoing compensation to
Selling Agents.
Funds may participate in joint distribution activities with other Stagecoach
Funds. The cost of these activities is generally allocated among the Funds.
Funds with higher asset levels pay a higher proportion of these costs. The fees
paid under these plans are as follows:
- --------------------------------------------------------------------------------
Money Market Fund .05%
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund .05%
- --------------------------------------------------------------------------------
Government Money Market Fund .05%
- --------------------------------------------------------------------------------
National Tax-Free Money Market Fund .05%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .05%
- --------------------------------------------------------------------------------
100% Treasury Money Market Fund .05%
- --------------------------------------------------------------------------------
44 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements with
various Shareholder Servicing Agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
For these services we pay as follows:
- --------------------------------------------------------------------------------
Money Market Fund .30%
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund .30%
- --------------------------------------------------------------------------------
Government Money Market Fund .25%
- --------------------------------------------------------------------------------
National Tax-Free Money Market Fund .25%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .30%
- --------------------------------------------------------------------------------
100% Treasury Money Market Fund .30%
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 45
<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 Funds. The financial
statements from which these Financial Highlights with the exception of Class A
calender returns, were derived were audited by KPMG Peat Marwick LLP, except as
indicated. The financial statements are included in each Fund's most recent
Annual or Semi-Annual Report and are available free of charge by calling 1-800-
222-8222. Other auditors audited statements for the Government Money Market and
the Treasury Plus Money Market 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 more detailed 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 number in
this category is the total gains or losses of a class divided by the number of
outstanding shares for that class. 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 Funds' portfolio (after
accounting for expenses) that are attributable to the particular classes of
the Funds.
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.
46 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Stagecoach Money Market Funds Prospectus 47
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and
perform other tasks.
Annual and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of
investments.
Business Day
Any day the 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.
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.
48 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative
characteristics.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
A nationally recognized ratings organization.
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 Money Market and Government
Money Market Funds is determined each business day at 12:00 noon (Pacific time).
The NAV per share of the Treasury plus Money Market Fund is determined each
business day at 2:00 pm (Pacific time). The NAV per share of the California Tax-
Free Money Market, National Tax-Free Money Market, and 100% Treasury Money
Market Funds is determined each business day at 9:00 AM and 1:00 PM (Pacific
time).
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options can also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Stagecoach Money Market Funds Prospectus 49
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
50 Stagecoach Money Market Funds Prospectus
<PAGE>
STAGECOACH FUNDS/TM/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
provides certain financial and other important information for the most recent
reporting period and each Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
=======================================================================
STAGECOACH MONEY MARKET 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] SC MM P (8/98)
Printed On Recycled Paper
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Overland Express
Sweep Fund Prospectus
Investment Advisor Please read this Prospectus and keep it for
and Administrator: future reference. It is designed to provide you
with important information and to help you decide
Wells Fargo Bank if the Fund's goals match your own.
Investment These securities have not been approved or
Sub-Advisor: disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities
Wells Capital commission or any other regulatory authority, nor
Management have any of these authorities passed upon the
accuracy or adequacy of this Prospectus. Any
Distributor and representation to the contrary is a criminal
Co-Administrator: offense.
Stephens Inc. Fund shares are NOT deposits or other obligations
of, or issued, endorsed or guaranteed by, Wells
Fargo Bank, N.A. ("Wells Fargo Bank"), Wells
Capital Management Incorporated ("Wells Capital
Management " or "WCM"), or any of their
affiliates. Fund shares are NOT insured or
guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation ("FDIC"), the
Federal Reserve Board or any other governmental
agency. AN INVESTMENT IN THE FUND INVOLVES
CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. 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 the 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 about this Fund?
The Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<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 for How to Buy Shares 14
information on how to
open and maintain your How to Sell Shares 16
account, including how
to buy and sell Fund Other Information 17
shares.
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 19
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 the risk 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 Overland Express Sweep Fund. The
"Funds" also may refer to other mutual funds offered by Stagecoach Funds, Inc.
("Stagecoach").
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. Capital gains, if any, are
distributed at least annually.
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
- --------------------------------------------------------------------------------
<S> <C>
Rule 12b-1 Fee 0.30%
- --------------------------------------------------------------------------------
Management fee
(after waivers) 0.43%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.52%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.25%
- --------------------------------------------------------------------------------
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 Overland
a $1,000 investment assuming a 5% annual Express
return and that you redeem your shares Sweep
at the end of each period.
- --------------------------------------------------------------------------------
<S> <C>
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
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[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
====================================================================================================================================
COMMENCED ON OCTOBER 1, 1991
-------------------------------------------------------------------------------------------------
Three Months Ended Year Ended Year Ended Year Ended Year Ended
For the period ended: March 31, 1998/1/ Dec. 31, 1997/2/ Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 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 0.01 0.04 0.04 0.05 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.01) (0.04) (0.04) (0.05) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 1.11% 4.47% 4.29% 4.80% 3.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $2,594,910 $2,956,090 $2,002,725 $1,209,183 $812,559
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)/1/:
Ratio of expenses to average
net assets 1.25% 1.24% 1.24% 1.25% 1.25%
Ratio of net investment income
to average net assets 4.49% 4.40% 4.20% 4.70% 2.92%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses/1/ 1.26% 1.26% 1.26% 1.28% 1.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses/1/ 4.48% 4.38% 4.18% 4.67% 2.84%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CALENDAR-YEAR RETURNS 1997 1996 1995 1994
====================================================================================================================================
These returns reflect fee waivers and reimbursements, 4.47% 4.29% 4.80% 3.11%
and are not a guarantee of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from December 31 to March 31.
/2/ These ratios include expenses charged to the Master Portfolio.
8 Stagecoach Overland Express Sweep Fund Prospectus
<PAGE>
Overland Express Sweep Fund Financial Highlights
See "How to Read the Financial Highlights" on page 22.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================
FOR A SHARE OUTSTANDING
===========================================================================================
COMMENCED ON OCTOBER 1, 1991
--------------------------------------------------------
Year Ended Year Ended Year Ended
For the period 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
- -------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)/1/:
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 to waived fees and
reimbursed expenses/1/ 1.31% 1.51% 6.92%
- -------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses/1/ 1.61% 1.93% (2.23)%
- -------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================================
CALENDAR-YEAR RETURNS 1993 1992 1991
===========================================================================================
These returns reflect fee waivers and 1.97% 2.31% 0.93%
reimbursements, and are not a
guarantee of future performance.
- -------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from December 31 to March 31.
/2/ These ratios include expenses charged to the Master Portfolio.
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 risk 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 and the risks
associated with them. 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.
Stagecoach Overland Express Sweep Prospectus 11
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Leverage Risk-- The risk that a practice may increase the Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
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.
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Fund
depends on the proper functioning of computer systems. Any failure to adapt
these systems in time could hamper the Fund's operations and services. The
Fund's principal service providers have advised the Fund that they are working
on the necessary changes to their systems and that they expect their systems to
be adapted in time. There can, of course, be no assurance of success. In
addition, because the Year 2000 issue affects virtually all organizations and
governments, the companies or entities in which the Fund invests also could be
adversely impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
========================================================================
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>
OVERLAND
SWEEP
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
<S> <C> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that Interest Rate and
are adjusted either on a schedule or Credit Risk .
when an index or benchmark changes.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of Credit and
a security agrees to buy back a security Counter-Party Risk .
at an agreed upon time and price,
usually with interest.
- --------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk
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 of Information, Liquidity,
foreign branches of U.S. banks or U.S. Political, Regulatory, and .
branches of foreign banks. Diplomatic Risk
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of Leverage Risk
10% of assets from banks for temporary .
purposes to meet shareholder redemptions.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, Liquidity Risk
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 9:00 AM
(Pacific time) on the same day.
- --------------------------------------------------------------------------------
Requests we receive after the above-specified time are deemed to be received
and are processed the next business day at the applicable NAV.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption until we are 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.
- --------------------------------------------------------------------------------
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.
We will pass on to you any net capital gains earned by the Fund as capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. 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.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. residents will be subject to
back-up withholding taxes. As long as the Fund continually maintains a $1.00
NAV, you ordinarily will not recognize a taxable gain or loss on the redemption
of your Fund shares.
Stagecoach Overland Express Sweep Prospectus 17
<PAGE>
Other Information
- --------------------------------------------------------------------------------
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.
Wells Fargo & Company/Norwest Merger--Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo &Company. Wells Fargo Bank has advised the Fund that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Fund.
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.
18 Stagecoach Overland Express Sweep Prospectus
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
Voting Rights-- All shares of the Fund have equal voting rights and are voted in
the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
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, 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.
Stagecoach Overland Express Sweep Prospectus 19
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
FINANCIAL SERVICES FIRMS 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 Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Fund, Manages the Fund's Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Fund's business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Fund's investment activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Wells Fargo Bank, 525 Market St.,
San Francisco, CA San Francisco, CA
Manages the Fund's investment activities Provides safekeeping for the
Fund's assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Fund's activities
- --------------------------------------------------------------------------------
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 August 1, 1998, Wells
Fargo Bank and its affiliates managed over $63 billion in assets.
20 Stagecoach Overland Express Sweep Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 .43%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for the Fund. As of August 1, 1998, WCM
provided investment advice for assets aggregating in excess of $32 billion. For
providing sub-advisory services to the Fund, WCM is entitled to receive from
Wells Fargo Bank .05% of the Fund's assets up to the first $960 million and .04%
of all assets above $960 million. WCM receives a minimum annual sub-advisory fee
of $120,000. This minimum annual fee payable to WCM does not increase the
advisory fee paid by the Funds to Wells Fargo Bank.
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 is the Fund's distributor and co-administrator. Stephens receives .04%
of the Fund's assets for its role as co-administrator. Stephens 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%
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have a Shareholder Servicing Plan for the Fund. We have agreements with
various Shareholder Servicing Agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services. For these services the Fund pays 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, with the exception of the Overland Express Sweep Fund
Calendar-year returns, or 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 more detailed 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
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
Annual Report and Semi-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 a fair price.
Moody's
A nationally recognized ratings organization.
Stagecoach Overland Express Sweep Prospectus 23
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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 Fund is determined each
business day at 9:00 AM (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.
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>
This page intentionally left blank
- --------------------------------------------------------------------------------
Stagecoach Overland Express Sweep Prospectus 25
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
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 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] SC OEX P (8/98)
Printed on Recycled Paper
<PAGE>
LOGO
WELLS FARGO LOGO
STAGECOACH FUNDS
-----------------------------
PROSPECTUS
-----------------------------
PRIME MONEY MARKET FUND
Class A
August 1, 1998
<PAGE>
STAGECOACH FUNDS(R)
PRIME MONEY MARKET 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 FUND (the "Fund").
The PRIME MONEY MARKET 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 August 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 or your financial consultant for information or
assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, 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 ADVISOR AND ADMINISTRATOR AND
PROVIDES THE FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED.
WELLS CAPITAL MANAGEMENT ("WCM"), A WHOLLY OWNED SUBSIDIARY OF WELLS
FARGO BANK, IS THE INVESTMENT SUB-ADVISOR. STEPHENS INC. ("STEPHENS"),
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S CO-
ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED AUGUST 1, 1998
PROSPECTUS
<PAGE>
Table of Contents
-------
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
Financial Highlights
4
How the Fund Works
6
The Fund and Management
11
Investing in the Fund
12
Dividend and Capital Gain Distributions
18
How to Redeem Shares
18
Additional Shareholder Services
23
Management, Distribution and Servicing Fees
25
Taxes
28
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 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 advisor, manages your
investments. Wells Fargo Bank also provides the Fund with administration,
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 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 FUND
CLASS A
-----------
<S> <C>
Management Fee (after waivers or reimbursements)/1/............. 0.10%
Rule 12b-1 Fee.................................................. 0.05%
Other Expenses.................................................. 0.60%
----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/2/............................................. 0.75%
====
</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 0.83%.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund's
Class A shares, assuming a 5% annual return and redemption at the end of each
time period indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund.................... $8 $24 $42 $93
</TABLE>
3 PROSPECTUS
<PAGE>
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 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, and is provided to assist you in evaluating
the Fund's historical performance. The Fund's financial statements were audited
by KPMG Peat Marwick, LLP, except for periods prior to October 1, 1995, which
were audited by other auditors. This information should be read in conjunction
with the Fund's financial statements and the notes thereto. The SAI has been
incorporated by reference into this prospectus.
PROSPECTUS 4
<PAGE>
PRIME MONEY MARKET FUND/1/
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A SHARES/3/
-------------------------------
YEAR SIX MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, SEPT. 30,
1998 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........... 0.05 0.02 0.05
Net realized and
unrealized gain
on investment.... 0.00 0.00 0.00
-------- -------- --------
Total from
Investment
Operations...... 0.05 0.02 0.05
Less
Distributions:
Dividends from
net investment
income........... (0.05) (0.02) (0.05)
Distributions
from net realized
gain............. 0.00 0.00 0.00
-------- -------- --------
Total from
Distributions.... (0.05) (0.02) (0.05)
-------- -------- --------
Net Asset Value,
end of period.... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return (not
annualized)...... 5.24% 2.49% 5.09%
Ratios/Supplemental
Data:
Net Assets, end
of period
(000s)........... $592,317 $277,044 $264,900
Ratios to average
net assets
(annualized):
Ratio of expenses
to average net
assets........... 0.61% 0.55% 0.55%
Ratio of net
investment income
to average net
assets........... 5.11% 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......... 4.89% 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.
5 PROSPECTUS
<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 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 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 the U.S. Government are
PROSPECTUS 6
<PAGE>
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 banking institutions and related
government agencies. Examples of these include the Interna -
7 PROSPECTUS
<PAGE>
tional 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, 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
PROSPECTUS 8
<PAGE>
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.
Since the Prime Money Market 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.
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.
9 PROSPECTUS
<PAGE>
Many computer software systems in use today cannot distinguish the Year 2000
from the Year 1900. Most of the services provided to the Fund depend on the
smooth functioning of computer systems. Any failure to adapt these systems in
time could hamper the Fund's operations and services. The Fund's principal
service providers have advised the Funds that they are working on the necessary
changes to their systems and that they expect their systems to be adapted in
time. There can, of course, be no assurance of success. In addition, because
the Year 2000 issue affects virtually all organizations and governments, the
companies or entities in which the Fund invests also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be predicted.
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 back cover of the Prospectus.
PROSPECTUS 10
<PAGE>
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 over 30 other Funds. Most of the Company's funds are authorized to
issue multiple classes of shares, one class generally subject to a front end
sales charge and, in some cases, a class subject to a contingent-deferred sales
charge, that are offered to retail investors. Certain of the Company's funds
also are authorized to issue other classes of shares, which are sold primarily
to institutional investors at NAV.
Each class of shares represents an equal, proportionate interest in 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
Investor Services at 1-800-222-8222 or write the Company at the address shown
on the back cover of the Prospectus.
The Company's Board of Directors supervises the Fund's activities and monitors
its contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote
for each share 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 advisor, 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
August 1, 1998, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $63 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
advisor or sub-advisor to separately managed funds of three other registered,
open-end,
11 PROSPECTUS
<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, Incorporated, 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.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
advisor 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.
Wells Fargo & Company, the parent company of Wells Fargo Bank, has signed a
definitive agreement to merge with Norwest Corporation. The proposed merger is
subject to certain regulatory approvals and must be approved by shareholders of
both holding companies. The merger is expected to close in the second half of
1998. The combined company will be called Wells Fargo & Company. Wells Fargo
Bank has advised the Fund that the merger will not reduce the level or quality
of advisory and other services provided by Wells Fargo Bank 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 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.
PROSPECTUS 12
<PAGE>
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 statement to obtain
information about what is required to change registration.
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) 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. On any day the trading markets for both U.S. government
securities and money market instruments close early, the Fund may close early.
On these days, the NAV calculation time and the dividend, purchase and
redemption cut-off time 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.
13 PROSPECTUS
<PAGE>
HOW TO BUY SHARES
You may buy Fund shares on any Business Day by any of the methods described
below. After a properly completed Account Application is received and your wire
order or check is received, or an account with a bank that is designated in the
Account Application and that is approved by the transfer agent (an "Approved
Bank Account") is debited, your purchase order is effected, and full and
fractional shares are purchased at the next determined NAV, which is expected
to remain a constant $1.00 per share. If shares are purchased by a check that
does not clear, the Company reserves the right to cancel the purchase and hold
the investor responsible for any losses or fees incurred. In addition, the 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.
PROSPECTUS 14
<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 Prime Money Market Fund 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 Prime Money Market Fund 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
15 PROSPECTUS
<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 Prime
Money Market Fund 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.
PROSPECTUS 16
<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 any account activity,
including transactions, dividends, or capital gains, and at year-end. Every
January, you will be provided a statement with tax information for the previous
year to assist you in tax return preparation. At least twice a year, the
Company's financial statements are mailed to shareholders of record.
17 PROSPECTUS
<PAGE>
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 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.
PROSPECTUS 18
<PAGE>
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.
19 PROSPECTUS
<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 statement or by calling 1-800-222-
8222.
PROSPECTUS 20
<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
21 PROSPECTUS
<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
PROSPECTUS 22
<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
23 PROSPECTUS
<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 the load that you are
subject to in the new fund (which is up to a maximum of 4.50%).
. 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 Equity Index,
California Tax-Free Money Market and National Tax-Free Money Market 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.
PROSPECTUS 24
<PAGE>
Management, Distribution and
Servicing Fees
INVESTMENT ADVISOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment advisor, provides investment guidance and
policy direction in connection with the management of the Fund's assets. The
advisor also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, the advisor
is entitled to a monthly investment advisory fee at the annual rate of 0.25% of
the average daily net assets of the Fund and may waive such fee in whole or in
part. Any such waiver will reduce the Fund's expenses and accordingly, have a
favorable impact on the Fund's yield. 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 year ended March 31, 1998, the Fund paid advisory fees at the annual
rate of 0.10%.
INVESTMENT SUB-ADVISOR
WCM, a wholly owned subsidiary of Wells Fargo Bank, is the sub-advisor for the
Fund. As of August 1, 1998, WCM provided investment advice for assets
aggregating in excess of $32 billion. For providing sub-advisory services to
the Fund, WCM is entitled to receive from Wells Fargo Bank 0.05% of the Fund's
assets up to the first $960 million and 0.04% of all assets above $960 million.
WCM receives a minimum annual sub-advisory fee of $120,000 from the Fund. The
minimum annual fee payable to WCM does not increase the advisory fee paid by
the Fund to Wells Fargo Bank. WCM is entitled to receive from Wells Fargo Bank
a minimum annual sub-advisory fee of $120,000. This minimum annual fee payable
to WCM does not affect the advisory fee paid by the Fund to Wells Fargo Bank.
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.
25 PROSPECTUS
<PAGE>
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 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.
PROSPECTUS 26
<PAGE>
DISTRIBUTOR
Stephens distributes the Fund's shares. Stephens is a full service broker/
dealer and investment advisory firm located at 111 Center Street, Little Rock,
Arkansas 72201. Stephens and its predecessor have been providing securities and
investment services for more than 60 years. Additionally, they have been
providing discretionary portfolio management services since 1983. Stephens
currently manages investment portfolios for pension and profit-sharing plans,
individual investors, foundations, insurance companies and university
endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant
to which 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
27 PROSPECTUS
<PAGE>
participate in golf or other outings and gift certificates for meals or
merchandise, or the cash value of a non-cash compensation item. Stephens may,
from time to time, pay additional compensation to selling agents that will not
exceed the maximum compensation permitted under Rule 12b-1.
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, 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 are 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
are 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
PROSPECTUS 28
<PAGE>
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 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 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 a fund
will meet this goal. Yields and returns will vary with
market conditions.
LOGO
RECYCLED LOGO
Printed on Recycled Paper SC 48 P (8/98)
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Funds
Prospectus
Prime Money Market Please read this Prospectus and keep it for future
Fund reference. It is designed to provide you with
important information and to help you decide if a
Treasury Plus Money Fund's goals match your own.
Market Fund
These securities have not been approved or
Administrative Class disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities
Investment Advisor commission or any other regulatory authority, nor
and Administrator: have any of these authorities passed upon the
accuracy or adequacy of this Prospectus. Any
Wells Fargo Bank representation to the contrary is a criminal
offense.
Investment
Sub-Advisor: Fund shares are NOT deposits or other obligations
of, or issued, endorsed or guaranteed by, Wells
Wells Capital Fargo Bank, N.A. ("Wells Fargo Bank"), Wells
Management Capital Management Incorporated ("Wells Capital
Management "or "WCM"), or any of their affiliates.
Distributor and Fund shares are NOT insured or guaranteed by the
Co-Administrator: U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve Board or
Stephens Inc. 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 the 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 about 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. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Prime Money Market Fund 8
This section contains Treasury Plus Money Market Fund 11
important information
about the individual Funds. General Investment Risks 14
- --------------------------------------------------------------------------------
Your Account Your Fund Account 18
Turn to this section for How to Buy Shares 19
information on how to
open and maintain How to Sell Shares 20
your account, including
how to buy, sell and Exchanges 21
exchange Fund shares.
Other Information 22
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 25
Look here for details
on the organization of How to Read the Financial Highlights 28
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 the risk 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. ("Stagecoach").
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 17.
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. Capital gains, if any, are
distributed at least annually.
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.
- --------------------------------------------------------------------------------
Prime Treasury Plus
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
<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. 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.
- --------------------------------------------------------------------------------
Prime Treasury Plus
- --------------------------------------------------------------------------------
<S> <C> <C>
Management fee
(after waivers) 0.10% 0.10%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.35% 0.35%
================================================================================
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% 0.35%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.60% 0.60%
- --------------------------------------------------------------------------------
<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 Plus
- --------------------------------------------------------------------------------
<S> <C> <C>
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 Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Prime Money Market 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 14 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>
PrimeMoney Market Fund Financial Highlights
See "Historical Fund Information" on page 23
See "How to Read the Financial Highlights" on page 28.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
FOR A SHARE OUTSTANDING
================================================================================
Period Ended
March 31,
1998/1/
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02
Net realized and gain (loss) on investments 0.00
- --------------------------------------------------------------------------------
Total from investment operations 0.02
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.02)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- --------------------------------------------------------------------------------
Total return (not annualized) 1.57%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $600,975
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.04%
Ratio of net investment income to average net assets 5.34%
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses 0.55%
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses 5.19%
- --------------------------------------------------------------------------------
</TABLE>
/1/ The Administrative Class shares commenced operations on December 15,
1997.
10 Stagecoach Money Market Funds Prospectus
<PAGE>
Treasury Plus Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OR Investment Objective
ARROW]
The Treasury Plus Money Market 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.
Stagecoach Money Market Funds Prospectus 11
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 14 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
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.
12 Stagecoach Money Market Funds Prospectus
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" on page 23
See "How to Read the Financial Highlights" on page 28.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
================================================================================
Period Ended
March 31,
1998/1/
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02
Net realized and gain (loss) on investments 0.00
- --------------------------------------------------------------------------------
Total from investment operations 0.02
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain 0.00
- --------------------------------------------------------------------------------
Total from distributions (0.02)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- --------------------------------------------------------------------------------
Total return (not annualized) 1.52%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $176,942
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.40%
Ratio of net investment income to average net assets 5.17%
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses 0.56%
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses 5.01%
- --------------------------------------------------------------------------------
</TABLE>
/1/ The Administrative Class shares commenced operations on December 15, 1997.
Stagecoach Money Market Funds Prospectus 13
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider risks common to all risks 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;
14 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 and the risks associated
with them. 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.
Stagecoach Money Market Funds Prospectus 15
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
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.
Year 2000 Risk-- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided to
the Funds depend on the proper functioning of computer systems. Any
failure to adapt these systems in time could hamper the Funds' operations and
services. The Funds' principal service providers have advised the Funds that
they are working on the necessary changes to their systems and that they expect
their systems to be adapted in time. There can, of course, be no assurance of
success. In addition, because the Year 2000 issue affects virtually all
organizations and governments, the companies or entities in which the Funds
invest also could be adversely impacted by the Year 2000 issue. The extent of
such impact cannot be predicted.
========================================================================
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.
========================================================================
16 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY TREASURY
================================================================================
IVESTMENT PRACTICES: RISK:
================================================================================
<S> <C> <C> <C>
FLOATING AND VARIABLE
RATE DEBT
Instruments with interest Interest Rate and . .
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which Credit, Leverage and . .
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed upon
time and price, usually
with interest.
- --------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment Market Risk . .
in shares 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-denomiated debt Information, Liquidity . .
obligations of foreign Political, Regulatory, and
branches of U.S. banks Diplomatic Risk
or U.S. branches of
foreign banks.
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning Credit, Leverage and .
securities to brokers, Counter-Party Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in accordance
with existing investment
redemptions.
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an Leverage Risk . .
equivalent of 20% of assets
from banks for temporary
purposes to meet shareholder
redemption.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be Liquidity Risk . .
readily sold, or cannot be
readily sold without
negatively affecting its
fair price. Illiquid
securities are limited
to 10% of assets for
each Fund.
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Funds Prospectus 17
<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 in proper form for the Funds before 12:00 noon (Pacific time) are
generally processed at 12:00 noon on the same day. Requests we receive in
proper form for the Treasury Plus Money Market Fund before 12:00 noon
(Pacific time) generally are processed at 2:00 PM on the same day.
. Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM(Pacific time) from certain institutions with certain automated
arrangements in place generally are processed at 2:00 PM on the same day.
. Requests we receive after the above-specified time are deemed to be received
and are processed the next business day at the applicable Net Asset Value
(NAV).
. 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.
18 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. On any day the trading markets for both U.S. government securities and
money market instruments close early, the Funds may 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 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.
Stagecoach Money Market Funds Prospectus 19
<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 for the Prime Money Market Fund
before 12:00 noon (Pacific time) on any business day at the NAV determined as
of 12:00 noon (Pacific time) on the same business day. Requests we receive in
proper form for the Treasury Plus Money Market Fund before 12:00 noon
(Pacific time) generally are processed at 2:00 PM on the same day.
. Redemption proceeds are usually wired to the redeeming Institution the
following business day.
. Requests we receive after the above-specified times are deemed to be received
and are processed the next business day at the applicable NAV.
. We reserve the right to delay payment of a redemption until we are 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 15 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
liquidate portfolio securities to pay the redemption in cash. Therefore, we
may pay the redemption in part or in whole in securities of equal value.
20 Stagecoach Money Market Funds Prospectus
<PAGE>
Exchanges
- --------------------------------------------------------------------------------
. 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 distribution of assets
held in certain qualified accounts. Contact your account representative for
further details.
Stagecoach Money Market Funds Prospectus 21
<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 capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. However, distributions declared in
October, November and December and distributed by the following January will be
taxable as if they were paid on December 31 of the year in which they were
declared. We will notify you annually as to the status of your Fund
distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. residents will be subject to
back-up withholding taxes.
As long as each Fund continually maintains a $1.00 NAV, you ordinarily will not
recognize taxable gain or loss on the redemption or exchange of your Fund
shares.
22 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Historical Fund Information
Prime Money Market 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 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.
Treasury Plus Money Market Fund-- Prior to August 1, 1990, the Treasury Plus
Money Market 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.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and must be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level or quality of advisory and other
services provided by Wells Fargo Bank to the Funds.
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.
Stagecoach Money Market Funds Prospectus 23
<PAGE>
Other Information
- --------------------------------------------------------------------------------
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 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.
24 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.
================================================================================
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.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 25
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, or amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the 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 U.S. Wells Fargo Bank is a wholly owned subsidiary
of Wells Fargo & Company, a national bank holding company. As of August 1, 1998,
Wells Fargo Bank and its affiliates managed over $63 billion in assets. The
Funds paid Wells Fargo Bank the following for advisory services (after fee
waivers) for the fiscal period ended March 31, 1998:
- --------------------------------------------------------------------------------
Prime Money Market Fund .10%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .10%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of $32
billion. For providing sub-advisory services to the Funds, WCM is entitled to
receive from Wells Fargo Bank .05% of each Fund's assets up to the first $960
million and .04% of all assets above $960 million. WCM receives a minimum annual
sub-advisory fee of $120,000 from each Fund. The minimum annual fee payable to
WCM does not increase the fee paid by each Fund to Wells Fargo Bank.
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator.
26 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for the Administrative Class shares. We
have agreements with various Institutions and 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:
- --------------------------------------------------------------------------------
Prime Money Market Fund .15%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .15%
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 27
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of each Fund there are charts showing important financial
information about the Funds. The charts are called the "Financial Highlights"
and are designed to help you understand the past performance of the Funds. The
financial statements from which these Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, with the exception of the Administrative Class
Calendar-year returns, or 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.
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 more detailed definition.
Net Investment Income-- Net investment income is calculated by subtracting the
aggregate Fund expenses from the Funds' 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 Funds' portfolio (after
accounting for expenses) that are attributable to the particular classes 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.
28 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
Stagecoach Money Market Funds Prospectus 29
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
Annual and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of
investments.
Business Day
Any day the 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.
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.
30 Stagecoach Money market Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
Liquidity
The ability to readily sell a security at its fair price.
Moody's
A nationally recognized ratings organization.
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 Money Market and Government
Money Market Funds is determined each business day at 12:00 noon (Pacific time).
The NAV per share of the Treasury plus Money Market Fund is determined each
business day at 2:00 pm (Pacific time). The NAV per share of the California Tax-
Free Money Market, National Tax-Free Money Market, and 100% Treasury Money
Market Funds is determined each business day at 9:00 AM and 1:00 PM (Pacific
time).
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
A 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.
31 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 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] SC ADM P (8/98)
Printed on Recycled Paper
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Funds
Prospectus
Prime Money Market Please read this Prospectus and keep it for future
Fund reference. It is designed to provide you with important
information and to help you decide if a Fund's goals
Treasury Plus Money match your own.
Market Fund
These securities have not been approved or disapproved
100% Treasury Money by the U.S. Securities and Exchange Commission ("SEC"),
Market Fund 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
Service Class representation to the contrary is a criminal offense.
Investment Advisor Fund shares are NOT deposits or other obligations of, or
and Administrator: issued, endorsed or guaranteed by, Wells Fargo Bank,
N.A. ("Wells Fargo Bank"), Wells Capital Management
Wells Fargo Bank Incorporated ("Wells Capital Management" or "WCM"), or
any of their affiliates. Fund shares are NOT insured or
Investment guaranteed by the U.S. Government, the Federal Deposit
Sub-Advisor: Insurance Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN INVESTMENT IN
Wells Capital A FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS
Management OF PRINCIPAL. WE CANNOT ASSURE YOU THAT A FUND WILL
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Distributor and
Co-Administrator:
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 the 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 about 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. The Statement of Additional Information and
other information about the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Prime Money Market Fund 8
This section contains Treasury Plus Money Market Fund 12
important information
about the individual 100% Treasury Money Market Fund 16
Funds.
General Investment Risks 17
- --------------------------------------------------------------------------------
Your Account Your Fund Account 22
Turn to this section How to Buy Shares 23
for information on how
to open and maintain How to Sell Shares 23
your account, including
how to buy, sell and Exchanges 25
exchange Fund shares.
Other Information 26
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 29
Look here for details
on the organization of How to Read the Financial Highlights 32
the Funds and term
definitions. Glossary 33
<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 the risk 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. ("Stagecoach").
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. Capital gains, if any, are
distributed at least annually.
Stagecoach Money Market Funds Prospectus 5
<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.
- --------------------------------------------------------------------------------
Prime Treasury Plus 100% Treasury
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
================================================================================
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 Plus 100% Treasury
- --------------------------------------------------------------------------------
Management Fee
(after waivers) 0.10% 0.10% 0.11%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.35% 0.35% 0.34%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.45% 0.45% 0.45%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.40% 0.40% 0.43%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.65% 0.65% 0.68%
- --------------------------------------------------------------------------------
================================================================================
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 Plus 100% Treasury
- --------------------------------------------------------------------------------
1 Year $ 5 $ 5 $ 5
- --------------------------------------------------------------------------------
3 Years $14 $14 $ 14
- --------------------------------------------------------------------------------
5 Years $25 $25 $ 25
- --------------------------------------------------------------------------------
10 Years $57 $57 $ 57
- --------------------------------------------------------------------------------
6 Stagecoach Money Market Funds Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<PAGE>
Prime Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Prime Money Market 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 investments 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 17 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>
Prime Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 27. Highlights" on page 32.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================================================================
FOR A SHARE OUTSTANDING
=============================================================================================================================
SERVICE CLASS SHARES --
COMMENCED ON APRIL 30, 1981
--------------------------------------------------------------------------------------
Mar. 31, Mar. 31, Sept.30, Sept. 30, Sept. 30, March 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995/3/ 1994 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 0.05 0.03 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 0.05 0.03 0.05 0.05 0.02 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.05) (0.03) (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 (0.05) (0.03) (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) 5.37% 2.54% 5.19% 5.60% 3.71%/4/ 3.00%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $653,693 $626,105 $740,760 $614,101 $565,305 $527,599
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets 0.45% 0.45% 0.45% 0.41% 0.41% 0.41%
Ratio of net investment
income to
average net assets 5.24% 5.04% 5.14% 5.47% 3.67% 2.96%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses 0.65% 0.60% 0.62% 0.68% 0.89% 0.89%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets prior to
waived fees and
reimbursed
expenses 5.04% 4.89% 4.97% 5.20% 3.19% 2.48%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==============================================================================================================================
SERVICE SHARE CALNEDAR-YEAR RETURNS 1997 1996 1995 1994 1993
==============================================================================================================================
Returns for other share classes may vary due to 5.32% 5.16% 5.76% 3.88% 3.00%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
/4/ Annualized
10 Stagecoach Money Market Funds Prospectus
<PAGE>
Prime Money Market Fund Financial Highlights (continued)
See "Historical Fund Information" See "How to Read the Financial
on page 27. Highlights" on page 32.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================================================================
FOR A SHARE OUTSTANDING
=============================================================================================================================
SERVICE CLASS SHARES --
COMMENCED ON APRIL 30, 1981
--------------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31,
For the period ended: 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% 6.38%
- ------------------------------------------------------------------------------------------------------------------------------
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>
==============================================================================================================================
SERVICE SHARE CALNEDAR-YEAR RETURNS 1992 1991 1990 1989 1988
==============================================================================================================================
Returns for other share classes may vary due to 3.61% 5.85% 8.03% 9.04% 7.31%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed its Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
/4/ Annualized
Stagecoach Money Market Funds Prospectus 11
<PAGE>
Treasury Plus Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Treasury Plus Money Market Fund seeks to provide investors
with current income and stability of principal.
Investment Policies
We 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 17 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.
Unlike the 100% Treasury Money Market, the Treasury Plus Money
Market Fund may invest in repurchase agreements; the income from
which is not generally exempt from state or local taxes.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Money Market Funds Prospectus 13
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 27. Highlights" on page 32.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================================================================
FOR A THE PERIOED ENDED:
=============================================================================================================================
SERVICE CLASS SHARES --
COMMENCED ON OCTOBER 11, 1995
--------------------------------------------------------------------------------------
Mar. 31, Mar. 31, Sept.30, Sept. 30, Sept. 30, March 31,
For the period ended: 1998 1997/1/ 1996/2/ 1995 1994/3/ 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 0.05 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 0.05 0.02 0.05 0.05 0.02 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.05) (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 (0.05) (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) 5.20% 2.47% 5.03% 5.42% 3.75% 2.81%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000s) $367,111 $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 5.07% 4.91% 4.98% 5.32% 3.72% 2.77%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 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 0.65% 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 4.87% 4.75% 4.83% 5.08% 3.25% 2.30%
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
==============================================================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996 1995 1994 1993
==============================================================================================================================
Returns for other share classes may vary due to 5.14% 5.00% 5.56% 3.84% 2.80%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
14 Stagecoach Money Market Funds Prospectus
<PAGE>
Treasury PLUS Money Market Fund Financial Highlights (continued)
See "Historical Fund Information" See "How to Read the Financial
on page 27. Highlights" on page 32.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================================================================
FOR A SHARE OUTSTANDING
=============================================================================================================================
SERVICE CLASS SHARES --
COMMENCED ON OCTOBER 11, 1995
--------------------------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31, March 31,
For the period ended: 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 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>
==============================================================================================================================
SERVICE SHARE calendar-YEAR RETURNS 1993 1992 1991 1990 1989 1988
==============================================================================================================================
Returns for other share classes may 2.80% 3.32% 5.56% 7.75% 8.78% 7.06%
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/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ The Fund changed Investment Advisor during this fiscal year.
/3/ The Fund changed its fiscal year-end from March 31 to September 30.
Stagecoach Money Market Funds Prospectus 15
<PAGE>
100% Treasury Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The 100% Treasury Money Market Fund seeks to provide investors
with stability of principal and current income which is exempt
from most state and local personal income taxes.
Investment Policies
We actively manage a portfolio exclusively composed of
obligations issued or guaranteed by the U.S. Treasury. 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:
. 100% of assets in 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 a
substantially similar investment objective.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed on
page 17 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.
Any capital gains realized by the Fund generally will not be
exempt from state and local taxes. For more information, see
"Taxes" on page 26, and the Statement of Additional Information.
- --------------------------------------------------------------------------------
[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.
Unlike the Treasury Plus Money Market Fund, the 100% Treasury
Money Market Fund may not invest in repurchase agreements; the
income from which is not generally exempt from state and local
personal income taxes.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
16 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 risk tolerance and preferences.
You should carefully consider risk 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.
Stagecoach Money Market Funds Prospectus 17
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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
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 and the risks associated
with them. 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.
18 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 market 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.
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the Funds that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be predicted.
Stagecoach Money Market Funds Prospectus 19
<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 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>
- --------------------------------------------------------------------------------
TREASURY 100%
PRIME PLUS TREASURY
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
FLOATING AND VARIABLE RATE DEBT * *
Instruments with interest rates Interest Rate
that are adjusted either on a and 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 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, * *
of foreign branches of U.S. banks or Liquidity,
U.S. branches of foreign Political,
banks. Regulatory, and
Diplomatic Risk
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities Credit, * * *
in brokers, dealers and financial Leverage and
institutions to increase return Counter-Party Risk
on those securities. Loans may be
made in accordance with existing
investment policies.
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent Leverage Risk * * *
of 20% of assets from banks for
temporary purposes to meet
shareholder redemptions.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security which cannot be readily Liquidity Risk * *
sold, or cannot be readily sold
without negatively affecting its
fair value.
- --------------------------------------------------------------------------------
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, 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.
Minimum Investment: The minimum initial investment amount required for the
Prime, Treasury Plus and 100% Treasury Money Market Funds is $150,000. All
subsequent purchases must be in amounts of at least $25,000 per Fund.
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 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 share of the Prime Money Market Fund and the
100% Treasury Money Market Fund at 12 noon (Pacific time). We determine the
NAV of each share of the Treasury Plus Money Market Fund at 2:00 p.m.
(Pacific time). Purchase and redemption requests we receive prior to those
times are processed on that business day. NAV is calculated 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. Selling Agents may establish
earlier cut-off times for processing your order. Requests received by a
Selling Agent after the applicable cut-off time will be processed on the
next business day.
22 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. On any day the trading markets for both U.S. government securities and money
market instruments close early, the Funds may 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
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.
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.
Stagecoach Money Market Funds Prospectus 23
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
General Notes for Selling Shares
. We process requests for the Prime Money Market and 100% Treasury Money Market
Funds that we receive in proper form before 12:00 noon (Pacific time), or at
such earlier cut-off time as established by your Selling Agent, on any
business day at the NAV determined as of 12:00 noon on the same business day.
. We process requests for the Treasury Plus Money Market Fund that we receive
in proper form before 2:00 p.m. (Pacific time), or at such earlier cut-off
time as established by your Selling Agent, on any business day at the NAV
determined as of 2:00 p.m. on the same business day.
. Requests we receive after the above specified times are deemed to be received
and are processed the next business day at the applicable NAV.
. Redemption proceeds are usually wired to the redeeming Institution the
following business day.
. We reserve the right to delay payment of a redemption 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 to liquidate
securities in that amount. 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.
. 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 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.
We will pass on to you any net capital gains earned by a Fund as capital gains
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions to noncorporate shareholders may
qualify for taxation at preferential rates. However, distributions declared in
October, November and December and distributed by the following January will be
taxable as if they were paid on December 31 of the year in which they were
declared. We will notify you annually as to the status of your Fund
distributions.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. residents will be subject to
back-up withholding taxes. As long as the Funds continually maintain a $1.00
NAV, you ordinarily will not recognize taxable gain or loss on the redemption or
exchange of your Fund shares.
26 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Historical Fund Information
Prime Money Market 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 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.
Treasury Plus Money Market Fund-- Prior to August 1, 1990, the Fund was known as
the Short-Term Government Fund, which commenced operations on October 1, 1985,
and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government. The Fund operated as a portfolio of
Pacific American Funds through October 1, 1994, when it was reorganized as the
Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust.
In July, 1995, the Fund was renamed the Pacifica Treasury Money Market Fund, and
on September 6, 1996, the Fund was reorganized as a 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.
100% Treasury Money Market Fund-- As of the date of this prospectus, this Fund
has not yet commenced operations.
Wells Fargo Bank & Company/Norwest Merger-- Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and must be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level or quality of advisory and other
services provided by Wells Fargo Bank to the Funds.
Stagecoach Money Market Funds Prospectus 27
<PAGE>
Other Information
- --------------------------------------------------------------------------------
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 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.
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, 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.
Stagecoach Money Market Funds Prospectus 29
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
================================================================================
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 Institutions
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Maintains records Provide services
distributes shares, Funds' business of shares and to customers
and manages the activities supervises the
Funds' business paying of
activities dividends
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St.,San Francisco, CA
Manages the Funds' investment 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' investment Provides safekeeping for the
activities Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, or amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the 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
30 Stagecoach Money Market Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
August 1, 1998, Wells Fargo Bank and its affiliates managed over $63 billion
in assets. The Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the fiscal period ended March 31, 1998:
- --------------------------------------------------------------------------------
Prime Money Market Fund .10%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .10%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of $32
billion. For providing sub-advisory services to the Funds, WCM is entitled to
receive from Wells Fargo Bank .05% of each Fund's assets up to the first $960
million and .04% of all assets above $960 million. WCM receives a minimum annual
sub-advisory fee of $120,000 per Fund for its services. This minimum annual fee
payable to WCM does not increase the advisory fees paid by each Fund to Wells
Fargo Bank.
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 is the Funds' distributor and co-administrator. Stephens 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.
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.
- --------------------------------------------------------------------------------
Prime Money Market Fund .20%
- --------------------------------------------------------------------------------
Treasury Plus Money Market Fund .20%
- --------------------------------------------------------------------------------
100% Treasury Money Market Fund .20%
- --------------------------------------------------------------------------------
Stagecoach Money Market Funds Prospectus 31
<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, with the exception of the Service Class Calendar-year
returns, or 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 and Treasury Plus Money Market 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 more detailed 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
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
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.
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 Money Market Funds Prospectus 33
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Liquidity
The ability to readily sell a security at a fair price.
Nationally Recognized Ratings Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
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 Fund is
determined each business day at 12:00 noon (Pacific time). The NAV per share of
the Treasury Plus Money Market Fund is determined each business day at 2:00 PM
(Pacific time).The NAV per share of the 100% Treasury Money Market Fund is
determined each business day at 9:00 AM (Pacific time).
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.
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.
34 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 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] SC SRV P (8/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS/R/
August 1, 1998
Stagecoach
Income Funds
Prospectus
Short-Intermediate U.S. Please read this Prospectus and keep it for
Government Income future reference. It is designed to provide
Fund you with important information and to help you
decide if a Fund's goals match your own.
U.S. Government
Income Fund These securities have not been approved or
disapproved by the U.S. Securities and
Exchange Commission ("SEC"), any state
Institutional Class securities commission or any other regulatory
authority, nor have any of these authorities
passed upon the accuracy or adequacy of this
Investment Advisor Prospectus. Any representation to the contrary
and Administrator: is a criminal offense.
Wells Fargo Bank Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
Investment guaranteed by, Wells Fargo Bank, N.A. ("Wells
Sub-Advisor: Fargo Bank"), or any of its affiliates. Fund
shares are NOT insured or guaranteed by the
Wells Capital U.S. Government, the Federal Deposit Insurance
Management Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
Distributor and INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
Co-Administrator: INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Stephens Inc.
<PAGE>
About this Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "plain English" and grouped some of the most
important Fund information together to make it easier to read and
understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[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 a 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 about 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. The Statement of Additional Information and
other information for the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Short-Intermediate U.S. Government 8
Income Fund
This section contains
important information U.S. Government Income Fund 12
about the individual
Funds. General Investment Risks 15
- --------------------------------------------------------------------------------
Your Account Your Fund Account 20
Turn to this section How to Buy Shares 21
for information on how
to open and maintain How to Sell Shares 22
your account,
including how to buy, Exchanges 23
sell and exchange
Fund shares. Other Information 24
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Funds 27
Look here for details
on the organization How to Read the Financial Highlights 31
of the Funds and
term definitions. Glossary 33
<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 income investments 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 the risk that you may lose the money you
invest;
. 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 Funds 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. ("Stagecoach").
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 Certificates 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, and distribute capital gains, if any, at
least annually.
Stagecoach Income Funds Prospectus 5
<PAGE>
Income 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.
- --------------------------------------------------------------------------------
Short-Int. U.S. Government
U.S. Govt. Inc. Income
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge on a purchase None None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None
- --------------------------------------------------------------------------------
Maximum sales charge 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 current
expenses and fee waivers. Fee waivers and expense reimbursements are voluntary
and may be discontinued without prior notice.
- --------------------------------------------------------------------------------
Short-Int. U.S. Government
U.S. Govt. Inc. Income
- --------------------------------------------------------------------------------
<S> <C> <C>
Management fee
(after waivers) 0.40% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.51% 0.41%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.91% 0.91%
- --------------------------------------------------------------------------------
Management fee
(before waivers) 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.57% 0.66%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.07% 1.16%
- --------------------------------------------------------------------------------
</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 Short-Int. U.S. Government
shares at the end of each period. U.S. Govt. Inc. Income
- --------------------------------------------------------------------------------
<S> <C> <C>
1 year $ 9 $ 9
- --------------------------------------------------------------------------------
3 years $ 29 $ 29
- --------------------------------------------------------------------------------
5 years $ 50 $ 50
- --------------------------------------------------------------------------------
10 years $112 $112
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Income Funds Prospectus 7
<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;
. 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.
8 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.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 15 and the specific risks listed below. They
are both important to your investment choice.
Stripped Treasury securities have greater interest rate risk
than traditional government securities with identical credit
ratings. The U.S. Government does not directly or indirectly
insure or guarantee the performance of the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Income Funds Prospectus 9
<PAGE>
Short-Intermediate U.S. Government Income Fund Financial Highlights
See "How to Read the Financial Highlights" on page 31.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
INSTITUTIONAL CLASS SHARES --
COMMENCED ON SEPTEMBER 6, 1996
--------------------------------------------------------------
MAR. 31, MAR. 31, SEPT. 30,
For the period ended: 1998 1997/1/ 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.45 $ 9.54 $ 9.46
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.51 0.34 0.03
Net realized and unrealized gain (loss) on investments 0.31 (0.09) 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.82 0.25 0.11
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.51) (0.34) (0.03)
Distributions from net realized gain 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.51) (0.34) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.76 $ 9.45 $ 9.54
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 8.85% 2.58% 1.08%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $51,973 $60,150 $ 73,637
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.69% 0.65% 0.59%
Ratio of net investment income to average net assets 5.28% 7.01% 5.14%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 48% 52% 389%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.07% 1.02% 0.84%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses 4.90% 6.64% 4.89%
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
INSTITUTIONAL SHARE CALENDAR-YEAR RETURNS 1997 1996 1995
==================================================================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary due to 7.68% 3.55% 12.67%
different fees and expenses. These returns reflect
fee waivers and reimbursements, do not reflect sales
loads and are not a guarantee of future performance./2/
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ The Fund changed its fiscal year-end from September 30 to March 31.
/2/ These returns were audited only for the years ended December 31, 1995. For
periods prior to September 6, 1996, these figures reflect the performance
and expenses of the Fund's Class A shares.
10 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)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The U.S. Government Income Fund seeks a long-term total rate of
return through preserving capital and earning high interest
income by investing principally in a portfolio of U.S.
Government mortgage pass-through securities, consisting
primarily of securities issued by GNMA, FNMA and FHLMC.
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 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
interests of shareholders to do so.
12 Stagecoach Income Funds Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 15 and the specific risks listed below. They are both
important to your investment choice.
The U.S. 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.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Mortgage pass-through securities are residential home mortgages
bundled together and sold as a single security. Mortgage
payments are "passed through" the issuing agency to the
security's holder as interest and principal payments.
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 13
<PAGE>
U.S. Government Income Fund Financial Highlights
See "Historical Fund See "How to Read the Financial
Information" on page 25. Highlights" on page 31.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=====================================================================================================
FOR SHARES OUTSTANDING
=====================================================================================================
INSTITUTIONAL
CLASS SHARES --
COMMENCED ON
DECEMBER 15, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C>
For the period ended: Dec. 31, 1997
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.73
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05
Net realized and unrealized gain (loss)
on investments (0.02)
- -----------------------------------------------------------------------------------------------------
Total from investment operations 0.03
- -----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05)
Distributions from net realized gain 0.00
- -----------------------------------------------------------------------------------------------------
Total from distributions: (0.05)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.71
- -----------------------------------------------------------------------------------------------------
Total return/1/ 0.18%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 7,255
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Ratio of expenses to average net assets 0.77%
Ratio of net investment income
to average net assets 6.58%
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 306%
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 1.16%
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived fees
and reimbursed expenses 6.19%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
=====================================================================================================
INSTITUTIONAL SHARES CALENDAR-YEAR RETURNS 1997
=====================================================================================================
Returns for other share classes may vary due to different fees and expenses. 0.18%
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/ Total return information is for period beginning at commencement of
operations and is not annualized.
14 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 risk 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 price 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 levels permitted for such
Fund, provided Wells Fargo Bank continues to
Stagecoach Income Funds Prospectus 15
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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 and the risks
associated with them. 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
16 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 U.S. 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 market 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.
Stagecoach Income Funds Prospectus 17
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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.
Year 2000 Risks -- Many computer software systems in use today cannot
distinguish the Year 2000 from the Year 1900. Most of the services provided to
the Funds depend on the proper functioning of computer systems. Any failure to
adapt these systems in time could hamper the Funds' operations and services.
The Funds' principal service providers have advised the Funds that they are
working on the necessary changes to their systems and that they expect their
systems to be adapted in time. There can, of course, be no assurance of
success. In addition, because the Year 2000 issue affects virtually all
organizations and governments, the companies or entities in which the Funds
invest also could be adversely impacted by the Year 2000 issue. The extent of
such impact cannot be predicted.
===============================================================
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.
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 investment objective.
================================================================
18 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
SHORT- U.S. GOVT.
INTERMEDIATE INCOME
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
FLOATING AND VARIABLE
RATE DEBT
Instruments with interest Interest Rate and . .
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which Credit and . .
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed upon
time and price, usually
with interest.
- --------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment Market Risk . .
in shares of another mutual
fund. A pro rata portion
of the other fund's expenses,
in addition to the expenses
paid by the Funds, will be
borne by Fund shareholders.
- --------------------------------------------------------------------------------
STRIPPED OBLIGATIONS
Securities that give Interest Rate Risk . .
ownership to either future
payments of interest or a
future payment of principal,
but not both. These securities
tend to have greater interest
rate sensitivity than
conventional debt obligations.
Each Fund may invest up to 20%
of assets in interest-only or
principal-only obligations, or a
combination thereof.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be Liquidity Risk . .
readily sold, or cannot be
readily sold without
negatively affecting its
fair price. Limited
to 15% of assets.
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning Credit, Counter-Party and . .
securities to brokers, Leverage Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in accordance
with existing investment policies.
Limited to 33 1/3% of assets.
- --------------------------------------------------------------------------------
FORWARD COMMITMENTS,
WHEN-ISSUED SECURITIES
AND DELAYED DELIVERY
TRANSACTIONS
Securities bought or sold for Interest Rate, Credit . .
delivery at a later date or and Experience Risk
bought or sold for a
fixed price at a fixed date.
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an Leverage Risk . .
equivalent of 10% (20% for
the U.S. Government Income
Fund) of total assets
from banks for temporary
purposes to meet shareholder
redemptions.
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Securities consisting of an Interest Rate, Credit . .
undivided fractional interest and Experience Risk
in pools of mortgages,
consumer loans, such as
car loans or credit card
debt, or receivables held
in trust.
- --------------------------------------------------------------------------------
Stagecoach Income 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, 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 or Semi-Annual Reports. 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 ("NYSE"), 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 NYSE. 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.
20 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We may also reserve the right to delay payment
of a redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
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 21
<PAGE>
Your Fund Account
- --------------------------------------------------------------------------------
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 from an Institution in proper form before
the close of the NYSE, 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 15 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 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 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.
Capital gain distributions, if any, will be made annually for each Fund.
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 capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. However, distributions declared in
October, November and December and distributed by the following January will be
taxable as if they were paid on December 31 of the year in which they were
declared. We will notify you annually as to the status of your Fund
distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
Your redemptions, and 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 taxes. In certain circumstances, U.S. residents
will also be subject to back-up withholding taxes.
24 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
In general, all distributions will be taxable to you when paid, even though they
are paid in additional Fund shares. However, distributions declared in October,
November or December of one year and paid in January of the next year are
treated as if they were paid in the first year. Capital gain distributions paid
to noncorporate shareholders may qualify for taxation at preferential rates.
Historical Fund Information:
U.S. Government Income Fund-- Commenced operations on April 7, 1988, as the U.S.
Government Income Fund of Overland Express Funds, Inc. ("Overland"), another
investment company advised by Wells Fargo Bank. On December 12, 1997, the
Overland Fund was reorganized as the U.S. Government Income Fund of Stagecoach
Funds. For accounting purposes, the Overland 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.
Wells Fargo Bank & Company/Norwest Merger-- Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and must be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level or quality of advisory and other
services provided by Wells Fargo Bank to the Funds.
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-- Your Institution mails statements after any account activity,
including transactions, dividends or capital gains, and at year-end. The
Stagecoach Income Funds Prospectus 25
<PAGE>
Other Information
- --------------------------------------------------------------------------------
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.
26 Stagecoach 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, 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, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a
Maryland Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
INSTITUTIONS FIRMS 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 Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment 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' investment activities Provides safekeeping for the
Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Income Funds Prospectus 27
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members or amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the 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 August 1, 1998, Wells Fargo Bank and its affiliates managed over
$63 billion in assets. The Funds paid Wells Fargo Bank the following for
advisory services (after fee waivers) for the last fiscal year:
- --------------------------------------------------------------------------------
Short-Intermediate U.S. Government Income Fund .40%
- --------------------------------------------------------------------------------
U.S. Government Income Fund .50%
- --------------------------------------------------------------------------------
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of
$32 billion. For providing sub-advisory services to the Funds, WCM is entitled
to receive from Wells Fargo Bank 0.15% of each Fund's assets up to the first
$400 million, 0.125% of the next $400 million in assets, and 0.10% of all assets
over $800 million. WCM receives a minimum annual sub-advisory fee of $120,000
per Fund for its services. This minimum annual fee payable to WCM does not
increase the advisory fees paid by each Fund to Wells Fargo Bank.
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 is the Funds' distributor and co-administrator. Stephens receives .04%
of each Fund's assets for its role as co-administrator.
28 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:
- --------------------------------------------------------------------------------
Short-Intermediate U.S. Government Income Fund .25%
- --------------------------------------------------------------------------------
U.S. Government Income Fund .25%
- --------------------------------------------------------------------------------
Stagecoach Income Funds Prospectus 29
<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
With Wells Fargo since 1988.
. Paul Single
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.
30 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 Funds. The charts are called the "Financial Highlights"
and are designed to help you understand the past performance of the Funds. The
financial statements from which these Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, with the exception of the Institutional Share
Calendar year returns, or 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.
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 more detailed definition.
Net Investment Income--Net investment income is calculated by subtracting the
aggregate Fund expenses from the Funds' 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 31
<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.
32 Stagecoach Income Funds Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
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 Funds.
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 of 1940, 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 33
<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.
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" and are issued by the Federal
National Mortgage Association.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Federal National Mortgage Association.
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 a fair price.
Moody's
A nationally recognized ratings organization.
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
34 Stagecoach Income Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
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.
Stagecoach Income Funds Prospectus 35
<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]
Printed on Recycled Paper SC ICIP (8/98)
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Funds
Prospectus
Treasury Plus Money Please read this Prospectus and keep it for
Market Fund future reference. It is designed to provide
you with important information and to help you
Class E decide if the Fund's goals match your own.
Investment Advisor These securities have not been approved or
and Administrator: disapproved by the U.S. Securities and
Exchange Commission ("SEC"), any state
Wells Fargo Bank securities commission or any other regulatory
authority, nor have any of these authorities
Investment Sub-Advisor passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary
Wells Capital is a criminal offense.
Management
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"), Wells Capital Management
Incorporated ("Wells Capital Management" or
Stephens Inc. "WCM"), or any of their affiliates. Fund
shares are NOT insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
INVESTMENT IN 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 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 the 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 about this Fund?
The Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Fund is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Fund Treasury Plus Money Market Fund 7
This section contains
important information General Investment Risks 10
about the Fund.
- --------------------------------------------------------------------------------
Your Account Your Account 15
Turn to this section How to Buy Shares 17
for information on
how to open and Selling Shares 18
maintain your account,
including how to buy, Exchanges 20
sell and exchange
Fund shares. Additional Services and
Other Information 21
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Fund 25
Look here for details
on the organization How to Read the Financial Highlights 27
of the Fund and term
definitions. Glossary 28
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Treasury Plus Money Market Fund
The Fund described in this Prospectus invests 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 Fund's
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 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 the risk 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 Fund listed on the cover
of this Prospectus. The "Funds" also may refer to other mutual funds offered by
Stagecoach Funds, Inc. ("Stagecoach").
Key Terms
The term "money market instruments" is used in this Prospectus to refer to a
variety of short-term debt securities, repurchase agreements and other
investment activities described in the Statement of Additional Information and
the Investment Practice/Risk table on page 14.
4 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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. Capital gains, if any, are
declared and paid at least annually.
Stagecoach Treasury Plus Money Market Fund 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 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.
- ---------------------------------------------------------------------------------------------------------
Treasury Plus
--------------------------
CLASS E
- ---------------------------------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
=========================================================================================================
Expenses shown "after waivers" reflect amounts paid by the 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. Expenses
shown "before waivers" reflect contract amounts and amounts paid during the
prior fiscal period. Expense waivers and reimbursements are voluntary
and may be discontinued without prior notice.
- ---------------------------------------------------------------------------------------------------------
Treasury Plus
--------------------------
CLASS E
- ---------------------------------------------------------------------------------------------------------
Rule 12b-1 fee (after waivers) 0.00%
- ---------------------------------------------------------------------------------------------------------
Management fee (after waivers) 0.10%
- ---------------------------------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.55%
- ---------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.65%
- ---------------------------------------------------------------------------------------------------------
Management fee
(before waivers) 0.25%
- ---------------------------------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.59%
- ---------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 0.84%
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
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% Treasury Plus
annual return and that you redeem your shares at the end of each period. --------------------------
CLASS E
- --------------------------------------------------------------------------------------------------------
1 Year $ 7
- --------------------------------------------------------------------------------------------------------
3 Years $ 21
- --------------------------------------------------------------------------------------------------------
5 Years $ 36
- --------------------------------------------------------------------------------------------------------
10 Years $ 81
- --------------------------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
Treasury Plus Money Market Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Treasury Plus Money Market 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.
Stagecoach Treasury Plus Money Market Fund Prospectus 7
<PAGE>
Treasury Plus Money Market Fund
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed 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. 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.
Before August 1, 1998, the Fund was known as the "Treasury Money
Market Mutual Fund."
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
8 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
Treasury Plus Money Market Fund Financial Highlights
See "Historical Fund Information" See "How to Read the Financial
on page 23. Highlights" on page 27.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
======================================================================================================================
FOR A SHARE OUTSTANDING
======================================================================================================================
CLASS E SHARES -- COMMENCED
ON MARCH 24, 1997
--------------------------------------
March 31, March 31,
For the period ended: 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.00
Net realized and unrealized gain (loss) on investments 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.00
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.05) 0.00
Distributions from net realized gain 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.05) 0.00
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 4.99% 0.11%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $715,554 $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 4.69% 4.86%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses 0.84% 0.88%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses 4.65% 4.63%
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
CLASS E SHARE CALENDAR-YEAR RETURNS 1997 1996
======================================================================================================================
These returns reflect fee waivers and reimbursements, and 4.66% 4.71%
are not a guarantee of future performance. Performance
shown since the inception of Class E Shares.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Treasury Plus Money Market 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 risk 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 selling 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 instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of a security will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value. Interest rate risk is
the possibility that interest rates may increase and reduce the resale value
of securities in the Fund's portfolio. Debt instruments 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 instrument 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 number of
investments but in general it refers to any financial instrument whose value
is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to changes
in yields or values due to their structure or contract terms.
The following types of floating-rate derivative securities are NOT permitted
investments in the Fund:
10 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
. 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 the 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 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.
Stagecoach Treasury Plus Money Market Fund Prospectus 11
<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 the fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk-- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
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.
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Fund
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Fund's operations and services. The Fund's
principal service providers have advised the Fund that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Fund invests also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
12 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
========================================================================
Investment Practice/Risk
The following table lists some of the additional investment practices of
the Fund, including some not disclosed in the Investment Objective and
Investment Policies sections of the Prospectus. The risks indicated after
the description of the practice are NOT the only potential risks
associated with that practice, but are among the more prominent. Market
risk is assumed for each. See the Investment Objective and Investment
Policies for the Fund or the Statement of Additional Information for more
information on these practices.
Investment practices and risk levels are carefully monitored. We attempt
to ensure that the risk exposure for the Fund remains within the
parameters of its objective.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in
the Fund. See the "Important Risk Factors" in the summary for the Fund.
You should also see the Statement of Additional Information for
additional information about the investment practices and risks
particular to the Fund.
=========================================================================
Stagecoach Treasury Plus Money Market Fund Prospectus 13
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Treasury
Plus
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are Interest Rate and .
adjusted either on a schedule or when an Credit Risk
index or benchmark changes.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A transaction in which the seller of a Credit and .
security agrees to buy back a security Counter-Party Risk
at an agreed upon time and price, usually
with interest.
- --------------------------------------------------------------------------------
OTHER MUTUAL FUNDS
The temporary investment in shares of Market Risk .
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 U.S. Political, Regulatory,
branches of foreign banks. and Diplomatic Risk
- --------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to Credit, Counter-Party .
brokers, dealers and financial institutions and Leverage Risk
to increase return on those securities.
Loans may be made in accordance with
existing investment policies.
- --------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of Leverage Risk .
20% of assets from banks for temporary
purposes to meet shareholder redemptions.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, Liquidity Risk .
or cannot be readily sold without negatively
affecting its fair price. Illiquid securities are
limited to 10% of total assets.
- --------------------------------------------------------------------------------
14 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 minimum initial investment; or
. $100 minimum initial investment if you use the AutoSaver option.
. $100 per Fund for all investments after your first.
. We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, as
"settlement accounts" for certain brokerage accounts or for certain classes
of shareholders as permitted by the SEC. Check the specific disclosure
statements and applications for the program through which you intend to
invest.
Stagecoach Treasury Plus Money Market Fund Prospectus 15
<PAGE>
Your Account
- -------------------------------------------------------------------------------
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
Selling Agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from your
Selling Agent or by calling 1-800-222-8222.
. As with all mutual fund investments, the price you pay to purchase shares or
the price you receive when you redeem shares is not determined until after a
request has been received in proper form.
. We determine the NAV of the Fund's shares each business day at 2:00 PM
(Pacific time) by subtracting the Fund liabilities from its total assets, and
then dividing the result by the total number of outstanding shares of the
Fund. See the Statement of Additional Information for further
information.
. Selling Agent may establish earlier cut-off times for processing your order.
Requests received by a Selling Agent after the applicable cut-off time will
be processed on the next business day.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-222-
8222) if you are investing directly with Stagecoach Funds, or speak to your
Selling Agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without requiring a new application.
. On any day the trading markets for both U.S. government securities and money
market instruments close early, the Fund will close early.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear. We may also reserve the right to delay payment of a
redemption until we are reasonably certain that investments made by check
have been collected.
16 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Fund shares held through brokerage and other types of accounts,
please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be
sure to indicate the Fund name and the share
class into which you intend to invest. Mail to:
- ---------------------------------------------- Stagecoach Funds
Enclose a check for at least $1,000 made out PO Box 7066
in the full name and share class of the Fund. San Francisco, CA
For example, "Treasury Plus Money Market 94120-9201
Fund, Class E".
- ----------------------------------------------
You may start your account with $100 if you
elect the AutoSaver option on the application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Make a check payable to the full name and
share class of your Fund for at least $100. Mail to:
Be sure to write your account number on the Stagecoach Funds
check as well. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Enclose the payment stub/card from your 94120-9201
statement if available.
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
If you do not currently have an account,
complete a Stagecoach Funds application.
You must wire at least $1,000. Be sure to Mail to:
indicate the Fund name and the share class Stagecoach Funds
into which you intend to invest. PO Box 7066
- ---------------------------------------------- San Francisco, CA
Mail the completed application. 94120-9201
- ---------------------------------------------- Fax to: 1-415-546-0280
You may also fax the completed application
(with original to follow).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit Wire to:
at least $100 according to the Wells Fargo Bank, N.A.
instructions given to the right. Be San Francisco, California
sure to have the wiring bank include
your current account number and the Bank Routing Number
name your account is registered in. 121000248
- ----------------------------------------------
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund
and Share Class)
Account Name:
(Registration Name Indicated on
Application)
--------------------------------
Stagecoach Treasury Plus Money Market Fund Prospectus 17
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
You can only make your first purchase of a
Fund by phone if you already have an
existing Stagecoach Account.
- ---------------------------------------------- Call:
Call Investor Services and instruct the 1-800-222-8222
representative to either:
. transfer at least $1,000 from a linked
settlement account, or
. exchange at least $1,000 worth of shares
from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the
representative to either:
. transfer at least $100 from a linked Call:
settlement account, or 1-800-222-8222
. exchange at least $100 worth of shares
from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Funds held through
brokerage and other types of accounts, please consult your Selling Agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption you
wish to receive (or write "Full Redemption").
- ---------------------------------------------
Make sure all the account owners sign
the request.
- ---------------------------------------------
You may request that redemption proceeds be Mail to:
sent to you by check, by ACH transfer into a Stagecoach Funds
bank account, or by wire ($5,000 minimum). PO Box 7066
Please call Investor Services regarding San Francisco, CA
requirements for linking bank accounts or for 94120-9201
wiring funds. We reserve the right to charge
a fee for wiring funds although it is not
currently our practice to do so.
- ---------------------------------------------
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial
institutions such as a bank or brokerage
house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
18 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption
of at least $100. Be prepared to provide your
account number and Taxpayer Identification Number.
- ---------------------------------------------------
Unless you have instructed us otherwise, only
one account owner needs to call in redemption
requests.
- ---------------------------------------------------
You may request that redemption proceeds be
sent to you by check, by transfer into an
ACH-linked bank account, or by wire
($5,000 minimum). Please call Investor
Services regarding requirements for linking
bank accounts or for wiring funds. We reserve
the right to charge a fee for wiring funds
although it is not currently our practice to do so. Call:
- --------------------------------------------------- 1-800-222-8222
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or
subsequently in writing.
- ---------------------------------------------------
Phone privileges allow us to accept
transaction instructions by anyone representing
themselves as the shareholder and who provides
reasonable confirmation of their identity, such
as providing the on the account. We will not
be liable for any losses incurred if we follow
telephone instructions we reasonably believe
to be genuine.
- ---------------------------------------------------
Telephone requests are not accepted if
the address on your account was changed
by phone in the last 15 days.
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We process requests to sell shares each business day. Requests we receive in
proper form for the Treasury Plus Money Market Fund before 12:00
noon (Pacific time) generally are processed at 2:00 PM on the same day.
- --------------------------------------------------------------------------------
Requests we receive in proper form for the Treasury Plus Money Market Fund
before 2:00 PM (Pacific time) from certain institutions with certain automated
arrangements in place generally are processed at 2:00 PM on the same day.
- --------------------------------------------------------------------------------
Requests we receive after the above-specified times are deemed to be received
and are processed the next business day at the applicable NAV.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There may be special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 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 Funds by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits, it may be to the detriment of existing shareholders to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach Treasury Plus Money Market Fund Prospectus 19
<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.
. If you exchange between a money market Fund and a Fund with a sales load,
you will buy shares at the Public Offering Price (POP) of the new Fund and a
sales load may be assessed.
. If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. Exchanges from any share class to a money market fund can only be re-
exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be borne
by other shareholders, we reserve the right to limit or reject exchange
orders. Generally, we will notify you 60 days in advance of any changes in
your exchange privileges.
. You may exchange shares of the Fund for Class A, B or C shares of a non-money
market fund.
20 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
Additional Services and Other Information
- -------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AutoSaver Plan-- you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each month
if you have not specified a day. Please call Investor Services at 1-800-222-
8222 if you wish to change or add linked accounts.
. Systematic Withdrawal Program-- Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
25th day of each month and either send you the proceeds by check or transfer
it into your linked bank account. In order to set up a Systematic Withdrawal
Program, you:
. must have a Fund account valued at $10,000 or more;
. must have distributions reinvested; and
. may not simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the linked
account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option-- Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
. Automatic Clearing House Option-- Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the ACH
system. If your specified bank account is closed, we will reinvest your
distributions.
Stagecoach Treasury Plus Money Market Fund Prospectus 21
<PAGE>
Additional Services and Other Information
- -------------------------------------------------------------------------------
. Check Payment Option-- Allows you to receive checks for distributions mailed
to your address of record or to another name and address which you have
specified in written, signature guaranteed instructions. If checks remain
uncashed for six months or are undeliverable by the Post Office, we will
reinvest the distributions at the earliest date possible.
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Fund and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by the Fund as dividend distributions. These are taxable to you as
ordinary income.
We will pass on to you any net capital gains earned by the Fund as capital gain
distributions. In general, these distributions will be taxable to you as long-
term capital gains and such distributions paid to noncorporate shareholders may
qualify for taxation at preferential rates. 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.
Foreign shareholders may be subject to different tax treatment, including
withholding. In certain circumstances, U.S. residents will be subject to back-up
withholding.
As long as the Fund continually maintains a $1.00 NAV, you ordinarily will not
recognize taxable gain or loss on the redemption or exchange of your Fund
shares.
22 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Historical Fund Information
Treasury Plus Money Market Fund-- Prior to August 1, 1990, the Fund was known as
the Short-Term Government Fund, which commenced operations on October 1, 1985,
and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government. The Fund operated as a portfolio of
Pacific American Funds through October 1, 1994, when it was reorganized as the
Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust.
In July, 1995, the Fund was renamed the Pacifica Treasury Money Market Fund, and
on September 6, 1996, the Fund was reorganized the Treasury Money Market Fund,
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.
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent
company of Wells Fargo Bank, has signed a definitive agreement to merge with
Norwest Corporation. The proposed merger is subject to certain regulatory
approvals and must be approved by shareholders of both holding companies. The
merger is expected to close in the second half of 1998. The combined company
will be called Wells Fargo & Company. Wells Fargo Bank has advised the Funds
that the merger will not reduce the level or quality of advisory and other
services provided by Wells Fargo Bank to the 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 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements-- We mail statements after any dividends or capital gains, and at
year-end. We do not send statements for Funds held in brokerage, retirement or
other similar accounts. You must check with the administrators of these accounts
for statement policies. The Fund will also send any necessary tax reporting
documents in January, and will send Annual and Semi-Annual Reports each
year.
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
Stagecoach Treasury Plus Money Market Fund Prospectus 23
<PAGE>
Additional Services and Other Information
- -------------------------------------------------------------------------------
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 Fund have equal voting rights and are voted in
the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
24 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
A number of different entities provide services to the Fund. This section shows
how the Fund is organized, the entities that perform different services, and how
they are compensated. Further information is available in the Statement of
Additional Information for the Fund.
About Stagecoach
The Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach Funds was organized on September 9,
1991, as a Maryland Corporation.
The Board of Directors of Stagecoach Funds 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.
================================================================================
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 Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Fund, Manages the Fund's Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Fund's business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Funds' investment activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Wells Fargo Bank, 525 Market St.,
San Francisco, CA San Francisco, CA
Manages the Fund's investment activities Provides safekeeping for the
Fund's assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Fund's activities
- --------------------------------------------------------------------------------
Stagecoach Treasury Plus Money Market Fund Prospectus 25
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of 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 U.S. Wells Fargo Bank is a wholly owned subsidiary of Wells Fargo &
Company, a national bank holding company. As of August 1, 1998, Wells Fargo Bank
and its affiliates managed over $63 billion in assets. The Fund paid Wells Fargo
Bank a fee of .10% for advisory services (after fee waivers) for the fiscal
period ended March 31, 1998.
Investment Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of August 1,
1998, WCM provided investment advice for assets aggregating in excess of $32
billion. For providing sub-advisory services to the Funds, WCM is entitled to
receive from Wells Fargo Bank .05% of each Fund's assets up to the first $960
million and .04% of all assets above $960 million. WCMreceives a minimum annual
sub-advisory fee of $120,000 from the Fund. This minimum annual fee payable to
WCM does not increase the advisory fee paid by the Fund to Wells Fargo
Bank.
Administrator
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid .03%
of the Fund's assets for these services.
Distributor and Co-Administrator
Stephens is the Fund's distributor and co-administrator. Stephens receives .04%
of the Fund's assets for its role as co-administrator.
Shareholder Servicing Plan
We have a Shareholder Servicing Plan for the Class E shares. 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 we pay .30% of Class E share assets.
26 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of the 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, with the exception of the Class E Calendar-year returns,
or 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. Other auditors audited statements for the 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 the Fund. See
the Glossary for a more detailed 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 number in
this category is the total gains or losses of a class divided by the number of
outstanding shares for that class. The amount of capital gain or loss per share
that was paid to shareholders is listed under the heading "Less Distributions--
Distributions From Net Realized Gains."
Net Assets-- The value of the investments in the Fund's portfolio (after
accounting for expenses) that are attributable to a particular class of the
Fund.
Ratio of Expenses to Average Net Assets-- This ratio reflects the amount paid by
the Fund to cover the costs of its daily operations, and includes advisory,
administration and other operating expenses. It is expressed as a percentage of
the average daily net assets of a class.
Ratio of Net Investment Income (Loss) to Average Net Assets-- This ratio is the
result of dividing net investment income (or loss) by average net assets.
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 Treasury Plus Money Market Fund Prospectus 27
<PAGE>
Glossary
- -------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and perform
other tasks.
Annual Report and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and the 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 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.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by the Fund on its shares.
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.
28 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
- -------------------------------------------------------------------------------
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 a fair price.
Nationally Recognized Ratings Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of the
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV per share of the Treasury Plus Money Market Fund
is determined each business day at 2:00 PM (Pacific time).
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's 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.
Stagecoach Treasury Plus Money Market Fund Prospectus 29
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
U.S. Treasury Obligations
Obligations issued or guaranteed by the U.S. Treasury.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
30 Stagecoach Treasury Plus Money Market Fund Prospectus
<PAGE>
STAGECOACH FUNDS/R/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
provides certain financial and other important information for the most recent
reporting period and each Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
=======================================================================
STAGECOACH MONEY MARKET 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] SC 400 P (8/98)
Printed on Recycled Paper
<PAGE>
August 1, 1998
STAGECOACH FUNDS/R/
Stagecoach
Money Market Fund
Prospectus
Money Market Please read this Prospectus and keep it for future
Fund reference. It is designed to provide you with
important information and to help you decide if the
Fund's goals match your own.
Class S
Investment Advisor These securities have not been approved or
and Administrator: disapproved by the U.S. Securities and Exchange
Commission ("SEC"), any state securities commission
Wells Fargo Bank or any other regulatory authority, nor have any of
these authorities passed upon the accuracy or
Investment Sub-Advisor: adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Wells Capital Management
Distributor and Fund shares are NOT deposits or other obligations of,
Co-Administrator: or issued, endorsed or guaranteed by, Wells Fargo
Bank, N.A. ("Wells Fargo Bank"), Wells Capital
Management Incorporated ("Wells Capital Management"
or "WCM"), or any of their affiliates. Fund shares
Stephens Inc. 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, 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
PERCENT 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 the 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 about this Fund?
The Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Fund is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 5
- --------------------------------------------------------------------------------
The Fund Money Market Fund 6
This section contains General Investment Risks 9
important information
about the Fund.
- -------------------------------------------------------------------------------
Your Account Your Account 13
Turn to this section for How to Buy Shares 15
information on how to
open and maintain Selling Shares 16
your account, including
how to buy, sell and Exchanges 18
exchange Fund shares.
Additional Services and
Other Information 19
- -------------------------------------------------------------------------------
Reference Organization and Management
of the Fund 22
Look here for details
on the organization of How to Read the Financial Highlights 25
the Fund and term
definitions. Glossary 26
<PAGE>
Key Information
- -------------------------------------------------------------------------------
Summary of the Stagecoach Money Market Fund
The Fund described in this Prospectus invests 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. The Fund's investment objective 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 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 the risk 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 Fund listed on the cover
of this Prospectus.
The "Funds" also may refer to other mutual funds offered by Stagecoach Funds,
Inc. ("Stagecoach").
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
Statement of Additional Information 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. Capital gains, if any, are
distributed at least annually.
4 Stagecoach Money Market Fund Prospectus
<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 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.
- -------------------------------------------------------------------------------
Money
Market
--------------
CLASS S
- -------------------------------------------------------------------------------
<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)
===============================================================================
Expenses shown "after waivers" reflect amounts paid by the 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.
Expenses shown "before waivers" reflect contract amounts and amounts paid
during the prior fiscal period. Expense waivers and reimbursements are
voluntary and may be discontinued without prior notice. Long-term shareholders
may pay more than the equivalent of the maximum front-end sales charge allowed
by the National Association of Securities Dealers, Inc.
- ------------------------------------------------------------------------------
Money
Market
--------------
CLASS S
- -------------------------------------------------------------------------------
Rule 12b-1 fee 0.75%
- -------------------------------------------------------------------------------
Management fee
(after waivers) 0.22%
- -------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.45%
- -------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 1.42%
- -------------------------------------------------------------------------------
Management fee
(before waivers) 0.40%
- -------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 1.22%
- -------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 1.62%
- -------------------------------------------------------------------------------
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 Money
investment assuming a 5% annual return and that Market
you redeem your shares at the end of each period. --------------
CLASS S
- -------------------------------------------------------------------------------
1 Year $ 14
3 Years $ 45
5 Years $ 78
10 Years $ 170
- -------------------------------------------------------------------------------
</TABLE>
Stagecoach Money Market Fund Prospectus 5
<PAGE>
Money Market Fund
- -------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Wells Capital Management
- -------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The Money Market Fund seeks to provide investors with a high
level of income, while preserving capital and liquidity, by
investing in high-quality, short-term instruments.
Investment Policies
We actively manage a portfolio 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 investments including, for example,
repurchase agreements.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENT 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 deposits 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;
. municipal obligations; and
. shares of other money market funds.
6 Stagecoach Money Market Fund Prospectus
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks listed 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 Money Market Fund Prospectus 7
<PAGE>
Money Market Fund Financial Highlights
See "How to Read the Financial Highlights" on page 26.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================================
CLASS S SHARES -- COMMENCED
ON MAY 25, 1995
-------------------------------------------------
March 31, March 31, Sept. 30, Dec. 31,
For the period ended: 1998 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 0.04 0.02 0.03 0.03
Net realized and unrealized gain on investments 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.04 0.02 0.03 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.02) (0.03) (0.03)
Distributions from net realized gain 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.04) (0.02) (0.03) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 4.37% 2.02% 3.03% 2.73%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $951,172 $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 4.28% 4.02% 3.98% 4.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses 1.62% 1.56% 1.55% 1.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to waived fees
and reimbursed expenses 4.08% 3.89% 3.85% 4.30%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
CLASS S SHARE CALENDAR-YEAR RETURNS 1997 1996 1995
===================================================================================================================================
These returns reflect fee waivers and reimbursements, and are not a guarantee of 4.30% 4.78% 5.34%
future performance.
- -----------------------------------------------------------------------------------------------------------------------------------
</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/ Financial information shown is for period beginning May 25, 1995 and ended
December 31, 1995.
8 Stagecoach Money Market Fund Prospectus
<PAGE>
General Investment Risks
- -------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk 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 selling 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 instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of a security will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value. Interest rate risk is
the possibility that interest rates may increase and reduce the resale value
of securities in 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
instrument 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 number of
investments but in general it refers to any financial instrument whose value
is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to changes
in yields or values due to their structure or contract terms.
The 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;
Stagecoach Money Market Fund Prospectus 9
<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 the 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 the Fund and a table showing some of the
additional investment practices that the Fund may use and the risks associated
with them. 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, or between other countries, 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 the Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk-- The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
10 Stagecoach Money Market Fund Prospectus
<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.
Year 2000 Risk-- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Fund
depend on the proper functioning of computer systems. Any failure to adapt these
systems in time could hamper the Fund's operations and services. The Fund's
principal service providers have advised the Fund that they are working on the
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations and governments,
the companies or entities in which the Funds invest also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be
predicted.
=======================================================================
Investment Practice/Risk
The following table lists some of the additional investment practices
of the Fund, including some not disclosed in the Investment Objective
and Investment Policies sections of the Prospectus. The risks
indicated after the description of the practice are NOT the only
potential risks associated with that practice, but are among the more
prominent. Market risk is assumed for each. See the Investment
Objective and Investment Policies for the Fund or the Statement of
Additional Information for more information on these practices.
Investment practices and risk levels are carefully monitored. We
attempt to ensure that the risk exposure for the Fund remains within
the parameters of its objective.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in
the Fund. See the "Important Risk Factors" in the summary for the
Fund. You should also see the Statement of Additional Information for
additional information about the investment practices and risks
particular to the Fund.
========================================================================
Stagecoach Money Market Fund Prospectus 11
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
==========================================================================================================
INVESTMENT PRACTICE: RISK:
==========================================================================================================
<S> <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 and
buy back a 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, Currency,
branches of U.S. banks or U.S. branches of foreign Liquidity, Political, *
banks. Regulatory, and
Diplomatic Risk
- ----------------------------------------------------------------------------------------------------------
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to brokers, dealers Credit, Leverage and *
and financial institutions to increase return on those Counter-Party Risk
securities. Loans may be made in accordance with
existing investment policies.
- ----------------------------------------------------------------------------------------------------------
BORROWING POLICIES
The ability to borrow an equivalent of 10% Leverage Risk *
of assets from banks for temporary purposes
to meet shareholder redemptions.
- ----------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
A security that cannot be readily sold, or cannot be Liquidity Risk *
readily sold without negatively affecting its fair price.
Illiquid securities are limited to 10% of total assets.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
12 Stagecoach Money Market Fund Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
Opening an Account
Class S shares of the Fund are offered by this Prospectus to businesses that
establish a Business Dividend Checking Account (an "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.
Stagecoach Money Market Fund Prospectus 13
<PAGE>
- --------------------------------------------------------------------------------
Important Information:
. Read this prospectus carefully. Discuss any questions you have with your
Selling Agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from your
Selling Agent or by calling 1-800-222-8222.
. We process requests to buy shares each business day. Requests we receive in
proper form for the Fund before 12:00 noon (Pacific time) 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).
. As with all mutual fund investments, the price you pay to purchase shares or
the price you receive when you redeem shares is not determined until after a
request has been received in proper form.
. We determine the NAV of the 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 the Fund. See the Statement of Additional Information
for further information.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Investor Services (1-800-222-
8222) if you are investing directly with Stagecoach Funds, or speak to your
Selling Agent if you are buying shares through a brokerage account.
. Once an account has been opened, you can add additional Funds under the same
registration without requiring a new application.
. On any day the trading markets for both U.S. government securities and money
market instruments close early, the Fund will close early.
. We reserve the right to cancel any purchase order or delay redemption if your
check does not clear.
14 Stagecoach Money Market Fund Prospectus
<PAGE>
Your Account
- -------------------------------------------------------------------------------
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."
Stagecoach Money Market Fund Prospectus 15
<PAGE>
- --------------------------------------------------------------------------------
Selling Shares:
If, on any day Wells Fargo Bank and the Fund are open for business, withdrawals
from your Business Dividend Checking 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 Business Dividend Checking 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 proceed shortly 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.
16 Stagecoach Money Market Fund Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We process requests to sell shares each business day. Requests we receive in
proper form for the Fund before 12:00 noon (Pacific time) generally are
processed at 12:00 noon on the same day.
- --------------------------------------------------------------------------------
Selling Agents may establish earlier cut-off times for processing your order.
Requests received by a Selling Agent after the applicable cut-off time will be
processed the next business day.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There may be special requirements that supersede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption 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 to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach Money Market Fund Prospectus 17
<PAGE>
Exchanges
- -------------------------------------------------------------------------------
Exchanges between Stagecoach Funds are two transactions: a sale of one Fund and
the purchase of another. In general, the same rules and procedures that apply to
sales and purchases apply to exchanges. There are, however, additional factors
you should keep in mind while making or considering an exchange:
. You should carefully read the Prospectus for the Fund into which you wish to
exchange.
. If you exchange between a money market mutual Fund and a Fund with a sales
load, you will buy shares at the Public Offering Price (POP) of the new Fund
and a sales load may be assessed.
. If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be borne
by other shareholders, we reserve the right to limit or reject exchange
orders. Generally, we will notify you 60 days in advance of any changes in
your exchange privileges.
. You may exchange shares of the Funds for Class A, B or C shares of a
non-money market fund.
18 Stagecoach Money Market Fund Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Dividend and Capital Gain Distribution Options
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.
Stagecoach Money Market Fund Prospectus 19
<PAGE>
- --------------------------------------------------------------------------------
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Fund and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by the Fund as dividend distributions. These are taxable to you as
ordinary income.
We will pass on to you any net capital gains earned by the Fund as a capital
gain distribution. In general, these distributions will be taxable to you as
long-term capital gains and such distributions paid to noncorporate shareholders
may qualify for taxation at preferential rates. 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.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. residents will be subject to
back-up withholding taxes. As long as the Fund continually maintains a $1.00
NAV, you ordinarily will not recognize taxable gain or loss on the redemption or
exchange of your Fund shares.
20 Stagecoach Money Market Fund Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Wells Fargo & Company/Norwest Merger-- Wells Fargo & Company, the parent company
of Wells Fargo Bank, has signed a definitive agreement to merge with Norwest
Corporation. The proposed merger is subject to certain regulatory approvals and
must be approved by shareholders of both holding companies. The merger is
expected to close in the second half of 1998. The combined company will be
called Wells Fargo & Company. Wells Fargo Bank has advised the Fund that the
merger will not reduce the level or quality of advisory and other services
provided by Wells Fargo Bank to the Fund.
Minimum Account Value-- Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements-- We mail statements after any dividends or capital gains, and at
year-end. We do not send statements for Funds held in brokerage, retirement or
other similar accounts. You must check with the administrators of these accounts
for statement policies. The Fund will also send any necessary tax reporting
documents in January, and will send Annual and Semi-Annual Reports each
year.
Statement of Additional Information-- Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act-- Morrison & Foerster LLP, counsel to the Funds and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by 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 Fund have equal voting rights and are voted in
the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
Stagecoach Money Market Fund Prospectus 21
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. 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, 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.
================================================================================
SHAREHOLDERS
================================================================================
|
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
|
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDEND DISBURSING SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR AGENT SERVICING AGENTS
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Fund's Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Fund's business paying of dividends
activities
- -------------------------------------------------------------------------------
|
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Wells Capital Management, 525 Market St., San Francisco, CA
Manages the Fund's investment activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Wells Fargo Bank, 525 Market St.,
San Francisco, CA San Francisco, CA
Manages the Fund's investment activities Provides safekeeping for the
Fund's assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Fund's activities
- --------------------------------------------------------------------------------
22 Stagecoach Money Market Fund Prospectus
<PAGE>
Organization and Management of the Fund
- -------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Fund class 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 U.S. Wells Fargo Bank is a wholly owned subsidiary of Wells Fargo
& Company, a national bank holding company. As of August 1, 1998, Wells Fargo
Bank and its affiliates managed over $63 billion in assets. The Funds paid Wells
Fargo Bank .22% for advisory services (after fee waivers) for the fiscal period
ended March 31, 1998.
Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for the Fund. As of August 1, 1998, WCM
provided investment advice for assets aggregating in excess of $32 billion. For
providing sub-advisory services to the Funds, WCM is entitled to receive from
Wells Fargo Bank .05% of each Fund's assets up to the first $960 million and
.04% of all assets above $960 million. WCM receives a minimum annual sub-
advisory fee of $120,000 from the Fund. This minimum annual fee payable to WCM
does not increase the advisory fee paid by the Fund to Wells Fargo Bank.
The Administrator
Wells Fargo Bank is the administrator for the Fund. Wells Fargo Bank is paid
.03% of the Fund's assets for these services.
The Distributor and Co-Administrator
Stephens is the Funds' distributor and co-administrator. Stephens receives .04%
of the Fund's assets for its role as co-administrator. Stephens also receives
all distribution plan fees.
Stagecoach Money Market Fund Prospectus 23
<PAGE>
- --------------------------------------------------------------------------------
Distribution Plan
We have adopted a Distribution Plan for the Fund. This plan is used to defray
all or part of the cost of preparing and distributing prospectuses and
promotional materials. 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 Fund may pay up to .75% under the Plan for the Class S shares.
Shareholder Servicing Plan
We have Shareholder Servicing Plan for the Class S shares. 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 we pay .25%.
24 Stagecoach Money Market Fund Prospectus
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of the 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 Funds. The financial
statements from which these Financial Highlights were derived were audited by
KPMG Peat Marwick LLP, with the exception of the Class S calendar-year returns,
or 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 more detailed 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 number in
this category is the total gains or losses of a class divided by the number of
outstanding shares for that class. The amount of capital gain or loss per share
that was paid to shareholders is listed under the heading "Less Distributions--
Distributions From Net Realized Gains."
Net Assets-- The value of the investments in the Fund's portfolio (after
accounting for expenses) that are attributable to a particular class of
the Fund.
Ratio of Expenses to Average Net Assets-- This ratio reflects the amount paid by
the Fund to cover the costs of its daily operations, and includes advisory,
administration and other operating expenses. It is expressed as a percentage of
the average daily net assets of a class.
Ratio of Net Investment Income (Loss) to Average Net Assets-- This ratio is the
result of dividing net investment income (or loss) by average net assets.
Stagecoach Money Market Fund Prospectus 25
<PAGE>
Glossary
- --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms you should consult your
financial adviser.
Annual and Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and the 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 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.
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 the 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 a fair price.
26 Stagecoach Money Market Fund Prospectus
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Moody's
A nationally recognized ratings organization.
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 the
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV per share of the Money Market Fund is determined
each business day at 12:00 noon (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 Fund's distributor that allows them to
sell Fund shares.
Shareholder Servicing Agent
An entity appointed by the 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.
Stagecoach Money Market Fund Prospectus 27
<PAGE>
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- --------------------------------------------------------------------------------
28 Stagecoach Money Market Fund Prospectus
<PAGE>
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- --------------------------------------------------------------------------------
Stagecoach Money Market Fund Prospectus 29
<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 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] SC 228 P (8/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated August 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 August 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......................................................... 34
Performance Calculations........................................... 46
Determination of Net Asset Value................................... 53
Additional Purchase and Redemption Information..................... 54
Portfolio Transactions............................................. 55
Fund Expenses...................................................... 56
Federal Income Taxes............................................... 56
Capital Stock...................................................... 63
Other.............................................................. 66
Counsel............................................................ 66
Independent Auditors............................................... 66
Financial Information.............................................. 66
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;
1
<PAGE>
(4) acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act;
(5) act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Fund's investment objective, policies and limitations may be deemed to be
underwriting;
(6) write or sell put options, call options, straddles, spreads, or any
combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options;
(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
2
<PAGE>
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, 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
3
<PAGE>
(a) up to 50% of the value of the Fund's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the value of the
Fund's total assets are invested in the securities of any one issuer and (b)
this 5% limitation does not apply to securities issued or guaranteed by the U.S.
Government, its agencies, authorities, instrumentalities or political
subdivisions. For purposes of this limitation, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a nongovernmental user, such nongovernmental user. In
certain circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee, except that a
guarantee of a security shall not be deemed to be a security issued by the
guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's
total assets; 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;
4
<PAGE>
(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.
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
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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.
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.
8
<PAGE>
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 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
9
<PAGE>
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 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.
10
<PAGE>
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, 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.
11
<PAGE>
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 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
12
<PAGE>
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.
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
13
<PAGE>
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.
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.
14
<PAGE>
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 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
15
<PAGE>
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 Ratings 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.
16
<PAGE>
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
17
<PAGE>
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
-------------------
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
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
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length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including government-
sponsored enterprises. Some obligations of such agencies or instrumentalities of
the U.S. Government are supported by the full faith and credit of the United
States or U.S. Treasury guarantees; others, by the right of the issuer or
guarantor to borrow from the U.S. Treasury; still others by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities (including
government-sponsored enterprises) where it is not obligated to do so. In
addition, U.S. Government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms. The Funds may invest in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Examples of the types of U.S. Government obligations that may
be held by the Funds include U.S. Treasury bonds, notes and bills and the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, Federal National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
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 ("NRSROs")
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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
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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 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.
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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.
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
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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 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
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can issue revenue bonds payable from the revenues of a utility or enterprise or
from the proceeds of an excise tax, or assessment bonds payable from special
assessments. Arizona local governments have also financed public projects
through leases which are subject to annual appropriation at the option of the
local government.
There is a statutory restriction on the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions in the State without
voter approval. This restriction does not apply to taxes levied to pay general
obligation debt.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there
would be an adverse impact on State or local government financing. It is not
possible to predict whether any such proposals will be enacted in the future or
what would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, the State has, at various times in the past, utilized a combination
of spending reductions or reductions in the rate of growth in spending, and tax
increases. In recent years, the State's fiscal situation has improved even
while tax reduction measures have been enacted each year since 1992. In 1992,
Arizona voters passed a measure that requires a two-thirds vote of the
legislature to increase state revenue. Accordingly, it will be more difficult to
reverse tax reductions, which may adversely affect state fund balances and
fiscal conditions over time.
Arizona state government tax revenue growth in fiscal year 1997 increased
by 6.5% over fiscal year 1996, even after factoring in tax reductions. The 5.1%
increase in sales tax revenue for FY 1997, and projected increases of 5.0% for
FY 1998 and FY 1999, respectively, reflect continued strong economic growth in
the state. The state general fund ended fiscal year 1997 with a total general
fund balance of approximately $762 million, representing approximately 16% of
total general fund expenditures for fiscal year 1997. Included in the total
balance is a general fund ending balance of approximately $516 million, and a
budget stabilization ("rainy day") fund balance of approximately $246 million.
The total general fund balance at the end of fiscal year 1998 is projected to be
approximately $814 million. While these balances are indicative of present
fiscal health, the overall fiscal picture could change rapidly and dramatically
for the worse, depending on fluctuations in revenues resulting from an economic
recession or other adverse conditions.
The 1998 legislature enacted a $120 million tax reduction package,
resulting in the seventh consecutive year of significant state tax reduction.
In earlier years, the 1997 legislature enacted a $110 million income tax
reduction package, the 1996 legislature enacted a $200 million property tax
reduction package, and an income tax reduction of $200 million was enacted in
1995. Although the 1998 general election ballot will not include questions
related to the state tax structure generally, efforts were made to bring such
issues to the ballot, and may be made again in 2000 and in future years.
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In 1998, the Legislature adopted a comprehensive plan to overhaul the
state's K-12 education capital finance system. Under this plan, a substantial
commitment of state general fund revenues to the system has been made, totaling
approximately $360 million in FY 1999, with greater amounts likely in future
years. There may be additional legislative activity during 1999 and beyond in
the areas of tax reform and school finance. The combined impact of the
commitment of resources to K-12 education capital finance, continued tax
reduction, and the inability to increase revenues without a two-thirds of both
houses of the legislature, together with other actions and circumstances, may
result in deteriorating fiscal conditions in the future, which may adversely
affect state fund balances and fiscal health.
Arizona has a diversified economic base that is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, which was at one time a major sector,
now plays a much smaller role in the State's economy. For several decades, the
population of the State has grown at a substantially higher rate than the
population of the United States. While the State's economy flourished during the
early 80's, a substantial amount of overbuilding occurred, adversely affecting
Arizona-based financial institutions, many of which were placed under the
control of the Resolution Trust Corporation. Spillover effects produced further
weakening in the State's economy. The Arizona economy has begun to grow again,
albeit at a slower pace than experienced before the real estate collapse. The
North American Free Trade Agreement is generally viewed as beneficial to the
State. However, current and proposed reductions in federal military
expenditures may adversely affect the Arizona economy.
SPECIAL CONSIDERATIONS AFFECTING CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
----------------------------------------------
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as
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"K-14 schools," health and welfare, and corrections) growing at rates higher
than the growth rates for the principal revenue sources of the General Fund. As
a result, the state experienced recurring budget deficits in the late 1980s and
early 1990s. The state's Controller reported that expenditures exceeded revenues
for four of the five fiscal years ending with 1991-92. Moreover, California
accumulated and sustained a budget deficit in its Special Fund for Economic
Uncertainties ("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grew 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. Unemployment, while remaining higher than the national average, has
come down from its 10% recession peak to under 6% in the Spring of 1998.
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 and has forecast an overall balanced budget by June 30, 2000. Also,
Standard & Poors upgraded its rating of California municipal obligations back to
"A+" on July 15, 1996 and the projected level of the SFEU as of June 30, 1998
was $329 million. However, the Asian economic difficulties since mid-1997 are
expected to have had a moderate dampening effect on California's economy. Any
delay or reversal of the recovery may create new shortfalls in revenues.
Local Governments. On December 6, 1994, Orange County, California became
-----------------
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real property owned by the county. In June 1996, the county
emerged from bankruptcy, and the county's investment rating by Standard & Poors
was "B" as of October 31, 1997.
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
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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. The county has received federal and state assistance and the
proposed fiscal 1999 budget for Los Angeles County is the first in several years
that does not begin with an operating deficit. 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. The moneys of California are segregated into the General
--------------
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-99
Executive Budget projections submitted to the State Legislature in February
1998, forecast a 1999-00 General Fund budget gap of approximately $1.7 billion
and a 2000-01 gap of $3.7 billion. As a result of changes made in the 1998-99
enacted budget, the 1999-00 gap is now expected to be roughly $1.3 billion, or
about $400 million less than previously projected, after application of reserves
created as part of the 1998-99 budget process. Such reserves would not be
available against subsequent year imbalances.
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
26
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assumption of certain local obligations by the state so as to assist California
municipal issuers to raise revenue to pay their bond obligations. It is unknown
whether additional revenue redistribution legislation will be enacted in the
future and whether, if enacted, such legislation will provide sufficient revenue
for such California issuers to pay their obligations. California is also subject
to another Constitutional Amendment, Article XIIIB, which may have an adverse
impact on California state and municipal issuers. Article XIIIB restricts the
state from spending certain appropriations in excess of an appropriation's limit
imposed for each state and local government entity. If revenues exceed such
appropriation's limit, such revenues must be returned either as revisions in the
tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
In 1996, California voters approved "Proposition 218," which added Articles
XIIIC and XIIID to the state's Constitution generally requiring voter approval
of most tax or fee increases by local governments and curtailing 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. The interpretation and application of Proposition 218 will
ultimately be determined by the courts. Proposition 218 is generally viewed as
restricting the fiscal flexibility of local governments, and for this reason,
some ratings of California cities and counties have been, and others may be,
reduced. It remains to be seen, as such, what impact these Articles will have
on existing and future California security obligations.
The Governor recently proposed that California reduce its Vehicle License
Fee (a personal property tax on the value of automobiles, the 'VLF') by 75% over
five years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget process.
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,
27
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counties or their various public entities. California law provides that a lessor
may not be required to make payments during any period that it is denied use and
occupancy of the property in proportion to such loss. Moreover, the lessor only
agrees to appropriate funding for lease payments in its annual budget for each
fiscal year. In case of a default under the lease, the only remedy available
against the lessor is that of reletting the property; no acceleration of lease
payments is permitted. Each of these factors presents a risk that the lease
financing obligations held by the Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
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.
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 March 1, 1998, $2.97 billion (rounded) in
------------------------
general obligation bonds issued by the State of Oregon and its agencies were
outstanding, including $120.6 million (rounded) in general obligation bonds
supported by the budget for the State's general fund and $2.85 billion (rounded)
of self-supporting general obligation bonds. The State's self-supporting general
obligation bonds include $2.11 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
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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 by statute. The State's June 1, 1998 economic and
revenue forecast predicts that State General Fund revenues for the 1997-99
biennium will exceed the legislatively approved budget forecast by approximately
$348.1 million (or approximately 4.0%).
The Economy. The following is a summary of a portion of the June 1, 1998
-----------
quarterly Economic and Revenue Forecast prepared by the State Department of
Administrative Services as required by ORS 291.342. The State's quarterly
Economic and Revenue Forecast is available at the Oregon Department of
Administrative Services' web site: www.oea.das.state.or.usa.
Summary of Recent Trends. Although seasonal adjustment factors lifted
------------------------
first quarter job growth, evidence continues to point to a slowing Oregon
economy. Construction and manufacturing, the engines of the 1994-96 state
economic boom, have clearly entered a period of slower growth. However, income
growth remains strong. This suggests that Oregon's consumers are supplanting
business investment as the primary force behind the state's continued economic
expansion.
Short-Term Outlook. The Office of Economic Analysis expects Oregon's
------------------
economy to slow further as Asian exports decline and the state's high technology
investment boom winds down. In-migration should remain relatively subdued as
California's job growth surpasses Oregon's. Oregon will likely continue
shifting from a business investment led expansion to one fueled primarily by
consumer spending. Because of this shift, the slowdown will be more pronounced
in the manufacturing and construction sectors. The service-producing sectors
are expected to see only moderately slower growth over the next two years.
Oregon's job growth is projected to slow from 3.4 percent in 1997 to 2.8
percent in 1998 and 1.7 percent in 1999. Personal income is forecast to
increase 5.8 percent in 1998 and 5.0 percent in 1999. The low inflation
environment means that this income growth rate will translate into a sizeable
increase in purchasing power. After adjustment for inflation, personal income
is projected to rise 4.4 percent in 1998 and 2.7 percent in 1999.
The Office of Economic Analysis forecast is slightly more optimistic but
roughly in line with major private forecast services. The DRI regional unit
projects state job growth of 2.5 percent in 1998 and 1.3 percent in 1999.
Regional Financial Associates expects Oregon job growth of 2.4 percent and 1.2
percent for the two years, respectively. Both forecast services project a
similar slowing for Oregon's personal income growth rate.
29
<PAGE>
A reduction in exports to Asia is an important factor slowing the state
economy. Asia is overwhelmingly the most important export market for Oregon's
forest and agricultural products. These sectors will slow further as Asian
demand weakens.
Deteriorating Asian markets will also slow the high technology
manufacturing sector. Moreover, this sector is in the process of consolidating
gains related to the rapid growth of the past four years. High tech job growth
averaged 10.1 percent from 1994 to 1996. It slowed to 6.7 percent in 1997.
High tech employment is forecast to increase 3.1 percent in 1998 before
bottoming out at 1.7 percent growth in 1999. The forecast is for a slowdown in
high tech sector job growth, not a decline. The development of a national
recession would almost certainly bring outright job reductions to this sector.
Slowing high technology investment and lower rates of net in-migration will
likely translate into a softer state construction market. Construction
employment is forecast to edge up 2.1 percent in 1998 before declining 1.7
percent in 1999. Housing starts are expected to decline 3.8 percent in 1998 and
an additional 14.5 percent in 1999.
Oregon consumers have benefited greatly from the state's economic boom of
the past four years. Household balance sheets appear to be in relatively good
shape. Evidence for this is the state's low consumer loan delinquency rate,
which is well below the national average. Not only have Oregonians enjoyed a
25.3 percent increase in per capita income over the past four years but they
have also experienced a 41.5 percent increase in average home values over the
same period.
Forecast Risks. The primary risks to the Oregon economy are related to the
--------------
international and national economies. A scenario in which the Asian recessions
turn out to be more severe than expected would have major consequences for the
Oregon economy. Weaker export markets would directly effect the state's timber,
agriculture, and high technology sectors. Since these sectors are the core of
Oregon's economy, a national recession originating from a contraction in Asian
exports would likely be more severe in the state.
It is not clear that a national recession proceeded by an inflationary
build up and a Federal Reserve tightening of credit would have more than a
proportional impact on Oregon. However, the state's economy is heavily
dependent on durable goods manufacturing industries, which are traditionally
sensitive to credit policy.
Extended Outlook. Oregon's economy is expected to continue growing faster
----------------
than the U.S. as a whole over the next eight years. Recovery in Asia and a re-
acceleration of the high technology industries are expected to trigger modestly
higher growth over the 2000 to 2005 period.
The extended outlook is based on the trend national forecast. The trend
forecast reflects long-term averages. It does not account for business cycle
fluctuations. It is very likely that sometime over the next eight years, a
national recession will develop. This will certainly affect the Oregon economy.
Oregon's dependence on durable goods manufacturing industries such as high
technology, lumber and wood products, metals, and transportation equipment make
the state
30
<PAGE>
vulnerable to business cycle swings. It is difficult to evaluate how Oregon's
economy is likely to respond to the next downturn because of the significant
structural changes that have taken place since the last recession.
Oregon's economy is expected to look considerably different in 2005 than it
did in 1995. First, it should be significantly larger. Population is projected
to be 3,615,000, an increase of 482,000. Payroll employment is projected to
rise 28.8 percent over the period to reach 1,827,300. Total income is expected
to grow 75.9 percent. Per capita income is expected to grow from $21,989 in
1995 to $33,512 in 2005. Consumer prices, as measured by the Portland-Vancouver
area consumer price index, are projected to rise 34.3 percent over the ten year
period. The cost of a similar size and quality house in Oregon is expected to
rise 82.1 percent between 1995 and 2005.
The state's industry mix will also reflect important structural changes in
the economy. Following national trends, Oregon's manufacturing jobs are likely
to decline as a share of total employment. Service jobs are expected to rise.
Government employment is projected to decrease from 16.9 percent of total
employment in 1995 to 15.4 percent in 2005.
The shift from timber to high technology within the manufacturing sector is
expected to continue. High technology employment is forecast to grow by 33,900
jobs, while timber falls by 5,100. In 2005, high technology manufacturing is
projected to comprise 33.8 percent of manufacturing jobs, up from 25.6 percent
in 1995.
Recent Environmental Developments. In 1991 and 1992, in response to
---------------------------------
concerns over diminishing salmon runs, three populations of Snake River salmon
were placed on the Endangered Species list. More recently, the National Marine
Fisheries Service and the U.S. Fish and Wildlife Service have commenced status
reviews of hundreds of additional salmon and trout populations in the Columbia
Basin and throughout Western Oregon. The Snake River salmon listings have
already had substantial economic impacts, primarily through increased
electricity rates and related impacts on rate-sensitive industries such as the
aluminum industry. Efforts to protect salmon and steelhead populations may
eventually affect a wide variety of industrial, recreational and land use
activities, with corresponding impacts on long-term economic growth; however,
the magnitude and extent of any future environmental action is impossible to
predict at this time. The State's economic forecasts do not address the
potential impact of endangered species problems on Oregon's economy.
Recent Developments Affecting Government Revenues. Ballot Measure 5.
-------------------------------------------------
Article XI, section 11b of the Oregon Constitution, adopted by Oregon's voters
in November 1990 ("Ballot Measure 5"), imposes an aggregate limit on the rate of
property taxes, including ad valorem taxes, that may be levied against any real
or personal property. The limit is subject to certain exceptions and is being
phased in over a five-year period. Beginning with the tax year that starts on
July 1, 1996, the final year of the phase-in period, not more than $15 per
$1,000 of real market value can be levied against any piece of property. Of this
amount, $5 may be used for public education, and the remaining $10 may be used
for general governmental purposes.
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.
31
<PAGE>
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 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
32
<PAGE>
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
occurred with the 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.
The Initiative Process. The Oregon Constitution reserves to the people of
----------------------
the State initiative and referendum power pursuant to which measures designed to
amend the State Constitution or enact legislation, can be placed on the
statewide general election ballot for consideration by the voters. "Referendum"
generally means measures referred to the electors by a legislative body such as
the State Legislative Assembly or the governing body of a city, county or other
political subdivision, while "initiative" generally means a measure placed
before the voters as a result of a petition circulated by one or more private
citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for initiative
measures. After considering any public comments, the Attorney General must
either certify or revise the draft ballot title. In general, any elector who
timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
To have an initiative placed on a general election ballot, the proponents
of the proposed initiative must submit to the Secretary of State initiative
petitions signed by 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 July 20, 1998, several initiatives had qualified to be placed on the
November 1998 general election ballot; however, none of the initiatives which
have qualified are anticipated to have a material adverse affect on State or
local government finances or revenues if adopted. In recent years, a number of
initiatives involving
33
<PAGE>
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 or for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's portfolio.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "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
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ------------------------------------- ------------------ -----------------------------------------------
<S> <C> <C>
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
35
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ------------------------ ------------------------------------------ ------------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
36
<PAGE>
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 periods 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
Year-Ended Period Ended
3/31/98 3/31/97
-------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
- -------------------------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Arizona Tax-Free $ 29,358 $ 65,926 $ 0 $ 52,838
California Tax-Free Bond* [$______] [$______] [$______] [$______]
California Tax-Free Income $106,906 $241,280 $67,449 $144,315
National Tax-Free $ 39,446 $ 89,340 $ 0 $ 30,284
Oregon Tax-Free $ 57,037 $130,517 $ 0 $102,775
_______________
* These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor portfolio.
</TABLE>
37
<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>
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.
38
<PAGE>
<TABLE>
Four-Month
Period Ended Year Ended
9/30/95 5/31/95
--------- --------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
- --------------------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Arizona Tax-Free $41,159 $66,373 $124,904 $166,803
National Tax-Free $24,173 $68,667 $ 67,845 $145,244
Oregon Tax-Free $84,999 $43,995 $256,430 $ 84,770
</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:
<TABLE>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
---------- ----------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
- ---------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
California Tax-Free Bond* $1,276,667 $ 0 $1,165,967 $248,047
California Tax-Free Income $ 281,991 $18,321 $ 236,632 $ 31,013
__________________
* Indicates fees paid by, or on behalf of, the Overland predecessor portfolio.
For 1996, the amount shown is for the year ended December 31, 1996.
</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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $400 million of the
Asset Allocation and Index Allocation Funds' average daily net assets, 0.125% of
the next $400 million of the Funds' net assets, and 0.10% of net assets over
$800 million. WCM receives a minimum annual sub-advisory fee of $120,000 from
the Fund. This minimum annual fee payable to WCM does not increase the advisory
fee paid by the Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo
Bank
39
<PAGE>
or directly by the Fund. If the sub-advisory fee is paid directly by the
Fund, the compensation paid to Wells Fargo Bank for advisory fees will be
reduced accordingly.
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 also is 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
also is responsible as 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 also
is responsible as 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 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 also is 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
40
<PAGE>
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%,
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
sole Administrator and performed substantially the same services now provided by
Stephens and Wells Fargo Bank.
For the periods indicated below, the Funds paid to Wells Fargo Bank and
Stephens the following dollar amounts for administration and co-administration
fees:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Wells Wells
Fund Total Fargo Stephens Total Fargo Stephens
- ------------------------ ---------- ------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free $12,043 $ 8,069 $ 3,974 $ 5,750 $1,150 $ 4,600
California Tax-Free Bond* [$_____] [$____] [$_____] [$_____] [$____] [$_____]
California Tax-Free Income $43,808 $29,351 $14,457 $16,307 $3,261 $13,046
National Tax-Free $16,707 $11,194 $ 5,513 $ 3,222 $ 644 $ 2,578
Oregon Tax-Free $23,433 $15,700 $ 7,733 $10,907 $2,181 $ 8,726
_______________
* These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor portfolio.
</TABLE>
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,
41
<PAGE>
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>
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.
<TABLE>
Four-Month
Period Ended Year Ended
9/30/95 5/31/95
-------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
- --------------------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Arizona Tax-Free $4,116 $0 $12,490 $ 0
National Tax-Free $2,417 $0 $ 6,785 $2,018
Oregon Tax-Free $8,500 $0 $25,643 $ 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.
42
<PAGE>
For the periods indicated below, the Funds paid to Stephens the following
dollar amounts for administration fees:
<TABLE>
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
- ------------------------------------- -------- ---------
<S> <C> <C>
California Tax-Free Bond* $357,423 $ 384,015
California Tax-Free Income $ 18,371 $ 16,793
</TABLE>
__________________
* Represents amounts paid by the Overland predecessor portfolio. For 1996, the
amount shown is for the year ended December 31, 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 a Servicing Plan 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 Plan 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 Plan 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 Institutional Class of each Fund to
Wells Fargo Bank or its affiliates were as follows:
43
<PAGE>
<TABLE>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
- ---------------------------------------- -------- --------
<S> <C> <C>
Arizona Tax-Free $ 0 $ 0
California Tax-Free Bond* $ 9,860 $127,063
California Tax-Free Income $ 16,490 $ 9,816
National Tax Free $ 0 $ 0
Oregon Tax-Free $ 104 $ 10,085
</TABLE>
__________________
* Represents amounts paid by the Institutional Class shares of the Stagecoach
Fund. The Overland predecessor portfolio did not offer Institutional Class
shares. These amounts reflect fees paid for the fiscal year ended December 31,
1997.
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>
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. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreements may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
44
<PAGE>
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 year ended March 31, 1998, the Funds paid to Wells Fargo Bank the
following dollar amounts in custody fees, after waivers:
<TABLE>
<CAPTION>
Fund 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
_______________
* This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor portfolio.
</TABLE>
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.
45
<PAGE>
For the year-ended March 31, 1998, 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 $ 10,794
National Tax-Free $ 0
Oregon Tax-Free $ 0
_______________
* This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor portfolio.
</TABLE>
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
46
<PAGE>
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
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-Free 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.
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.
47
<PAGE>
Average Annual Total Return for the Applicable
Period Ended March 31, 1998/1/
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three One
Class Inception/2/ Year Year Year
- -------------------------------------------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Arizona Tax-Free 5.76% 6.05% 7.00% 9.99%
California Tax-Free Bond 8.26% 5.51% 8.02% 10.85%
California Tax-Free Income 4.77% 4.51% 5.17% 5.91%
National Tax-Free 5.97% 5.96% 7.19% 10.51%
Oregon Tax-Free 7.21% 6.05% 7.08% 10.08%
</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 For purposes of showing performance information, the inception date of each
Fund and Class is 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 actual inception date of each class may differ from
the inception date of the corresponding Fund.
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 March 31, 19981
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three
Class Inception/2/ Year Year
- -------------------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Arizona Tax-Free 48.90% 34.14% 22.51%
California Tax-Free Bond 112.63% 39.00% 26.05%
California Tax-Free Income 28.48% 24.70% 16.32%
National Tax-Free 34.92% 33.57% 23.15%
Oregon Tax-Free 98.31% 34.16% 22.78%
</TABLE>
48
<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 For purposes of showing performance information, the inception date of each
Fund and Class is 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 actual inception date of each class may differ from
the inception date of the corresponding Fund.
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 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 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"
49
<PAGE>
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the following
formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Period Ended March 31, 1998/1/
-------------------------------------------
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
------------------------- -------------------------
After Before After Before
Fund Waiver Waiver Waiver Waiver
- -------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
California Tax-Free Bond 4.15% 3.89% 7.58% 7.10%
California Tax-Free Income 3.63% 3.12% 6.63% 5.70%
Arizona Tax-Free 3.27% 2.49% 5.71% 4.35%
Oregon Tax-Free 4.12% 3.48% 7.50% 6.33%
National Tax-Free 4.53% 3.96% 6.29% 5.50%
</TABLE>
______________________
1 Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares. "After Waiver" figures reflect any waived
fees or reimbursed expenses throughout the period.
2 Based on a combined federal and state income tax rate of 45.22% for each of
the California Tax-Free Bond and California Tax-Free Income Funds, and 45.04%
and 42.72% for the Oregon Tax-Free Fund and the Arizona Tax-Free Fund,
respectively, and a federal income tax rate of 39.60% for the National Tax-
Free Fund.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or
50
<PAGE>
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 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
51
<PAGE>
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 an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the 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 and the total amount of assets
under management by Wells Fargo Bank. As of August 1, 1998, Wells Fargo Bank
and its affiliates provided investment Advisory services for approximately $63
billion of assets of individual, trusts, estates and institutions and $32
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,
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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 Fund securities, including U.S. Government securities but
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excluding money market instruments and debt securities 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. 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 of the Funds 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 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.
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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 Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. For the past three years the Funds did not pay any
----------------------
brokerage commissions.
55
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1998, (December 31,
------------------------------------
1997 for the California Tax-Free Bond Fund), none of the Funds owned securities
of their "regular brokers or dealers" or their parents as defined in the 1940
Act.
Portfolio Turnover Rate. The 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; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of 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 Prospectuses of each Fund
describe generally the tax
56
<PAGE>
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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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.
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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 generally will 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 a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, a 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
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.
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If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, 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-month 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could
also subject the investor to penalties imposed by the IRS.
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (or, if an income tax treaty applies,
is attributable to a U.S. permanent establishment of the foreign shareholder),
in which case the
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reporting and withholding requirements applicable to U.S. persons will apply.
Distributions of capital gains are generally not subject to 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, 1999, 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
Each Fund intends that at least 50% of the value of its total assets at the
close of each quarter of its taxable years will consist of obligations the
interest on which is exempt from Federal income tax, so that they will qualify
under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by the Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. In general, exempt-interest dividends will be
exempt from Federal income taxation in the hands of the Funds' shareholders.
Long-term and/or short-term capital gain distributions will not constitute
exempt-interest dividends and will be taxed as capital gain or ordinary income
dividends, respectively. The exemption of interest income derived from
investments in tax-exempt obligations for Federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, the Funds will
notify its respective 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. Shareholders will
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be notified of the tax status of distributions made by the Fund. Persons who may
be "substantial users" (or "related persons" of substantial users) of facilities
financed by private activity bonds should consult their tax advisors before
purchasing shares in the Fund. Furthermore, shareholders will not be permitted
to deduct any of their share of the Fund's expenses in computing their AMT. With
respect to a corporate shareholder of such Funds, exempt-interest dividends paid
by a Fund is included in the corporate shareholder's "adjusted current earnings"
as part of its AMT calculation, and may also affect its Federal "environmental
tax" liability. As of the printing of this SAI, individuals are subject to an
AMT at a maximum rate of 28% and corporations at a maximum rate of 20%.
Shareholders with questions or concerns about AMT should consult their tax
advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
Shares of a 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 (including Education IRAs, Spousal IRAs and Roth IRAs)
since such plans and accounts are generally tax-exempt and, therefore, would not
benefit from the exempt status of dividends from the Fund.
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
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Income Fund that represent tax-exempt interest paid on municipal obligations of
the State of California, its political subdivisions, direct obligations of the
U.S. government and certain other issuers, including Puerto Rico, Guam, and the
U.S. Virgin Islands. Such individuals, trusts and estates will be subject to
California personal income tax on other distributions received from the
California Tax-Free Bond Fund and California Tax-Free Income Fund, including
distributions of interest on municipal obligations issued by other issuers and
all capital gains.
Except as noted above with respect to California personal income taxation
of individuals, trusts and estates resident in California, dividends and
distributions from the California Tax-Free Bond Fund and California Tax-Free
Income Fund may be taxable to investors under state or local law as dividend
income even though all or a portion of such distributions may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such income taxes.
Shareholders of the California Tax-Free Bond Fund and California Tax-Free
Income Fund 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.
62
<PAGE>
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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 Investor 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
63
<PAGE>
(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 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 June 30, 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 JUNE 30, 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 96.93% 58.74%
FREE FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
MLPF&S for the Sole Benefit Class C 27.86% N/A
of its Customers Record Holder
Attn: Mutual Fund
Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
Dean Witter for the Benefit Class C 8.89% N/A
of Anthony R. Gangi, Jr. and Beneficially Owned
Marie A. Gangi Trustees
P.O. Box 250
Church Street Station
New York, NY 10008-0250
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---------------------- ------------------------------ ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
CALIFORNIA Dim & Co. Institutional Class 69.28% 8.29%
TAX-FREE BOND FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Hep & Co.
Attn: MF Dept. A88-4
P. O. Box 9800 Institutional Class 5.57% N/A
MAC 9139-027 Record Holder
Calabasas, CA 91302
Donald George Hunt Trust Institutional Class 12.09% N/A
for Donald G. Hunt Record Holder
Living Trust DD 04/12/95
15200 Mansel Avenue
Lawndale, CA 90260
CALIFORNIA Dim & Co. Institutional Class 59.93% 7.46%
TAX -FREE INCOME FUND Attn: MF Dept A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Institutional Class 10.90% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 25.98% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
MAC 9139-027
Calabasas, CA 91302
NATIONAL TAX- Virg & Co. Institutional Class 52.84% 6.52%
FREE FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Dim & Co. Institutional Class 5.81% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 41.35% 5.10%
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
MAC 9139-027
Calabasas, CA 91302
OREGON Dim & Co. Institutional Class 12.65% N/A
TAX-FREE FUND Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Institutional Class 50.48% 8.27%
Attn: MF Dept A88-4 Record Holder
P. O. Box 9800
Calabasas, CA 91372-0800
Hep & Co. Institutional Class 22.72% N/A
Attn: MF Dept. A88-4 Record Holder
P. O. Box 9800 MAC 9139-027
Calabasas, CA 91302
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---------------------- ------------------------------ ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
Dean Witter Institutional Class 9.74% N/A
P. O. Box 250 Beneficially Owned for
Church Street Station Flavel W. Temple and
New York, NY 10008-0250 Rachael Temple
</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 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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditors for the Company.
KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the California Tax-Free Bond Fund as of and for the year
ended December 31, 1997, are hereby incorporated by reference to the Annual
Reports as filed with the SEC on March 3, 1998.
The portfolios of investments, audited financial statements and independent
auditors' report for the Arizona Tax-Free, California Tax-Free Income, National
Tax-Free and Oregon
66
<PAGE>
Tax-Free Funds as of and for the year ended March 31, 1998, are hereby
incorporated by reference to the Company's Annual Reports as filed with the SEC
on July 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
67
<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: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
ARIZONA TAX-FREE FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
Class A, Class B and Class C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about five funds (each, a "Fund" and collectively, the
"Funds") in the Stagecoach Family of Funds -- the ARIZONA TAX-FREE, CALIFORNIA
TAX-FREE BOND, CALIFORNIA TAX-FREE INCOME, NATIONAL TAX-FREE and OREGON TAX-FREE
FUNDS (each, a "Fund" and sometimes, collectively, the "Tax-Free Funds" or
"Funds"). The California Tax-Free Income Fund offers Class A shares. Each of
the other Funds offers Class A and Class B shares. The California Tax-Free Bond
and National Tax-Free Funds also offer Class C shares. This SAI relates to all
such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated August 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......................... 7
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......................................................... 35
Performance Calculations........................................... 50
Determination of Net Asset Value................................... 57
Additional Purchase and Redemption Information..................... 58
Portfolio Transactions............................................. 59
Fund Expenses...................................................... 60
Federal Income Taxes............................................... 61
Capital Stock...................................................... 67
Other.............................................................. 71
Counsel............................................................ 71
Independent Auditors............................................... 71
Financial Information.............................................. 71
Appendix........................................................... A-1
</TABLE>
<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 of
the Company (the "Consolidation"). For accounting purposes, the Overland Fund
is considered the survivor of the Consolidation. The Class A shares and the
Class D shares of the Overland Fund commenced operations on October 6, 1988 and
July 1, 1993, respectively. 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. 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 Fund, Oregon Tax-Free Fund and Arizona Tax-Free
Fund, respectively.
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;
1
<PAGE>
(2) purchase or sell real estate, except that each Fund may purchase
securities of issuers that deal in real estate and may purchase securities that
are secured by interests in real estate;
(3) purchase securities of companies for the purpose of exercising
control;
(4) acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act;
(5) act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Fund's investment objective, policies and limitations may be deemed to be
underwriting;
(6) write or sell put options, call options, straddles, spreads, or any
combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options;
(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.
2
<PAGE>
The Arizona Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets; 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
3
<PAGE>
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 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);
4
<PAGE>
(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.
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;
5
<PAGE>
(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 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
the 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 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 Funds will not enter into any portfolio security lending arrangement having
a duration of longer than one year.
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<PAGE>
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 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.
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<PAGE>
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
remaining until the principal amount can be recovered through demand, is less
than 5 years.
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.
Other Derivative Securities
---------------------------
The Funds may invest in structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices 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
8
<PAGE>
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 as
described in the Prospectuses. 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 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
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<PAGE>
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 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.
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<PAGE>
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, 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.
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<PAGE>
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 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 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.
12
<PAGE>
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. 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.
13
<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
14
<PAGE>
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.
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 these 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.
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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 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 Ratings 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. In any event,
the Short-Term Municipal Income Fund does not intend to purchase or retain any
municipal security that is rated below the top four rating categories by a
Nationally Recognized Statistical Ratings Organization ("NRSRO"), or, if
unrated, is considered by the investment Advisor to be of comparable quality.
Securities rated in the fourth highest category are considered to have
speculative characteristics. 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.
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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 the Funds'
SAI.
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.
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.
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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 Securities and Exchange Commission to be loans by
the Fund. The Funds may enter into repurchase agreements only with respect to
securities of the type in which such Fund may invest, including government
securities and mortgage-related securities, regardless of their remaining
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.
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
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contained in the Fund's 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 various types of U.S. Government obligations in
accordance with the policies described in each Fund's Prospectus. U.S.
Government obligations include securities issued or guaranteed as to principal
and interest by the U.S. Government and supported by the full faith and credit
of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including government-
sponsored enterprises. Some obligations of such agencies or instrumentalities
of the U.S. Government are supported by the full faith and credit of the United
States or U.S. Treasury guarantees; others, by the right of the issuer or
guarantor to borrow from the U.S. Treasury; still others by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities (including
government-sponsored enterprises) where it is not obligated to do so. In
addition, U.S. Government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms. The Funds may invest in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Examples of the types of U.S. Government obligations that may
be held by the Funds include U.S. Treasury bonds, notes and bills and the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, Federal National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
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
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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.
Arizona state government tax revenue growth in fiscal year 1997 increased
by 6.5% over fiscal year 1996, even after factoring in tax reductions. The 5.1%
increase in sales tax revenue for FY 1997, and projected increases of 5.0% for
FY 1998 and FY 1999, respectively, reflect continued strong economic growth in
the state. The state general fund ended fiscal year 1997 with a total general
fund balance of approximately $762 million, representing approximately 16% of
total general fund expenditures for fiscal year 1997. Included in the total
balance is a general fund ending balance of approximately $516 million, and a
budget stabilization ("rainy day") fund balance of approximately $246 million.
The total general fund balance at the end of fiscal year 1998 is projected to be
approximately $814 million. While these balances are indicative of present
fiscal health, the overall fiscal picture could change rapidly and dramatically
for the worse, depending on fluctuations in revenues resulting from an economic
recession or other adverse conditions.
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<PAGE>
The 1998 legislature enacted a $120 million tax reduction package,
resulting in the seventh consecutive year of significant state tax reduction.
In earlier years, the 1997 legislature enacted a $110 million income tax
reduction package, the 1996 legislature enacted a $200 million property tax
reduction package, and an income tax reduction of $200 million was enacted in
1995. Although the 1998 general election ballot will not include questions
related to the state tax structure generally, efforts were made to bring such
issues to the ballot, and may be made again in 2000 and in future years.
In 1998, the Legislature adopted a comprehensive plan to overhaul the
state's K-12 education capital finance system. Under this plan, a substantial
commitment of state general fund revenues to the system has been made, totaling
approximately $360 million in FY 1999, with greater amounts likely in future
years. There may be additional legislative activity during 1999 and beyond in
the areas of tax reform and school finance. The combined impact of the
commitment of resources to K-12 education capital finance, continued tax
reduction, and the inability to increase revenues without a two-thirds of both
houses of the legislature, together with other actions and circumstances, may
result in deteriorating fiscal conditions in the future, which may adversely
affect state fund balances and fiscal health.
Arizona has a diversified economic base that is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, which was at one time a major sector,
now plays a much smaller role in the State's economy. For several decades, the
population of the State has grown at a substantially higher rate than the
population of the United States. While the State's economy flourished during the
early 80's, a substantial amount of overbuilding occurred, adversely affecting
Arizona-based financial institutions, many of which were placed under the
control of the Resolution Trust Corporation. Spillover effects produced further
weakening in the State's economy. The Arizona economy has begun to grow again,
albeit at a slower pace than experienced before the real estate collapse. The
North American Free Trade Agreement is generally viewed as beneficial to the
State. However, current and proposed reductions in federal military
expenditures may adversely affect the Arizona economy.
SPECIAL CONSIDERATIONS AFFECTING CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services,
24
<PAGE>
among others, were all severely affected. Job losses had been the worst of any
post-war recession. Unemployment reached 10.1% in January 1994, but fell sharply
to 7.7% in October and November 1994, reflecting the state's recovery from the
recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grew 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. Unemployment, while remaining higher than the national average, has
come down from its 10% recession peak to under 6% in the Spring of 1998.
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 and has forecast an overall balanced budget by June 30, 2000. Also,
Standard & Poors upgraded its rating of California municipal obligations back to
"A+" on July 15, 1996 and the projected level of the SFEU as of June 30, 1998
was $329 million. However, the Asian economic difficulties since mid-1997 are
expected to have had a moderate dampening effect on California's economy. Any
delay or reversal of the recovery may create new shortfalls in revenues.
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,
25
<PAGE>
California's legislature approved legislation permitting the county to use for
bankruptcy recovery $820 million over 20 years in sales taxes previously
earmarked for highways, transit, and development. In June 1996, the county
completed an $880 million bond offering secured by real property owned by the
county. In June 1996, the county emerged from bankruptcy, and the county's
investment rating by Standard & Poors was "B" as of October 31, 1997.
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. The county has received federal
and state assistance and the proposed fiscal 1999 budget for Los Angeles County
is the first in several years that does not begin with an operating
deficit. 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. The moneys of California are segregated into the General
--------------
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-99
Executive Budget projections submitted to the State Legislature in February
1998, forecast a 1999-00 General Fund budget gap of approximately $1.7 billion
and a 2000-01 gap of $3.7 billion. As a result of changes made in the 1998-99
enacted budget, the 1999-00 gap is now expected to be roughly $1.3 billion, or
about $400 million less than previously projected, after application of reserves
created as part of the
26
<PAGE>
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee
schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
In 1996, California voters approved "Proposition 218," which added Articles
XIIIC and XIIID to the state's Constitution generally requiring voter approval
of most tax or fee increases by local governments and curtailing 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. The interpretation and application of Proposition 218 will
ultimately be determined by the courts. Proposition 218 is generally viewed as
restricting the fiscal flexibility of local governments, and for this reason,
some ratings of California cities and counties have been, and others may be,
reduced. It remains to be seen, as such, what impact these Articles will have
on existing and future California security obligations.
27
<PAGE>
The Governor recently proposed that California reduce its Vehicle License
Fee (a personal property tax on the value of automobiles, the 'VLF') by 75% over
five years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget
process.
Other Information. Certain debt obligations held by the Funds may be
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
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.
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 March 1, 1998, $2.97 billion (rounded) in
------------------------
general obligation bonds issued by the State of Oregon and its agencies were
outstanding, including $120.6 million (rounded) in general obligation bonds
supported by the budget for the State's general fund and $2.85 billion (rounded)
of self-supporting general obligation bonds. The State's self-supporting general
obligation bonds include $2.11 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
28
<PAGE>
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 by statute. The State's June 1, 1998 economic and
revenue forecast predicts that State General Fund revenues for the 1997-99
biennium will exceed the legislatively approved budget forecast by approximately
$348.1 million (or approximately 4.0%).
The Economy. The following is a summary of a portion of the June 1, 1998
-----------
quarterly Economic and Revenue Forecast prepared by the State Department of
Administrative Services as required by ORS 291.342. The State's quarterly
Economic and Revenue Forecast is available at the Oregon Department of
Administrative Services' web site: www.oea.das.state.or.usa.
Summary of Recent Trends. Although seasonal adjustment factors lifted
------------------------
first quarter job growth, evidence continues to point to a slowing Oregon
economy. Construction and manufacturing, the engines of the 1994-96 state
economic boom, have clearly entered a period of slower growth. However, income
growth remains strong. This suggests that Oregon's consumers are supplanting
business investment as the primary force behind the state's continued economic
expansion.
Short-Term Outlook. The Office of Economic Analysis expects Oregon's
------------------
economy to slow further as Asian exports decline and the state's high technology
investment boom winds down. In-migration should remain relatively subdued as
California's job growth surpasses Oregon's. Oregon will likely continue
shifting from a business investment led expansion to one fueled primarily by
consumer spending. Because of this shift, the slowdown will be more pronounced
in the manufacturing and construction sectors. The service-producing sectors
are expected to see only moderately slower growth over the next two years.
29
<PAGE>
Oregon's job growth is projected to slow from 3.4 percent in 1997 to 2.8
percent in 1998 and 1.7 percent in 1999. Personal income is forecast to
increase 5.8 percent in 1998 and 5.0 percent in 1999. The low inflation
environment means that this income growth rate will translate into a sizeable
increase in purchasing power. After adjustment for inflation, personal income
is projected to rise 4.4 percent in 1998 and 2.7 percent in 1999.
The Office of Economic Analysis forecast is slightly more optimistic but
roughly in line with major private forecast services. The DRI regional unit
projects state job growth of 2.5 percent in 1998 and 1.3 percent in 1999.
Regional Financial Associates expects Oregon job growth of 2.4 percent and 1.2
percent for the two years, respectively. Both forecast services project a
similar slowing for Oregon's personal income growth rate.
A reduction in exports to Asia is an important factor slowing the state
economy. Asia is overwhelmingly the most important export market for Oregon's
forest and agricultural products. These sectors will slow further as Asian
demand weakens.
Deteriorating Asian markets will also slow the high technology
manufacturing sector. Moreover, this sector is in the process of consolidating
gains related to the rapid growth of the past four years. High tech job growth
averaged 10.1 percent from 1994 to 1996. It slowed to 6.7 percent in 1997.
High tech employment is forecast to increase 3.1 percent in 1998 before
bottoming out at 1.7 percent growth in 1999. The forecast is for a slowdown in
high tech sector job growth, not a decline. The development of a national
recession would almost certainly bring outright job reductions to this
sector.
Slowing high technology investment and lower rates of net in-migration will
likely translate into a softer state construction market. Construction
employment is forecast to edge up 2.1 percent in 1998 before declining 1.7
percent in 1999. Housing starts are expected to decline 3.8 percent in 1998 and
an additional 14.5 percent in 1999.
Oregon consumers have benefited greatly from the state's economic boom of
the past four years. Household balance sheets appear to be in relatively good
shape. Evidence for this is the state's low consumer loan delinquency rate,
which is well below the national average. Not only have Oregonians enjoyed a
25.3 percent increase in per capita income over the past four years but they
have also experienced a 41.5 percent increase in average home values over the
same period.
Forecast Risks. The primary risks to the Oregon economy are related to the
--------------
international and national economies. A scenario in which the Asian recessions
turn out to be more severe than expected would have major consequences for the
Oregon economy. Weaker export markets would directly effect the state's timber,
agriculture, and high technology sectors. Since these sectors are the core of
Oregon's economy, a national recession originating from a contraction in Asian
exports would likely be more severe in the state.
It is not clear that a national recession proceeded by an inflationary
build up and a Federal Reserve tightening of credit would have more than a
proportional impact on Oregon. However,
30
<PAGE>
the state's economy is heavily dependent on durable goods manufacturing
industries, which are traditionally sensitive to credit policy.
Extended Outlook. Oregon's economy is expected to continue growing faster
----------------
than the U.S. as a whole over the next eight years. Recovery in Asia and a re-
acceleration of the high technology industries are expected to trigger modestly
higher growth over the 2000 to 2005 period.
The extended outlook is based on the trend national forecast. The trend
forecast reflects long-term averages. It does not account for business cycle
fluctuations. It is very likely that sometime over the next eight years, a
national recession will develop. This will certainly affect the Oregon economy.
Oregon's dependence on durable goods manufacturing industries such as high
technology, lumber and wood products, metals, and transportation equipment make
the state vulnerable to business cycle swings. It is difficult to evaluate how
Oregon's economy is likely to respond to the next downturn because of the
significant structural changes that have taken place since the last
recession.
Oregon's economy is expected to look considerably different in 2005 than it
did in 1995. First, it should be significantly larger. Population is projected
to be 3,615,000, an increase of 482,000. Payroll employment is projected to
rise 28.8 percent over the period to reach 1,827,300. Total income is expected
to grow 75.9 percent. Per capita income is expected to grow from $21,989 in
1995 to $33,512 in 2005. Consumer prices, as measured by the Portland-Vancouver
area consumer price index, are projected to rise 34.3 percent over the ten year
period. The cost of a similar size and quality house in Oregon is expected to
rise 82.1 percent between 1995 and 2005.
The state's industry mix will also reflect important structural changes in
the economy. Following national trends, Oregon's manufacturing jobs are likely
to decline as a share of total employment. Service jobs are expected to rise.
Government employment is projected to decrease from 16.9 percent of total
employment in 1995 to 15.4 percent in 2005.
The shift from timber to high technology within the manufacturing sector is
expected to continue. High technology employment is forecast to grow by 33,900
jobs, while timber falls by 5,100. In 2005, high technology manufacturing is
projected to comprise 33.8 percent of manufacturing jobs, up from 25.6 percent
in 1995.
Recent Environmental Developments. In 1991 and 1992, in response to
---------------------------------
concerns over diminishing salmon runs, three populations of Snake River salmon
were placed on the Endangered Species list. More recently, the National Marine
Fisheries Service and the U.S. Fish and Wildlife Service have commenced status
reviews of hundreds of additional salmon and trout populations in the Columbia
Basin and throughout Western Oregon. The Snake River salmon listings have
already had substantial economic impacts, primarily through increased
electricity rates and related impacts on rate-sensitive industries such as the
aluminum industry. Efforts to protect salmon and steelhead populations may
eventually affect a wide variety of industrial, recreational and land use
activities, with corresponding impacts on long-term economic growth; however,
the magnitude and extent of
31
<PAGE>
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 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
32
<PAGE>
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
occurred with the 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.
The Initiative Process. The Oregon Constitution reserves to the people of
----------------------
the State initiative and referendum power pursuant to which measures designed to
amend the State Constitution or enact legislation, can be placed on the
statewide general election ballot for consideration by the voters. "Referendum"
generally means measures referred to the electors by a legislative body such as
the State Legislative Assembly or the governing body of a city, county or other
political subdivision, while "initiative" generally means a measure placed
before the voters as a result of a petition circulated by one or more private
citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for initiative
measures. After considering any public comments, the Attorney General must
either certify or revise the draft ballot title. In general, any elector who
timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
33
<PAGE>
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 July 20, 1998, several initiatives had qualified to be placed on the
November 1998 general election ballot; however, none of the initiatives which
have qualified are expected to have a material adverse effect on State or local
government finances or revenues if adopted. 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.
34
<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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ------------------------------------- ------------------ -----------------------------------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ------------------------ ------------------------------------------ ------------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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 below 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
36
<PAGE>
Funds, Inc. and Master Investment Trust, two investment companies previously
advised by Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to
December 12, 1997. These companies are no longer part of the Wells Fargo Fund
Complex. MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
-------------------
to the Funds. As Investment Advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market security
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, 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>
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:
37
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
- -------------------------------- ---------------------- ----------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Arizona Tax-Free $ 29,358 $ 65,926 $ 0 $ 52,838
California Tax-Free Bond* $1,259,094 $ 0 N/A N/A
California Tax-Free Income $ 106,906 $241,280 $67,449 $144,315
National Tax-Free $ 39,446 $ 89,340 $ 0 $ 30,284
Oregon Tax-Free $ 57,037 $130,517 $ 0 $102,775
</TABLE>
____________________
* These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor portfolio.
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 Pacifica Arizona Tax-
Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds. 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
Pacifica predecessor portfolios paid to WFIM, and for the period begun September
6, 1996 and ended September 30, 1996, the Funds paid to Wells Fargo Bank the
advisory fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended
9/30/96
-------
Fund Fees Paid Fees Waived
- ----------------------------------------- ------------------------- --------------------------
<S> <C> <C>
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.
38
<PAGE>
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended
9/30/95 5/31/95
------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Arizona Tax-Free $41,159 $66,373 $124,904 $166,803
National Tax-Free $24,173 $68,667 $ 67,845 $145,244
Oregon Tax-Free $84,999 $43,995 $256,430 $ 84,770
</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:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
----------- ----------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
California Tax-Free Bond* $1,276,667 $ 0 $1,165,967 $248,047
California Tax-Free Income $ 281,991 $18,321 $ 236,632 $ 31,013
</TABLE>
____________________
* Indicates fees paid by the Overland predecessor portfolio. For 1996, the
amount shown is for the year ended December 31, 1996.
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $400 million of the
average daily net assets, 0.125% of the next $400 million of the Funds' net
assets, and 0.10% of net assets over $800 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from the Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by the Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is
39
<PAGE>
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees will be reduced accordingly.
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 also has been responsible as co-manager of the Arizona Tax-Free and
Oregon Tax-Free Funds. Mr. Galiani joined Wells Capital Management in June of
1977 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 sole responsibility for the day-to-day management
of the California Tax-Free Income Fund on June 1, 1995. Ms. Milner had been a
portfolio co-manager of the California Tax-Free Income Fund since November 1992.
Ms. Milner also has been portfolio 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 also
has been 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 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 also has been 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 Bank
and Stephens shall provide as administration services, among other things: (i)
general supervision of the Funds' operations,
40
<PAGE>
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 Securities
and Exchange Commission ("SEC") and state securities commissions; and
preparation of proxy statements and shareholder reports for each Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Wells Fargo Bank and Stephens also furnish office space and
certain facilities required for conducting the Funds' business together with
ordinary clerical and bookkeeping services. Stephens pays the compensation of
the Company's Directors, officers and employees who are affiliated with
Stephens. The Administrator and Co-Administrator are entitled to receive a
monthly fee of 0.03% and 0.04%, respectively, of the average daily net assets of
each Fund. Prior to February 1, 1998, the Administrator and Co-Administrator
were entitled to receive a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund. 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 to Wells Fargo Bank and
Stephens the following dollar amounts for administration and co-administration
fees:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- ------- -------
Total Wells Fargo Stephens Total Wells Fargo Stephens
------------- --------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free $ 12,043 $ 8,069 $ 3,974 $ 5,750 $1,150 $ 4,600
California Tax-Free $217,623 $43,525 $174,098 N/A N/A N/A
Bond*
California Tax-Free $ 43,808 $29,351 $ 14,457 $16,307 $3,261 $13,046
Income
National Tax-Free $ 16,707 $11,194 $ 5,513 $ 3,222 $ 644 $ 2,578
Oregon Tax-Free $ 23,433 $15,700 $ 7,733 $10,907 $2,181 $ 8,726
</TABLE>
____________________
* These amounts are for the year-ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor
portfolio.
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.
41
<PAGE>
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 to 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 in the table and waived the indicated amounts. In 1995, the Funds
changed their fiscal year-end from May 31 to September 30.
<TABLE>
<CAPTION>
Four-Month
Period Ended Year Ended
9/30/95 5/31/95
------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Arizona Tax-Free $4,116 $0 $12,490 $ 0
National Tax-Free $2,417 $0 $ 6,785 $2,018
Oregon Tax-Free $8,500 $0 $25,643 $ 0
</TABLE>
California Tax-Free Bond and California Tax-Free Income 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 and
California Tax-Free Income Funds. Prior to February 1, 1997, Stephens served as
sole Administrator to such 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 to Stephens the following
dollar amounts for administration fees:
42
<PAGE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
---- ------- --------
<S> <C> <C>
California Tax-Free Bond* $357,423 $ 384,015
California Tax-Free Income $ 18,371 $ 16,793
</TABLE>
____________________
* Represents amounts paid by the Overland predecessor portfolio. For 1996, the
amount shown is for the year ended December 31, 1996.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor to the Funds. Each Fund has
adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for each class of its shares. The Plans were
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Funds and who had no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Non-Interested
Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
Funds pay Stephens the amounts below as compensation for distribution-related
services or as reimbursement for distribution-related expenses. The fees are
expressed as a percentage of the average daily net assets attributable to each
Class or Fund.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Arizona Tax-Free
Class A 0.05%
Class B 0.75%
California Tax-Free Bond
Class B 0.70%
Class C 0.50%
National Tax-Free
Class A 0.05%
Class B 0.75%
Class C 0.50%
Oregon Tax-Free
Class A 0.05%
Class B 0.75%
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
classes is determined, within such limits, from time to time by mutual agreement
between the Company and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold
43
<PAGE>
by members of the National Association of Securities Dealers, Inc. ("NASD")
under the Conduct Rules of the NASD. The Distributor may enter into selling
agreements with one or more selling agents (which may include Wells Fargo Bank
and its affiliates) under which such agents may receive compensation for
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to their customers. The Distributor may
retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
Under the Plans in effect for the Class A shares of the California Tax-Free
Bond and California Tax-Free Income Funds, each Fund may defray all or part of
the cost of preparing and printing prospectuses and other promotional materials
and of delivering those prospectuses and promotional materials to prospective
shareholders by paying on an annual basis up to 0.05% of the respective Fund's
average daily net assets attributable to Class A shares. The Plans for the
Class A shares of the Funds provide only for reimbursement of actual expenses.
For the year ended March 31, 1998, the Funds' Distributor received the
following fees for distribution-related services, as set forth below, under each
Fund's Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Arizona Tax-Free
Class A $ 2 N/A $ 2 N/A
Class B $ 6,322 N/A N/A $ 3,290
California Tax-Free Bond*
Class A $120,470 N/A N/A $120,470
Class B N/A N/A N/A N/A
Class C $ 30,313 N/A N/A $ 30,313
California Tax-Free Income $ 29,656 $ 9,776 $19,880 N/A
National Tax-Free
Class A $ 1 N/A $ 1 N/A
Class B $ 4,429 N/A N/A $ 4,429
Oregon Tax-Free
Class A $ 10,190 $10,181 $ 9 N/A
Class B $ 9,099 N/A N/A $ 9,099
</TABLE>
________________________________
*These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor portfolio.
For accounting purposes, Class B shares commenced operations December 15,
1997.
General. Each plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested
44
<PAGE>
Directors. Any Distribution Agreement related to the Plans 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 relevant class of the Fund or by vote of a majority of the
Non-Interested Directors on not more than 60 days' written notice. The Plans may
not be amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plans require that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plans. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Funds have approved a Servicing Plan and
----------------------------
have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank, on behalf of the Class A, Class B and
Class C shares. Under the agreements, Shareholder Servicing Agents (including
Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include aggregating
and transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For providing
shareholder services, a Servicing Agent is entitled to a fee from the applicable
Fund, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The amounts payable under
the Shareholder Servicing Plan and Agreements are shown below. The Servicing
Plan 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 Plan or related Agreements that exceed the maximum amounts
payable under the Conduct Rules of the NASD.
45
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
<S> <C>
Arizona Tax-Free
Class A 0.25%
Class B 0.25%
California Tax-Free Bond
Class A 0.30%
Class B 0.30%
Class C 0.25%
California Tax-Free Income 0.30%
National Tax-Free
Class A 0.25%
Class B 0.25%
Class C 0.25%
Oregon Tax-Free
Class A 0.25%
Class B 0.25%
</TABLE>
For the periods indicated below, the dollar amounts of shareholder
servicing fees paid, after waivers, by the Funds to Wells Fargo Bank or its
affiliates were as follows:
<TABLE>
<CAPTION>
Year-Ended Six-Month Period
Fund 3/31/98 Ended 3/31/97
---- ------- -------------
<S> <C> <C>
Arizona Tax-Free
Class A $ 0 $ 0
Class B $ 0 $ 0
California Tax-Free Bond*
Class C $ 14,814 N/A
California Tax-Free Income
Class A $193,608 $115,476
National Tax-Free
Class A $ 6,729 $ 0
Class B $ 0 $ 0
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Six-Month Period
Fund 3/31/98 Ended 3/31/97
---- ------- -------------
<S> <C> <C>
Oregon Tax-Free
Class A $ 53,292 $ 39,643
Class B $ 0 $ 123
</TABLE>
____________________
* This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor
portfolio.
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 Intestate 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. The indicated classes of each Fund paid the following dollar
amounts of shareholder servicing fees, after waivers, for the year ended
September 30, 1996:
Year Ended
Fund 9/30/96
---- -------
Arizona Tax-Free
Class A $ 429
Class B N/A
National Tax-Free
Class A $ 0
Class B N/A
Class C
Oregon Tax-Free
Class A $ 49,136
Class B N/A
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. 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 periods"
(as defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any
form of Servicing Agreement related to the Servicing Plan also must be approved
by such vote of the Directors and the Non-Interested Directors. Servicing
Agreements may be terminated at any time, without payment of any penalty, by
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 Agreements may be made except by a majority of both the Directors of
the Company and the Non-Interested Directors.
47
<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 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 year ended March 31, 1998, the Funds paid to Wells Fargo Bank the
following dollar amounts in custody fees, after waivers:
<TABLE>
<CAPTION>
Fund Custody Fees
- ---- ------------
<S> <C>
Arizona Tax-Free $ 3,269
California Tax-Free Bond* $ 0
California Tax-Free Income $12,903
National Tax-Free $ 4,390
Oregon Tax-Free $ 6,351
</TABLE>
________________
*This amount is for the fiscal year ended December 31, 1997. Prior to December
12, 1997, this amount reflects fees paid by the Overland predecessor
portfolio.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Funds. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of each Fund's average daily net assets of each class of shares.
For the year ended March 31, 1998, 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:
48
<PAGE>
<TABLE>
<CAPTION>
Fund Transfer Agency Fees
- ---- --------------------
<S> <C>
Arizona Tax-Free $ 0
California Tax-Free Bond* $105,688
California Tax-Free Income $ 0
National Tax-Free $ 0
Oregon Tax-Free $ 0
Short-Term Municipal Income $ 0
</TABLE>
____________________
*This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor
portfolio.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. Under the
-------------------------------------------------------------
prior transfer agency agreement for the Arizona Tax-Free, Oregon Tax-Free and
National 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 each
Class of the New 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. For the year ended March 31, 1998, the aggregate
------------------------
dollar amount of underwriting commissions paid to Stephens on sales/redemptions
of the Company's shares was $7,671,295. Stephens retained $939,892 of such
commissions. Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer
of the Company retained $5,348,626 of such commissions.
For the six-month period ended March 31, 1997, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's share was $2,296,243. Stephens retained $241,806 of such commissions.
Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer of the
Company, and its registered representatives retained $1,719,000 and $335,437,
respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,917,738. Stephens retained $198,664 of such commissions. WFSI
and its registered representatives retained $2,583,027 and $136,047,
respectively, of such commissions.
49
<PAGE>
For the period begun October 1, 1995 and ended September 5, 1996 with
respect to the predecessor portfolios to the Arizona Tax-Free, National Tax-Free
and Oregon Tax-Free Funds, the aggregate amount of underwriting commissions on
sales/redemptions of Pacifica's shares was $150,771. Pacifica Funds
Distributor Inc. ("PFD"), retained $18,139 and its registered representatives
retained $132,632 of such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,311. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives retained $399,809 of such commissions.
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.
Performance shown or advertised for the Class A shares of the Arizona Tax-
Free Fund for periods prior to September 6, 1996, reflects performance of the
Investor shares 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 Class B shares of the Stagecoach Arizona
Tax-Free Fund for periods prior to September 6, 1996, reflects performance of
the Investor shares of the predecessor portfolio adjusted to reflect Class B
expenses in effect on September 6.
Performance shown or advertised for the Class A shares of the Stagecoach
California Tax-Free Bond Fund for periods prior to December 12, 1997, reflects
performance of the Class A shares of the Overland Express California Tax-Free
Bond Fund (the accounting survivor of a merger of the Funds on December 12,
1997). Performance shown or advertised for the Class C
50
<PAGE>
shares of the Stagecoach Fund reflects performance of the Class D shares of the
Overland Fund; for periods prior to July 1, 1993, Class C share performance of
the Stagecoach Fund reflects performance of the Class A shares of the Overland
Fund, adjusted to reflect the sales charges and expenses of the Class C shares.
Performance shown or advertised for the Class B shares of the Stagecoach Fund
for periods prior to January 1, 1995, reflects performance of the Class D shares
of the Overland Fund, although for periods prior to July 1, 1993, Class B share
performance of the Stagecoach Fund reflects performance of the Class A shares of
the Overland Fund, adjusted to reflect the sales charges and expenses of the
Class B shares of the Class B shares of the Stagecoach Fund.
Performance shown or advertised for the Class A shares of the National Tax-
Free Fund for periods prior to September 6, 1996, reflects performance of the
Investor shares of the Pacifica National Tax-Free Fund, a predecessor portfolio
with the same objective and policies as the Stagecoach National Tax-Free Fund.
Performance shown or advertised for the Class B shares of the Stagecoach
National Tax-Free Fund for periods prior to September 6, 1996, reflects
performance of the Investor shares of the predecessor portfolio adjusted to
reflect Class B expenses in effect on September 6.
Performance shown or advertised for the Class A shares of the Oregon Tax-
Free Fund for periods prior to September 6, 1996, reflects performance of the
Investor shares of the Pacifica Oregon Tax-Exempt Fund, a predecessor portfolio
with the same objective and policies as the Stagecoach Oregon Tax-Free Fund.
Performance shown or advertised for the Class B shares of the Stagecoach Oregon
Tax-Free Fund for periods prior to September 6, 1996, reflects performance of
the Investor shares of the predecessor portfolio adjusted to reflect Class B
expenses in effect on September 6.
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.
51
<PAGE>
Average Annual Total Return for the Period Ended March 31, 1998/1/
---------------------------------------------------------------
<TABLE>
<CAPTION>
Inception/2/ Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Fund Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
---- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona
Tax-Free
Class A 5.85% 6.65% 4.95% 5.92% 5.17% 6.78% 4.76% 9.67%
Class B 5.53% 5.53% 4.45% 4.78% 4.68% 5.59% 3.90% 8.90%
California
Tax-Free
Bond
Class A 7.74% 8.26% 5.82% 6.80% 6.38% 8.01% 5.80% 10.62%
Class B 7.50% 7.50% 5.64% 5.95% 6.25% 7.13% 4.82% 9.61%
Class C 7.50% 7.50% 5.95% 5.95% 7.13% 7.13% 5.82% 9.81%
California
Tax-Free
Income
Class A 4.17% 4.77% 3.88% 4.51% 4.10% 5.16% 2.72% 5.92%
National
Tax-Free
Class A 5.01% 5.95% 4.97% 5.94% 5.52% 7.16% 5.50% 10.44%
Class B 4.58% 4.84% 4.49% 4.82% 4.89% 5.80% 4.58% 9.58%
Class C 4.83% 4.83% 4.81% 4.81% 5.78% 5.78% 5.54% 9.54%
Oregon
Tax-Free
Class A 6.67% 7.17% 5.01% 5.97% 5.32% 6.95% 4.85% 9.81%
Class B 6.37% 6.37% 4.80% 5.13% 5.11% 6.01% 3.77% 8.77%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Arizona Tax-Free - March 1, 1992; California Tax-Free
Income - November 18, 1992; California Tax- Free Bond - October 6, 1988;
National Tax-Free - January 15, 1993; Oregon Tax-Free - June 1, 1988. The
actual inception date of each Class may differ from the inception date of
the corresponding Fund.
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.
52
<PAGE>
Cumulative Total Return for the Year Ended March 31, 1998/1/
------------------------------------------------------------
<TABLE>
<CAPTION>
Inception/2/ Inception/2/ Five Year Five Year Three Year Three Year
With No With No With No
Fund Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Arizona
Tax-Free
Class A 41.33% 47.98% 27.30% 33.31% 16.32% 21.75%
Class B 38.75% 38.75% 24.32% 26.31% 14.72% 17.73%
California
Tax-Free
Bond
Class A 103.04% 112.58% 32.69% 38.97% 20.38% 26.02%
Class B 98.83% 98.83% 31.56% 33.52% 19.94% 22.94%
Class C 98.83% 98.83% 33.52% 33.52% 22.94% 22.94%
California
Tax-Free
Income
Class A 24.58% 28.44% 20.98% 24.66% 12.82% 16.29%
National
Tax-Free
Class A 28.72% 34.81% 27.47% 39.42% 17.48% 23.05%
Class B 26.66% 27.66% 24.55% 26.56% 15.41% 18.42%
Class C 27.61% 27.61% 26.50% 26.50% 18.37% 18.37%
Oregon
Tax-Free
Class A 83.63% 97.56% 27.67% 33.66% 16.89% 22.32%
Class B 83.55% 83.55% 26.40% 28.39% 16.14% 19.15%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund and Class is as follows: Arizona Tax-Free -March 1, 1992; California
Tax-Free Income - November 18, 1992; California Tax- Free Bond - October 6,
1988; National Tax-Free -January 15, 1993; Oregon Tax-Free - June 1, 1988.
The actual inception date of each Class may differ from the inception date
of the corresponding Fund.
YIELD CALCULATIONS: The Funds may, from time to time, include their
-------------------
yields, tax-equivalent yields (if applicable) and average annual total returns
in advertisements or reports to shareholders or prospective investors.
Quotations of yield for the Funds is based on the investment income per share
earned during a particular 30-day period, less expenses accrued during a period
("net investment income") and is computed by dividing net investment income by
the maximum offering price per share on the last day of the period, according to
the following formula:
YIELD = 2[(a - b + 1)/6/ -1]
-----
cd
53
<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. The
net investment income of the and Funds includes actual interest income, plus or
minus amortized purchase discount (which may include original issue discount) or
premium, less accrued expenses. Realized and unrealized gains and losses on
portfolio securities are not included in the Funds' net investment income.
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 thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Period Ended March 31, 1998/1/
-----------------------------------------
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
---------------- -----------------------
After Before After Before
Fund Waiver Waiver Waiver Waiver
- -------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
California Tax-Free Bond
Class A 3.91% 3.55% 7.14% 6.48%
Class B 3.39% 3.06% 6.19% 5.59%
Class C 3.39% 3.06% 6.19% 5.59%
California Tax-Free Income
Class A 3.47% 2.94% 6.33% 5.37%
Arizona Tax-Free
Class A 3.08% 2.21% 5.38% 3.86%
Class B 2.50% 1.39% 4.36% 2.43%
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
---------------- -----------------------
After Before After Before
Fund Waiver Waiver Waiver Waiver
- -------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Oregon Tax-Free
Class A 3.89% 3.26% 7.08% 5.93%
Class B 3.22% 2.56% 5.86% 4.66%
National Tax-Free
Class A 4.28% 3.75% 5.94% 5.21%
Class B 3.87% 2.32% 5.38% 3.22%
Class C 3.88% 3.21% 5.39% 4.46%
</TABLE>
______________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares. "After Waiver" figures reflect any waived
fees or reimbursed expenses throughout the period.
/2/ Based on a combined federal and state income tax rate of 45.22% for each of
the California Tax-Free Bond and California Tax-Free Income Funds, and
45.04% and 42.72% for the Oregon Tax-Free Fund and the Arizona Tax-Free
Fund, respectively, and a federal income tax rate of 28.00% for the
National Tax-Free Fund.
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 with the performance of the S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7
Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or 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 its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being
55
<PAGE>
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 the Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of a Fund or a class of shares, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Fund or a class of shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or a class or current or potential value with
respect to the particular industry or sector.
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 an 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 a Fund or its investments. The Company may compare a Fund's performance with
other investments that are assigned ratings by NRSROs. Any such comparisons may
be useful to investors who wish to compare a Fund's past performance with other
rated investments.
From time to time, the 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."
56
<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 August 1, 1998, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $63 billion
of assets of individuals, trusts, estates and institutions and $32 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 (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 Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities 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. Futures contracts will be marked to
57
<PAGE>
market daily at their respective settlement prices determined by the relevant
exchange. Prices may be furnished by a reputable independent pricing service
approved by the Company's Board of Directors. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. All other securities and
other assets of a Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Board of Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds 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 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.
58
<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 non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, municipal
obligations and taxable money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the Act, persons affiliated with the Company
are prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the 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 Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. For the year ended March 31, 1998, the Funds paid
----------------------
brokerage commissions as follows:
59
<PAGE>
<TABLE>
<CAPTION>
Fund Commissions
---- -----------
<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>
_______________
* This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor portfolio.
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, because all of
their portfolio transactions occurred in the over-the-counter market.
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.
Securities of Regular Broker/Dealers. As of March 31, 1998, none of the
------------------------------------
Funds owned securities of their "regular brokers or dealers" or their parents as
defined in the 1940 Act.
Portfolio Turnover Rate. The 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
60
<PAGE>
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing Prospectuses (except the expense of printing and mailing Prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of 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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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
61
<PAGE>
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses.
The Funds also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 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 the 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 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
62
<PAGE>
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 have 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 20%; 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
63
<PAGE>
credited to an individual Fund shareholder, if the shareholder fails to certify
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 tax payment
on the shareholder's Federal income tax return. An investor must provide a valid
TIN upon opening or reopening an account. Failure to furnish a valid TIN to the
Company could also subject the investor to penalties imposed by the IRS.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 that 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
Each Fund intends that at least 50% of the value of its total assets at the
close of each quarter of its taxable years will consist of obligations the
interest on which is exempt from Federal income tax, so that they will qualify
under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by the Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. In general, exempt-interest dividends will be
exempt from Federal income taxation in the hands of the Funds' shareholders.
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-
64
<PAGE>
exempt obligations for Federal income tax purposes may not result in a similar
exemption under the laws of a particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, the Funds will
notify its respective 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. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a
corporate shareholder of such Funds, exempt-interest dividends paid by a Fund is
included in the corporate shareholder's "adjusted current earnings" as part of
its AMT calculation, and may also affect its Federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT at
a maximum rate of 28% and corporations at a maximum rate of 20%. Shareholders
with questions or concerns about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
Shares of a 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 (including Education IRAs, Spousal IRAs and Roth IRAs)
since such plans and accounts are generally tax-exempt and, therefore, would not
benefit from the exempt status of dividends from the Fund.
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
65
<PAGE>
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 and California Tax-Free Income Funds
Individuals, trusts and estates resident in California will not be subject
to California personal income tax on dividends from the California Tax-Free Bond
Fund and California Tax-Free Income Fund that represent tax-exempt interest paid
on municipal obligations of the State of California, its political subdivisions,
direct obligations of the U.S. government and certain other issuers, including
Puerto Rico, Guam, and the U.S. Virgin Islands. Such individuals, trusts and
estates will be subject to California personal income tax on other distributions
received from the California Tax-Free Bond Fund and California Tax-Free Income
Fund, including distributions of interest on municipal obligations issued by
other issuers and all capital gains.
Except as noted above with respect to California personal income taxation
of individuals, trusts and estates resident in California, dividends and
distributions from the California Tax-Free Bond Fund and California Tax-Free
Income Fund may be taxable to investors under state or local law as dividend
income even though all or a portion of such distributions may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such income taxes.
Shareholders of the California Tax-Free Bond Fund and California Tax-Free
Income Fund 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.
66
<PAGE>
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 Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are six 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
67
<PAGE>
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 Investor Services at 1-800-222-8222 if you
would like additional information about other funds or classes of shares
offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by 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 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 June 30, 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
68
<PAGE>
of a Fund or 5% or more of the voting securities of a Fund as a whole. The term
"N/A" is used where a shareholder holds 5% or more of a class, but less than 5%
of a Fund as a whole.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Address OF OWNERSHIP of Class of Fund
- ---------------------- ---------------------------------- ------------------------ ----------- -----------
<S> <C> <C> <C> <C>
ARIZONA TAX- Hep & Co. Class A 5.88% 1.75%
FREE FUND c/o Wells Fargo Bank Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91327
Donna Marie Brown Class A 5.63% 1.68%
P.O. Box 2450 Record Holder
Pine Top, AZ 85935
Dean Witter for the Benefit of Class B Beneficially 12.40% 1.20%
Robert C. Bundy Owned for Robert C.
P.O. Box 250 Bundy
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class B Beneficially 6.39% .62%
Walter J. Marshall Owned for Walter J.
P.O. Box 250 Marshall
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class B Beneficially 9.78% .94%
Betty M. Richmond Owned for Betty M.
P.O. Box 250 Richmond
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class B Beneficially 7.52% .73%
Frank V. Horalek Owned for Frank V.
P.O. Box 250 Horalek
Church Street Station
New York, NY 10008-0250
Steven W. Winter Class B 5.95% .57%
3741 E Leland Street Record Shareholder
Mesa, AZ 85215
Virg & Co Institutional Class 96.93% 58.74%
Attn: MF Dept A88-4 Record Holder
POB 9800
Calabasas, CA 91372
CALIFORNIA TAX-FREE MLPF&S for Sole Benefit of its Class C 27.86% .32%
BOND FUND Customers Record Holder
Attn: Mutual Fund Admin.
4800 Deer Lake Drive East
Jacksonville, FL 322
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Address OF OWNERSHIP of Class of Fund
- ---------------------- ---------------------------------- ------------------------ ----------- -----------
<S> <C> <C> <C> <C>
Dean Witter Class C Beneficially 8.89% .10%
P.O. Box 250 Owned for Anthony R.
Church Street Station Gangi and Marie A. Gangi
New York, NY 10008
NATIONAL TAX- MLPF&S for the Sole Benefit of Class A 10.27% 6.72%
FREE FUND its Customers Beneficially Owned
Attn: Mutual Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
Dean Witter Class B 11.47% .25%
P.O. Box 250 Church Street Beneficially Owned for
Station Darold E. Findley
New York, NY 10008-0250
Dean Witter Class B 5.55% .25%
P.O. Box 250 Beneficially Owned for
Church Street Station Lorraine Reynolds
New York, NY 10008
Dean Witter Class B 5.51% .24%
P.O. Box 250 Beneficially Owned for
Church Street Station Donfong Rehfeldt
New York, NY 10008
Dean Witter Class B 5.44% .24%
P.O. Box 250 Beneficially Owned for
Church Street Station Fred Terrile
New York, NY 10008
Dean Witter Class B 8.21% .37%
P.O. Box 250 Beneficially Owned for
Church Street Station Richard Houius
New York, NY 10008
MLPF&S for the Sole Benefit of Class C 41.76% 7.41%
its Customers Beneficially Owned
Attn: Mutual Fund Administration
4800 Deer Lake Drive East
Jacksonville, FL 32246
NFSC FEBO Class C 7.90% 1.40%
2228 Swedish Drive Beneficially Owned for
Clearwater, FL 34623 Lawerence E. Sirna
OREGON TAX- Dean Witter Class B 7.67% 1.66%
FREE FUND P.O. Box 250 Church Street Beneficially Owned for
Station Gary E. Yarosevich &
New York, NY 10008-0250 Esther A. Yarosevich
</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).
70
<PAGE>
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 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.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditors for the Company.
KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the California Tax-Free Bond Fund for the year ended
December 31, 1997 are hereby incorporated by reference to the Annual Report as
filed with the SEC on March 3, 1998.
The portfolios 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 fiscal year ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9, 1998.
Annual Reports may be obtained by calling 1-800-222-8222.
71
<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."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
ASSET ALLOCATION FUND
INDEX ALLOCATION FUND
U.S. GOVERNMENT ALLOCATION FUND
Class A, Class B and Class C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about three funds in the Stagecoach Family of Funds
(each, a "Fund" and collectively, the "Funds") -- the ASSET ALLOCATION, INDEX
ALLOCATION and U.S. GOVERNMENT ALLOCATION FUNDS. Each Fund offers Class A
shares and Class B shares. The Asset Allocation and Index Allocation Funds also
offer Class C shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated August 1, 1998. All terms used in this SAI that are
defined in the Prospectus have the meaning assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information..................... 1
Investment Restrictions......................... 1
Investment Models............................... 5
Additional Permitted Investment Activities...... 9
Risk Factors.................................... 20
Management...................................... 22
Performance Calculations........................ 37
Determination of Net Asset Value................ 45
Additional Purchase and Redemption Information.. 45
Portfolio Transactions.......................... 46
Fund Expenses................................... 48
Federal Income Taxes............................ 49
Capital Stock................................... 55
Other........................................... 57
Counsel......................................... 58
Independent Auditors............................ 58
Financial Information........................... 58
Appendix........................................ A-1
</TABLE>
<PAGE>
HISTORICAL FUND INFORMATION
The Company's Asset Allocation Fund commenced operations on January 2,
1992, as successor to the Asset Allocation Fund of the Wells Fargo Investment
Trust for Retirement Programs. The predecessor fund's commencement of
operations was November 13, 1986. The Class B shares commenced operations on
January 1, 1995, and the Class C shares commenced operations on April 1, 1998.
The Company's Index Allocation Fund was originally organized on April 7,
1988 as the Asset Allocation Fund of Overland Express Funds, Inc. ("Overland"),
another open-end management investment company advised by Wells Fargo Bank. The
Overland Asset Allocation Fund changed its name to the Index Allocation Fund on
February 14, 1997. On July 23, 1997, the Boards of the Directors of the Company
and Overland approved an Agreement and Plan of Consolidation providing for,
among other things, the transfer of the assets and stated liabilities of the
predecessor Overland portfolio to the Fund. Prior to December 12, 1997, the
effective date of the consolidation of the Company and Overland (the
"Consolidation"), the Fund had only nominal assets. As a result of the
Consolidation, the Overland Index Allocation Fund was reorganized as the
Company's Index Allocation Fund on December 12, 1997, and shareholders of the
Overland Index Allocation Fund's Class A and Class D shares became Class A and
Class C shareholders, respectively, of the Company's Index Allocation Fund.
The Company's U.S. Government Allocation Fund commenced operations on
January 2, 1992 as successor to the Fixed-Income Strategy Fund of the Wells
Fargo Investment Trust for Retirement Programs. The predecessor fund's
commencement of operations was March 31, 1987. The Class B shares commenced
operations on January 1, 1995, and the Class C shares commenced operations on
April 1, 1998.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund.
The Asset Allocation Fund and U.S. Government Allocation Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of any Fund's investments in that industry would be 25% or
more of the current value of its total assets, provided that there is no
limitation with respect to investments in (i) obligations of the United States
Government, its agencies or instrumentalities, (ii) in
1
<PAGE>
the case of the Asset Allocation Fund, any industry in which the S&P 500 Index
becomes concentrated to the same degree during the same period, and (iii) in the
case of the Asset Allocation Fund, money market instruments invested in the
banking industry and in obligations of the U.S. Government, its agencies or
instrumentalities (but the Fund will not do so unless the U.S. Securities and
Exchange Commission ("SEC") staff confirms that it does not object to the Fund
reserving freedom of action to concentrate investments in the banking industry);
and provided further, that each Fund may invest all of its assets in a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as such
Fund, without regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);
(3) purchase or sell commodities or commodity contracts; except that each
Fund may purchase and sell (i.e., write) options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices, and may participate in interest rate and index swaps;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with transactions in options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
and provided further, that the purchase by a Fund of securities issued by a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as such
Fund shall not constitute an underwriting for purposes of this paragraph (6);
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except to the extent the activities permitted
in Investment Restrictions Nos. 3 and 5 may be deemed to give rise to a senior
security but do not violate the provisions of section 18 of the 1940 Act, and
except that each Fund may borrow from banks up to 20% of the current value of
each such Fund's net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of each such Fund's net assets
2
<PAGE>
(but investments may not be purchased by such Funds while any such outstanding
borrowings exceed 5% of the respective Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that each Fund may engage in options
transactions to the extent permitted in Investment Restrictions Nos. 3 and 5,
and except that each Fund may purchase securities with put rights in order to
maintain liquidity; nor
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of a Fund's total assets would be invested in
the securities of any one issuer or such Fund's ownership would be more than 10%
of the outstanding voting securities of such issuer, provided that a Fund may
invest all its assets in a diversified, open-end management investment company,
or a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund, without regard to the limitations set forth in
this paragraph (10).
Each of the Asset Allocation and U.S. Government Allocation Funds may make
loans in accordance with its investment policies.
As a fundamental policy, each of the Asset Allocation and U.S. Government
Allocation Funds may invest, notwithstanding any other investment restrictions
(whether or not fundamental), all of its assets in the securities of a single
open-end, management investment company with substantially the same fundamental
investment objectives, policies and restrictions as such Fund. A decision to so
invest all of its assets may, depending on the circumstances applicable at the
time, require approval of shareholders.
The Index Allocation Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would exceed 25%
of the current value of its total assets, provided that there is no limitation
with respect to investments in (i) municipal securities (for the purpose of this
restriction, private activity bonds and notes shall not be deemed municipal
securities if the payments of principal and interest on such bonds or notes is
the ultimate responsibility of non-governmental issuers); (ii) obligations of
the United States Government, its agencies or instrumentalities; (iii) any
industry in which the S&P Index becomes concentrated to the same degree during
the same period; and (iv) the obligations of domestic banks;
(2) purchase or sell real estate (other than municipal obligations or other
securities secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein), commodities or
commodity contracts; except that the Fund may purchase and sell (i.e., write)
options, forward contracts, futures contracts, including
3
<PAGE>
those relating to indices, and options on futures contracts or indices, and may
participate in interest rate swaps and index swaps;
(3) purchase securities on margin or make short sales of securities (except
for short-term credits necessary for the clearance of transactions and except
that the Fund may make margin payments in connection with transactions in
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices);
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days, restricted securities,
which are securities that must be registered under the Securities Act of 1933
before they may be offered or sold to the public, and illiquid securities;
(6) make investments for the purpose of exercising control or management;
(7) issue senior securities, except to the extent the activities of the
Fund permitted in Investment Restrictions Nos. 2 and 3 may be deemed to give
rise to a senior security but do not violate the provisions of section 18 of the
1940 Act, and except that the Fund may borrow from banks up to 10% of the
current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such borrowing exists); nor
(8) invest more than 10% of the current value of its net assets in fixed
time deposits that are subject to withdrawal penalties and that have maturities
of more than seven days.
In addition, the Fund may not write, purchase or sell puts, calls, warrants
or options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity, and except that the
Fund may engage in options transactions to the extent permitted in Investment
Restrictions Nos. 2 and 3.
The Fund may not, as to 75% of its total assets, purchase securities of any
issuer (except securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities) if, as a result, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its assets, the Fund's ownership would be more than 10% of
the outstanding voting securities of such issuer.
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 a Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Funds
will not enter into any portfolio security lending arrangement having a duration
of longer than one year.
INVESTMENT MODELS
This section contains supplemental information about the proprietary
investment model used by Barclays Global Fund Advisors ("BGFA") to manage each
Fund's portfolio.
Asset Allocation Model. BGFA compares the Asset Allocation Fund's
----------------------
investments daily to the Asset Allocation Model's recommended allocation. The
investment model recommends allocations among each asset class in 5% increments
only. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended
5
<PAGE>
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two or three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
Asset Allocation Fund generally will invest the net proceeds from the sale of
shares of the Fund and will liquidate existing Fund investments to meet net
redemption requirements in a manner that best allows the Fund's existing asset
allocation to follow that recommended by the Model. Notwithstanding any
recommendation of the Model to the contrary, the Asset Allocation Fund will
generally maintain at least that portion of its assets in money market
instruments reasonably considered necessary to meet redemption requirements. In
general, cash maintained for short-term liquidity needs is only invested in U.S.
Treasury bills, shares of other mutual funds and repurchase agreements. There is
no requirement that the Fund maintain positions in any particular asset class or
classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. Standard & Poor's Ratings Group ("S&P") occasionally
makes changes in the S&P 500 Index based on its criteria for inclusion of stocks
in the S&P 500 Index. The S&P 500 Index is market-capitalization-weighted so
that each stock in the S&P 500 Index represents its proportion of the total
market value of all stocks in the S&P 500 Index. In making its stock
investments, the policy of the Asset Allocation Fund is to invest its assets in
substantially the same stocks, and in substantially the same percentages, as the
S&P 500 Index, including Wells Fargo & Company stock.
A key component of the Asset Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the asset allocation decision. The principal inputs of
financial data to the Asset Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the
present yield on money market instruments, (iv) the historical statistical
standard deviation in investment return for each class of asset, and (v) the
historical statistical correlation of investment returns among the various asset
classes in which the Asset Allocation Fund invests. Using these data, the Asset
Allocation Model is run daily to determine the recommended asset allocation.
The model's recommendations are presently made in 5% increments.
6
<PAGE>
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
Index Allocation Model. BGFA compares the Index Allocation Fund's
----------------------
investments daily to the Index Allocation Model's recommended allocation. The
investment model recommends allocations among each asset class in 5% increments
only. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended reallocations may be implemented promptly upon
receipt of recommendations or may not be acted upon for as long as two or three
months thereafter depending on factors such as the percentage change from
previous recommendations and the consistency of recommended reallocations over a
period of time. In addition, the Index Allocation Fund generally will invest
the net proceeds from the sale of shares of the Fund and will liquidate existing
Fund investments to meet net redemption requirements in a manner that best
allows the Fund's existing asset allocation to follow that recommended by the
Model. Notwithstanding any recommendation of the Model to the contrary, the
Index Allocation Fund will generally maintain at least that portion of its
assets in money market instruments reasonably considered necessary to meet
redemption requirements. In general, cash maintained for short-term liquidity
needs is only invested in U.S. Treasury bills, shares of other mutual funds and
repurchase agreements. There is no requirement that the Fund maintain positions
in any particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Index Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index. In making its stock investments, the policy of the Index Allocation Fund
is to invest its assets in substantially the same stocks, and in substantially
the same percentages, as the S&P 500 Index, including Wells Fargo & Company
stock. The Lehman Brothers 20+ Treasury
7
<PAGE>
Bond Index (the "LBT Bond Index") is an unmanaged index comprised of U.S.
Treasury Securities with remaining maturities of twenty years or more. The
portion of the Fund's portfolio allocated to bonds is invested so as to
replicate the performance characteristics of the LBT Bond Index.
A key component of the Index Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the index allocation decision. The principal inputs of
financial data to the Index Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the
present yield on money market instruments, (iv) the historical statistical
standard deviation in investment return for each class of asset, and (v) the
historical statistical correlation of investment returns among the various asset
classes in which the Index Allocation Fund invests. Using these data, the Index
Allocation Model is run daily to determine the recommended asset allocation.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
U.S. Government Allocation Model. BGFA compares the U.S. Government
--------------------------------
Allocation Fund's investments daily to the U.S. Government Allocation Model's
recommended allocation. The investment model recommends allocations among each
asset class in 5% increments only. Any recommended reallocation will be
implemented in accordance with trading policies that have been designed to take
advantage of market opportunities and to reduce transaction costs. Under current
trading policies employed by BGFA, recommended reallocations may be implemented
promptly upon receipt of recommendations or may not be acted upon for as long as
two to three months thereafter depending on factors such as the percentage
change from previous recommendations and the consistency of recommended
reallocations over a period of time. In addition, the U.S. Government Allocation
Fund generally will invest the net proceeds from the sale of shares of the Fund
and will liquidate existing Fund investments to meet net redemption requirements
in a manner that best allows the Fund's existing asset allocation to follow the
allocation recommended by the computer Model. Notwithstanding any recommendation
of the computer model to the contrary, the Fund will generally maintain at least
that portion of its assets in money market instruments reasonably considered
necessary to meet redemption requirements. In general, cash maintained for
short-term
8
<PAGE>
liquidity needs is only invested in U.S. Treasury bills, shares other mutual
funds and repurchase agreements. There is no requirement that the Fund maintain
positions in any particular asset class or classes.
BGFA manages other funds which invest in accordance with a substantially
similar version of the Model. The performance of each of those other funds is
likely to vary among themselves and from the performance of the U.S. Government
Allocation Fund. Such variation in performance is primarily due to timing
differences in the implementation of the Model's recommendations, differences in
expenses and liquidity requirements, and the ability of other funds to invest a
higher portion of their assets in short-term investments that may generate a
higher yield, but are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
A key component of the U.S. Government Allocation Model is a set of
assumptions concerning expected risk and return and investor attitudes toward
risk, which are incorporated into the allocation decision. The principal inputs
of financial data to the model currently are: (i) yields on 90-day U.S. Treasury
bills, 5-year U.S. Treasury notes and 30-year U.S. Treasury bonds; (ii) the
expected statistical standard deviation in investment returns for each class of
fixed income instrument; and (iii) the expected statistical correlation of
investment return among the various classes of fixed income instruments. Using
these and other data, the Model is run daily to determine the recommended
allocation. The Model's recommendations are presently implemented in 10%
increments. Because the Fund may shift its investment allocations significantly
from time to time, its performance may differ from funds which invest in one
asset class or from funds with a constant mix of assets.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Bonds
-----
The Funds may purchase U.S. Treasury bonds with maturities greater than 20
years. The bond portion of the portfolio of the Funds is generally managed to
attain an average
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<PAGE>
maturity of between 22 and 28 years for the U.S. Treasury bonds held. This form
of debt instrument has been selected by BGFA because of the relatively low
transaction costs of buying and selling U.S. Treasury bonds and because of the
low default risk associated with such instruments.
Derivative Securities
---------------------
Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For example,
the futures contracts and options on futures contracts that the Funds may
purchase are considered derivatives. The Funds may only purchase or sell these
contracts or options as substitutes for comparable market positions in the
underlying securities. Also, asset-backed securities issued or guaranteed by
U.S. Government agencies or instrumentalities and certain floating- and
variable-rate instruments can be considered derivatives. Some derivatives may
be more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in yield
or value due to their structure or contract terms. Wells Fargo Bank and BGFA
use a variety of internal risk management procedures to ensure that derivatives
use is consistent with a Fund's investment objective, does not expose the Fund
to undue risk and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of derivatives.
Also, cash maintained by the Index Allocation Fund for short-term liquidity
needs (e.g., to meet anticipated redemption requests) will, as a general matter,
only be invested in U.S. Treasury bills, shares of other mutual funds and
repurchase agreements. The use of derivatives by the Asset Allocation, Index
Allocation and U.S. Government Allocation Funds also is subject to broadly
applicable investment policies. For example, a Fund may not invest more than a
specified percentage of its assets in "illiquid securities," including those
derivatives that do not have active secondary markets. Nor may a Fund use
certain derivatives without establishing adequate "cover" in compliance with SEC
rules limiting the use of leverage.
Floating- and Variable-Rate Instruments
---------------------------------------
Certain of the debt instruments in which the Funds may invest bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index change. These adjustments generally limit the increase
or decrease in the amount of interest received on debt instruments. The Funds
may purchase certificates of participation in pools of floating- and variable-
rate instruments from banks and other financial institutions. Wells Fargo Bank,
as investment advisor, monitors on an ongoing basis the ability of an issuer of
a demand instrument to pay principal and interest on demand. Events occurring
between the date a Fund elects to demand payment on a floating- or variable-rate
instrument and the date payment is due may affect the ability of the issuer of
the instrument to make payment when due, and unless such demand instrument
permits same-day settlement, such events may affect a Fund's ability to obtain
payment at par. Demand instruments whose demand
10
<PAGE>
feature is not exercisable within seven days may be treated as liquid, provided
that an active secondary market exists.
Foreign Obligations
-------------------
Each Fund may invest up to 25% of its assets in high-quality, short-term
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars. Investments by
the Funds in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards or governmental supervision
comparable to those applicable to domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
The Funds may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Funds will generally purchase securities with the intention of acquiring them,
the Funds may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
advisor. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience price fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Funds will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Funds will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Futures Contracts and Options Transactions
------------------------------------------
In General. The Funds may enter into and engage in futures contracts and
options transactions as discussed below. A futures transaction involves a firm
agreement to buy or
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<PAGE>
sell a commodity or financial instrument at a particular price on a specified
future date, while an option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity or financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the primary credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible, or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e., seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract. The
potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the relevant Fund.
The Funds may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange. The Funds' futures
transactions must constitute permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). In addition,
the Funds may not engage in futures transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired options on futures
contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of a Fund's assets, after
taking
12
<PAGE>
into account unrealized profits and unrealized losses on such contracts;
provided, however, that in the case of an option on a futures contract that is
in-the money at the time of purchase, the in-the money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the SEC, a Fund may be required to segregate cash or high-quality
money-market instruments in connection with its futures transactions in an
amount generally equal to the entire value of the underlying security.
Initially, when purchasing or selling futures contracts a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, a Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
The Funds may engage in futures contracts sales to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term security prices. If, however, securities prices rise, a
Fund would realize a loss in closing out its futures contract sales that would
offset any increases in prices of the long-term securities they hold.
Another risk in employing futures contracts and options thereon to protect
against cash market price volatility is the possibility that futures prices will
correlate imperfectly with the behavior of the prices of the securities in such
portfolio (the portfolio securities will not be identical to the debt
instruments underlying the futures contracts).
Stock Index Options. The Funds may purchase and write (i.e., sell) put and
call options on stock indices only as a substitute for comparable market
positions in the underlying securities. The aggregate premiums paid on all
options purchased by a Fund may not exceed 20% of the Fund's total assets and
the value of the options written may not exceed 10% of the value of the Fund's
total assets.
A stock index fluctuates with changes of the market values of the stocks
included in the index. The effectiveness of purchasing or writing stock index
options will depend upon the extent to which price movements of the securities
in a Fund's portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether
13
<PAGE>
a Fund will realize a gain or loss from purchasing or writing stock index
options depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of particular stock. When a Fund writes an
option on a stock index, such Fund will place in a segregated account with the
Fund's custodian cash or liquid securities in an amount at least equal to the
market value of the underlying stock index and will maintain the account while
the option is open or otherwise will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. The Funds may
invest in stock index futures and options on stock index futures only as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect
to stock indices that are permitted investments, each Fund intends to purchase
and sell futures contracts on the stock index for which it can obtain the best
price with consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Funds may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Funds may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or as to the degree of correlation between price
movements in the options on interest-rate futures and price movements in the
Funds' portfolio securities which are the subject of the transaction.
The Index Allocation Fund will not enter into interest rate futures
contracts and options thereon, for which the aggregate initial margin and
premiums exceed 5% of the fair market value of its assets, after taking into
account unrealized profits and unrealized losses on any such contracts into
which they have entered; provided, however, that the "in-the-money" amount of an
option that was in-the-money at the time of purchase will be excluded in
computing such 5%.
The Asset Allocation, Index Allocation and U.S. Government Allocation Funds
may take advantage of opportunities in the areas of options and futures
contracts and options on futures contracts and any other derivative investments
which are not presently contemplated for use by the Fund or which are not
currently available but which may be developed, to the extent such opportunities
are both consistent with each Fund's investment objective and legally
permissible for the Fund. Before entering into such transactions or making any
such investment, the Fund would provide appropriate disclosure in its Prospectus
or this SAI.
14
<PAGE>
Interest-Rate and Index Swaps. The Funds may enter into interest-rate and
index swaps in pursuit of its investment objectives. Interest-rate swaps
involve the exchange by a Fund with another party of their commitments to pay or
receive interest (for example, an exchange of floating-rate payments for fixed-
rate payments). Index swaps involve the exchange by the Fund with another party
of cash flows based upon the performance of an index of securities or a portion
of an index of securities that usually include dividends or income. In each
case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. A Fund will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If the Fund enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Funds. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap, in which case a Fund may not receive net
amount of payments that such Fund contractually is entitled to receive. The
Funds may invest up to 10% of their net assets in interest-rate and index swaps.
Foreign Currency Transactions. The Asset Allocation and U.S. Government
Allocation Funds may enter into foreign currency transactions. When a Fund
enters into a foreign currency transaction or forward contract, such Fund
deposits, if required by applicable regulations, with the Fund's custodian cash
or high-grade debt securities in a segregated account an amount at least equal
to the value of the Fund's total assets committed to the consummation of the
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities are placed in the account so
that the value of the account equals the amount of the Fund's commitment with
respect to the contract.
At or before the maturity of a forward contract, a Fund either may sell a
portfolio security and make delivery of the currency, or may retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which such Fund obtains, on the same maturity date,
the same amount of the currency which it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, such
Fund, at the time of execution of the offsetting transaction, incurs a gain or a
loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Fund's entering into
15
<PAGE>
a forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to a Fund of engaging in currency transactions varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency exchange usually
are conducted on a principal basis, no fees or commissions are involved. Wells
Fargo Bank or BGFA, as appropriate, considers on an ongoing basis the
creditworthiness of the institutions with which a Fund enters into foreign
currency transactions. The use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, the Fund may not be able to contract to
sell the currency at a price above the devaluation level it anticipates.
The purchase of options on currency futures allows a Fund, for the price of
the premium it must pay for the option, to decide whether or not to buy (in the
case of a call option) or to sell (in the case of a put option) a futures
contract at a specified price at any time during the period before the option
expires.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to a Fund. Each Fund may invest up to 15% of
its net assets in illiquid securities.
Loans of Portfolio Securities
-----------------------------
The Funds may lend securities from their portfolios to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
obligations or other high-quality debt instruments equal to at least 100% of the
current market value of the securities loan (including accrued interest thereon)
plus the interest payable to such Fund with respect to the loan is maintained
with the Fund. In determining whether to lend a security to a particular
broker, dealer or financial institution, Wells Fargo Bank or BGFA will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer, or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily.
The Funds will not enter into any portfolio security lending arrangement having
a duration of longer than one year. The principal risk of portfolio lending is
potential default or insolvency of the borrower. In either of these cases, a
Fund could experience delays in recovering securities or
16
<PAGE>
collateral or could lose all or part of the value of the loaned securities. Any
securities that a Fund may receive as collateral will not become part of the
Fund's portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay such Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash-equivalent collateral. None of the Funds will
lend securities having a value that exceeds one-third of the current value of
its total assets. Loans of securities by any of the Funds will be subject to
termination at the Fund's or the borrower's option. The Funds may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Company, its Advisor, or
its Distributor.
Money Market Instruments and Temporary Investments
--------------------------------------------------
Each Fund may invest varying percentages of their assets in money market
instruments. In addition, the Funds may invest temporary cash balances in the
following high-quality money market instruments: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations"); (ii)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other obligations of domestic banks (including foreign branches) that have
more than $ 1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"); (iii) commercial paper rated at the date of purchase "P-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by S&P, or, if unrated,
of comparable quality as determined by Wells Fargo Bank, as investment advisor;
(iv) nonconvertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of no more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and
(vi) short-term, U.S. dollar-denominated obligations of foreign banks (including
U.S. branches) that at the time of investment have more than $10 billion, or the
equivalent in other currencies, in total assets and in the opinion of Wells
Fargo Bank, as investment advisor, are of comparable quality to obligations of
U.S. banks which may be purchased by a Fund.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of
17
<PAGE>
Wells Fargo Bank or BGFA, are of comparable quality to issuers of other
permitted investments of such Fund may be used for letter of credit-backed
investments.
Repurchase Agreements. Each Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, a Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
Each Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. A Fund will only enter into repurchase agreements with primary
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors and that are not affiliated with the investment advisor. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Funds.
Pass-Through Obligations
------------------------
The Funds may invest in pass-through obligations that are supported by the
full faith and credit of the U.S. Government (such as those issued by the
Government National Mortgage Association ("GNMA")) or those that are guaranteed
by an agency or instrumentality of the U.S. Government or government-sponsored
enterprise (such as the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC")) or bonds collateralized by any
of the foregoing.
18
<PAGE>
Short-Term Corporate Debt Instruments
-------------------------------------
Each Fund may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
The Funds also may invest in nonconvertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity at
the date of settlement. The Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
Unrated Investments
-------------------
The Funds, may purchase instruments that are not rated if, in the opinion
of Wells Fargo Bank, such obligations are of investment quality comparable to
other rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by such Fund. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, each Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in its Prospectus and in this SAI. The ratings of Moody's and S&P are more
fully described in the 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
19
<PAGE>
market interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
Warrants
--------
The Funds each may invest in warrants (other than those that have been
acquired in units or attached to other securities). Warrants represent rights
to purchase securities at a specific price valid for a specific period of time.
The price of warrants do not necessarily correlate with the prices of the
underlying securities.
When-Issued Securities
----------------------
The Funds may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transactions normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. Although each Fund will generally
purchase securities with the intention of acquiring them, a Fund may dispose of
securities purchased on a when-issued, delayed-delivery or a forward commitment
basis before settlement when deemed appropriate by the advisor.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to such Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the 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 1998, the stock
market, as measured by the S&P 500 Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of a Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which a Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates
20
<PAGE>
may adversely affect the value of the debt instruments in which a Fund invests
and hence the value of your investment in a Fund.
The market value of a Fund's investment in fixed-income securities will
change in response to various factors, such as changes in interest rates and the
relative financial strength of an issuer. During periods of falling interest
rates, the value of fixed-income securities generally rises. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater price fluctuation than obligations
with shorter maturities. Fluctuations in the market value of fixed income
securities can be reduced, but not eliminated, by variable and floating rate
features.
Securities rated in the fourth highest rating category are regarded by S&P
as having an adequate capacity to pay interest and repay principal, but changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make such repayments. Moody's considers such securities as
having speculative characteristics. Subsequent to its purchase by a Fund, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by a Fund. Securities rated below the
fourth highest rating category (sometimes called "junk bonds") are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's credit-worthiness. The market prices of
these securities may fluctuate more than higher quality securities and may
decline significantly in periods of general economic difficulty.
Illiquid securities, which may include certain restricted securities, may
be difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to the Fund.
The advisor may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of the Fund's investments. Derivatives are financial
instruments whose value is derived, at least in part, from the price of another
security or a specified asset, index or rate. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield,
duration or value due to their structure or contract terms. If the advisor
judges market conditions incorrectly, the use of certain derivatives could
result in a loss, regardless of the advisor's intent in using the derivatives.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products.
21
<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.
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 St. Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------- ---------------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
23
<PAGE>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complexes as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As Investment Advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market security
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rate, indicated below, of each Fund's
average daily net assets:
24
<PAGE>
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
---- -----------------------------
<S> <C>
Asset Allocation 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
U.S. Government Allocation 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
Index Allocation 0.70% up to $500 million
0.60% over $500 million
</TABLE>
Asset Allocation and U.S. Government Allocation Funds. Prior to April 29,
-----------------------------------------------------
1996, the Funds each invested directly in a portfolio of securities and Wells
Fargo Bank provided investment advisory services directly to the Funds. On
April 29, 1996, the Funds were converted to a "master/feeder structure" and
began to invest all of their respective assets in a corresponding Master
Portfolio, with an identical investment objective, of Master Investment Trust,
another open-end investment company. The Master Portfolios were advised by
Wells Fargo Bank and Wells Fargo Bank was entitled to receive the same level of
advisory fees from the Master Portfolios as it receives from the Funds. These
Funds operated as part of a master/feeder structure from April 29, 1996 to
December 12, 1997, at which time the master/feeder structure was dissolved.
Index Allocation Fund. Prior to the Consolidation, Wells Fargo Bank served
---------------------
as Investment Advisor to the Overland Index Allocation predecessor portfolio and
was entitled to receive the same level of advisory fees from the predecessor
portfolio as it now receives from the Index Allocation Fund.
For the period indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
Year Ended
3/31/98
----------
Fund Fees Paid Fees Waived
---- ----------------- ----------------
<S> <C> <C>
Asset Allocation $4,747,339 $ 7,060
U.S. Government Allocation $ 359,100 $108,848
Index Allocation $ 226,717 $ 9,389
</TABLE>
25
<PAGE>
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees. Wells Fargo Bank has not waived any advisory fees paid
by the Asset Allocation or U.S. Government Allocation Funds, the predecessor
portfolio or the Master Portfolios.
<TABLE>
<CAPTION>
Six-Month Nine-Month
Year Ended Period Ended Period Ended Year Ended
Fund 3/31/98 3/31/97 9/30/96/1/ 12/31/95
- ---- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Asset Allocation/1/ $4,754,399 $2,132,577 $3,117,722 $3,814,364
U.S. Government
Allocation $ 467,948 $ 254,002 $ 539,657 $ 680,049
</TABLE>
- ------------------
/1/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts include both amounts paid by the Fund for the period from 1/1/96 to
4/28/96 and amounts paid by the corresponding Master Portfolio for the
period from 4/29/96 to 9/30/96.
For the periods indicated below, Wells Fargo Bank paid the following
advisory fees. Wells Fargo Bank has not waived any advisory fees paid by the
Index Allocation Fund or the predecessor portfolio, except during 1996 it waived
$1,324 in advisory fees payable by the Fund's predecessor portfolio.
<TABLE>
<CAPTION>
Three-Month
Period Ended Year Ended Year Ended Year Ended
Fund 3/31/98 12/31/97 12/31/96 12/31/95
- ---- ------- -------- -------- --------
<S> <C> <C> <C> <C>
Index Allocation/2/ $236,106 $742,203 $525,093 $424,416
</TABLE>
- ------------------
/2/ These amounts reflect amounts paid by the Overland predecessor
portfolio.
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged BGFA to serve as
----------------------
Investment Sub-Advisor to each Fund. Subject to the direction of the Company's
Board of Directors and the overall supervision and control of Wells Fargo Bank
and the Company, BGFA makes recommendations regarding the investment and
reinvestment of the Funds' assets. BGFA is responsible for implementing and
monitors the performance of the proprietary investment models employed with
respect to a Fund. BGFA furnishes to Wells
26
<PAGE>
Fargo Bank periodic reports on the investment activity and performance of the
Funds. BGFA and also furnishes such additional reports and information as Wells
Fargo Bank and the Company's Board of Directors and officers may reasonably
request.
As compensation for its sub-advisory services, BGFA is entitled to
receive a monthly fee equal to an annual rate of 0.20% of the first $500 million
of the Asset Allocation and Index Allocation Funds' average daily net assets,
0.15% of the next $500 million of the Funds' net assets, and 0.10% of net assets
over $1 billion. As compensation for sub-advisory services for the U.S.
Government Allocation Fund, BGFA is entitled to receive a monthly fee equal to
an annual rate of 0.05% of the first $100 million of the U.S. Government
Allocation Fund's average daily net assets, 0.04% of the next $50 million of the
Fund's net assets, and 0.03% of net assets over $150 million. These fees may be
paid by Wells Fargo Bank or directly by the Fund. If the sub-advisory fee is
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees will be reduced accordingly.
The predecessor Master Portfolios were also sub-advised by BGFA, and
from October 30, 1997 to December 12, 1997, BGFA was entitled to receive the
fees described above. Prior to October 30, 1997, BGFA was entitled to receive a
monthly fee equal to an annual rate of 0.20% of the Asset Allocation and Index
Allocation Funds' average daily net assets, and 0.15% of the U.S. Government
Allocation Fund's average daily net assets plus an annual payment of $40,000.
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an
affiliate of Wells Fargo Institutional Trust Company, N.A. Prior to January 1,
1996, WFNIA served as sub-advisor to the Funds and the predecessor portfolios
under substantially similar terms as are currently in effect.
For the period indicated below, the Funds paid to BGFA the following
sub-advisory fees, without waivers:
Six-Month
Year Ended Period Ended
Fund 3/31/98 3/31/97
---- ------- -------
Asset Allocation/1/ $2,262,864 $ 52,443
U.S. Government Allocation/1/ $ 123,818 $ 9,971
Index Allocation/2/ $ 209,220 $201,715
- ----------------
/1/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts reflect amounts paid by the corresponding Master Portfolio.
/2/ Prior to December 12, 1997, this amount reflects fees paid by the Overland
predecessor portfolio.
27
<PAGE>
For the periods indicated below Wells Fargo Bank paid to BGFA/WFNIA the
sub-advisory fees indicated. No sub-advisory fees were waived during these
periods.
Nine-Month
Period Ended Year Ended
Fund 9/30/96/1/ 12/31/95
---- ------------ ----------
Asset Allocation $1,714,245 $2,043,249
U.S. Government Allocation $ 192,067 $ 244,478
- --------------------
/1/ These amounts include both amounts paid by the Fund for the period from
1/1/96 to 4/28/96 and amounts paid by the corresponding Master Portfolio
for the period from 4/29/96 to 9/30/96.
For the periods indicated below Wells Fargo Bank to BGFA/WFNIA the
sub-advisory fee indicated. No sub-advisory fees were waived during these
periods.
Year Ended Year Ended
Fund 12/31/96 12/31/95
---- ---------- ----------
Index Allocation/1/ $210,226 $177,707
- --------------------
/1/ These amounts reflect amounts paid by the Overland predecessor
portfolio.
General. Each Fund's Sub-Advisory Contract will continue in effect for
-------
more than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or (ii) by the Company's Board of Directors, including a
majority of the Directors of the Company who are not parties to the Sub-Advisory
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
A Fund's Sub-Advisory Contract may be terminated on 60 days written notice by
either party and will terminate automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells
----------------------------------
Fargo Bank as Administrator and Stephens 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 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
28
<PAGE>
bookkeeping services. Stephens pays the compensation of the Company's Directors,
officers and employees who are affiliated with Stephens. The Administrator and
Co-Administrator are entitled to receive a monthly fee of 0.03% and 0.04%,
respectively, of the average daily net assets of each Fund. Prior to February 1,
1998, the Administrator and Co-Administrator were entitled to receive a monthly
fee of 0.04% and 0.02%, respectively, of the average daily net assets of each
Fund. 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 to the
Funds. Stephens performed substantially the same services now provided by
Stephens and Wells Fargo Bank and was entitled to receive for its services a fee
of 0.05% of the Asset Allocation and U.S. Government Allocation Funds' average
daily net assets. Stephens was entitled to receive a monthly fee from the Index
Allocation predecessor portfolio at the annual rate of 0.10% of its average
daily net assets up to $200 million and 0.05% in excess of $200 million.
For the period indicated below, the Funds paid to Wells Fargo Bank and
Stephens the following dollar amounts for administration and co-administration
fees:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------------------------------------------------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Asset Allocation $826,553 $553,791 $272,762
U.S. Government Allocation $ 56,777 $ 38,041 $ 18,736
Index Allocation/1/ $ 22,279 $ 14,927 $ 7,352
</TABLE>
- -----------------
/1/ This amount is for the three-month period ended 3/31/98.
For the periods indicated below, the Asset Allocation and U.S.
Government Allocation Funds and the predecessor portfolio paid to Stephens the
following dollar amounts for administration fees:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended Year Ended
Fund 3/31/97 9/30/96 12/31/95
---- ------- ------- --------
<S> <C> <C> <C>
Asset Allocation $186,005 $257,419 $306,436
U.S. Government Allocation $ 15,092 $ 32,354 $ 40,803
</TABLE>
For the periods indicated below, the Index Allocation Fund paid to
Stephens the following dollar amounts for administration fees:
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Index Allocation/1/ $61,260 $75,203 $60,627
- --------------------
</TABLE>
/1/ These amounts reflect amounts paid by the Overland predecessor portfolio.
For 1996, this amount is for the year ended December 31, 1996.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center
-----------
Street, Little Rock, Arkansas 72201, serves as Distributor for the Funds. Each
Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") for its shares. The Plans were
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Funds and who had no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Non-Interested
Directors").
Under the Plans, and pursuant to the related Distribution Agreement,
the Funds may pay Stephens the amounts below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net assets
attributable to each Class.
Fund Fee
---- ---
Asset Allocation
Class B 0.70%
Class C 0.75%
U.S. Government Allocation
Class B 0.70%
Index Allocation
Class A 0.25%
Class B 0.75%
Class C 0.75%
The actual fee payable to the Distributor by the above-indicated
Classes is determined, within such limits, from time to time by mutual agreement
between the Company and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates), under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
30
<PAGE>
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
Under the Plans in effect for the Class A shares of the Asset
Allocation and U.S. Government Allocation Funds, each Fund may defray all or
part of the cost of preparing and printing prospectuses and other promotional
materials and of delivering prospectuses and promotional materials to
prospective shareholders by paying on an annual basis up to 0.05% of the
respective Fund's average daily net assets attributable to Class A shares. The
Plans for the Class A shares of these Funds provide only for the reimbursement
of actual expenses.
For the year ended March 31, 1998, the Funds' Distributor received the
following fees for distribution-related services, as set forth below under each
such Fund's Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Dealers
---- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $ 259,643 $ 48,730 $210,913 N/A
Class B $1,146,537 N/A N/A $686,985
Class C N/A N/A N/A N/A
U.S. Government Allocation
Class A $ 63,452 $ 47,985 $ 15,467 N/A
Class B $ 66,425 N/A N/A $ 34,555
Index Allocation
Class A $ 52,642 $ N/A $ N/A $ 25,662
Class B $ 3,199 $ N/A $ N/A $ 749
Class C $ 91,845 $ N/A $ N/A $ 3,993
</TABLE>
For the periods indicated above, Wells Fargo Securities Inc. ("WFSI"),
an affiliated broker-dealer of the Company, and its registered representatives
received no compensation under the Distribution Plans.
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be 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,
31
<PAGE>
without payment of any penalty, by a vote of a majority of outstanding voting
securities of the relevant class of the Fund or by vote of a majority of the
Non-Interested Directors on not more than 60 days' written notice. The Plans may
not be amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Funds, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plans require that the Treasurer of the Company shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plans. The Rule
also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Funds' shares pursuant to selling agreements with Stephens authorized under
the Plans. As a selling agent, Wells Fargo Bank has an indirect financial
interest in the operation of the Plans. The Board of Directors has concluded
that the Plans are reasonably likely to benefit the Funds and their shareholders
because the Plans authorize the relationships with selling agents, including
Wells Fargo Bank, that have previously developed distribution channels and
relationships with the retail customers that the Funds are designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
ADMINISTRATIVE SERVICING AGENT. The Index Allocation Fund has adopted a
------------------------------
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
on behalf of its Class A shares. Pursuant to the Administrative Servicing Plan,
the Fund may enter into Administrative Servicing Agreements with administrative
servicing agents (broker/dealers, banks and other financial institutions, which
may include Wells Fargo Bank and its affiliates) who are dealers/holders of
record, or that otherwise have a servicing relationship with the beneficial
owners, of the Fund's Class A shares. Administrative servicing agents agree to
perform shareholder administrative and liaison services which may include, among
other things, maintaining an omnibus account with the Fund, aggregating and
transmitting purchase, exchange and redemption orders from its customers,
answering customer inquiries regarding a shareholder's accounts in the Fund, and
providing such other services as the Company or a customer may reasonably
request. Administrative servicing agents are entitled to a fee which will not
exceed 0.25%, on an annualized basis, of the average daily net assets of the
Class A shares represented by the shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Class A
distribution plan while being sold pursuant to its Administrative Servicing
Plan.
32
<PAGE>
For the year ended March 31, 1998, the Index Allocation Fund paid to
Wells Fargo Bank or its affiliates $7,352 in administrative servicing fees,
after waivers. Prior to December 12, 1997, this amount reflects fees paid by the
Overland predecessor portfolio.
The Administrative Servicing Plan will continue in effect from year to
year if such continuance is approved from year to year if such continuance is
approved by a majority vote of the Directors of the Company. Any form of
Servicing Agreement related to the plans also must be approved by such vote of
the Directors. Servicing Agreements will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding shares of the Class A shares of the fund. The
Administrative Servicing Plans may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the outstanding
shares of the Class A shares of the Fund, and no other material amendment to the
Plan or related Administrative Servicing Agreements may be made except by a
majority of the Directors.
The Administrative Servicing Plan requires that the Administrator shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the Plan.
SHAREHOLDER SERVICING AGENT. The Funds have approved a Shareholder
---------------------------
Servicing Plan and have entered into related shareholder servicing agreements
with financial institutions, including Wells Fargo Bank on behalf of each class
of shares, with the exception of Class A of the Index Allocation Fund which has
an Administrative Servicing Plan and Agreement. Under the agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree to perform, as
agents for their customers, 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, on an annualized
basis, of the average daily net assets of the class of shares owned of record or
beneficially by the customers of the Servicing Agent during the period for which
payment is being made. The amounts payable under the Shareholder Servicing Plan
are shown below. The Servicing Plans and related forms of shareholder servicing
agreement were approved by the Company's Board of Directors and provide that a
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.
33
<PAGE>
Fund Fee
---- ---
Asset Allocation
Class A 0.30%
Class B 0.30%
Class C 0.25%
U.S. Government Allocation
Class A 0.30%
Class B 0.30%
Index Allocation
Class B 0.25%
Class C 0.25%
For the period indicated below, the dollar amounts of shareholder
servicing fees (after waivers) paid by the Funds to Wells Fargo Bank or its
affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Year Ended Period Ended Period Ended
Fund 3/31/98 3/31/97 9/30/96
---- ------- ------- -------
<S> <C> <C> <C>
Asset Allocation - Class A $3,523,348 $1,648,234 $2,464,701
Asset Allocation - Class B $ 492,801 $ 118,374 $ 109,487
Asset Allocation - Class C N/A N/A N/A
U.S. Government Allocation - Class A $ 252,309 $ 76,579 $ 310,872
U.S. Government Allocation - Class B $ 28,412 $ 5,608 $ 12,608
Index Allocation - Class C/1/ $ 30,615 $ 86,268 N/A
Index Allocation - Class A $ 0 N/A N/A
Index Allocation - Class B $ 0 $ 22/2/ N/A
</TABLE>
- --------------------
/1/ Prior to December 12, 1997, these amounts reflect fees paid by the Class
D shares of the Overland predecessor portfolio.
/2/ This reflects the amount paid 12/14/97-12/31/97.
General. The Servicing Plan will continue in effect from year to year
-------
if such continuance is approved by a majority vote of the Directors of the
Company, including a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form
of Servicing Agreement related to the Servicing Plan also must be approved by
such vote of the Directors and Non-Interested Directors. Servicing Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Board of Directors, including a majority of the Non-
34
<PAGE>
Interested Directors. No material amendment to the Servicing Plan or related
Servicing Agreements may be made except by a majority of both the Directors of
the Company and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
CUSTODIAN. Barclays Global Investors, N.A. ("BGI") acts as Custodian
---------
for each Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of each Fund; receives and delivers all assets for each
Fund upon purchase and upon sale or maturity; collects and receives all income
and other payments and distributions on account of the assets of each Fund and
pays all expenses of each Fund. For its services as Custodian, BGI is not
entitled to receive compensation so long as its subsidiary, BGFA, is entitled to
receive fees for providing investment advisory services to the Fund. Prior to
the Consolidation, Wells Fargo Bank served as Custodian to the predecessor
portfolio.
For the year-ended March 31, 1998, the Funds did not pay any custody
fees.
FUND ACCOUNTANT. Wells Fargo Bank acts as Fund Accountant for each
---------------
Fund. The Fund Accountant, among other things, computes net asset values on a
daily basis, and performance calculations on a regular basis and as requested by
the Funds. For providing such services, Wells Fargo Bank will be entitled to
receive from each Fund a monthly base fee of $2,000, plus a fee equal to an
annual rate of 0.070% of the first $50,000,000 of the Fund's average daily net
assets, 0.045% of the next $50,000,000, and 0.020% of the average daily net
assets in excess of $100,000,000.
For the year ended March 31, 1998, the Funds paid Wells Fargo Bank the
following dollar amounts:
Year-Ended
Fund 3/31/98
---- -------
Asset Allocation Fund $ 103,995
U.S. Government Allocation Fund $ 23,326
Index Allocation Fund $ 21,627
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as
--------------------------------------
Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.14% of each Fund's average daily net assets of each Class of shares.
Under the prior transfer agency agreement, Wells Fargo Bank was entitled to
receive a per account fee plus transaction fees and out-of-pocket related costs
with a minimum of $3,000 per month per Fund, unless net assets of a
35
<PAGE>
Fund were under $20 million. For as long as a Fund's assets remained under $20
million, the Fund was not charged any transfer agency fees.
For the year ended March 31, 1998, the Asset Allocation and U.S.
Government Allocation Funds paid to Wells Fargo Bank the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers:
Year-Ended
Fund 3/31/98
---- -------
Asset Allocation Fund $ 1,874,203
U.S. Government Allocation Fund $ 280,721
For the periods indicated below, the Index Allocation paid the
following dollar amounts in transfer and dividend disbursing agency fees, after
waivers:
Three-Month
Period Ended Year-Ended
Fund 3/31/98 12/31/97
---- ------- --------
Index Allocation Fund/1/ $30,615 $115,747
- --------------------
/1/ Prior to December 12, 1997, these amounts reflect fees paid by the Overland
predecessor portfolio.
UNDERWRITING COMMISSIONS. For the year ended March 31, 1998, the
------------------------
aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $7,671,295. Stephens retained
$939,892 of such commissions. WFSI, an affiliated broker-dealer of the Company
retained $5,348,626.
For the six-month period ended March 31, 1997, the aggregate dollar
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,296,243. Stephens retained $241,806 of such commissions.
WFSI and its registered representatives received $1,719,000 and $335,437,
respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,917,738. Stephens retained $198,664 of such commissions.
WFSI and its registered representatives received $2,583,027 and $136,047,
respectively, of such commissions.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,251,311. Stephens retained $162,660 of such commissions.
WFSI and its registered representatives received $399,809 of such commissions.
36
<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 yield of a
Fund and the yield of a Class of shares in a Fund, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
Performance shown or advertised for Class A shares of the Stagecoach
Asset Allocation Fund for periods prior to January 2, 1992, reflects performance
of the shares of the Asset Allocation Fund for the Wells Fargo Investment Trust
for Retirement Programs, a predecessor portfolio with the same investment
objective and policies as the Stagecoach Asset Allocation Fund. Performance
shown or advertised for Class B shares of the Stagecoach Fund for the period
from January 2, 1992 to January 1, 1995, reflects performance of the Class A
shares of the Stagecoach Fund, adjusted to reflect Class B expenses and sales
charges. For periods prior to January 2, 1992, Class B share performance
reflects performance of the predecessor portfolio, adjusted to reflect Class B
expenses and sales charges. Performance shown or advertised for Class C shares
of the Fund for the period prior to April 1, 1998, reflects performance of the
Class A shares of the Fund, adjusted to reflect Class C expenses and sales
charges. For periods prior to January 2, 1992, Class C share performance
reflects performance of the predecessor portfolio, adjusted to reflect Class C
expenses and sales charges.
Performance shown or advertised for the Class A shares of the
Stagecoach Index Allocation Fund, reflects performance of the Class A shares of
the Overland Express Index Allocation Fund (the accounting survivor of a merger
of the Funds on December 12, 1997). Performance shown or advertised for the
Class C shares of the Stagecoach Fund reflects performance of the Class D shares
of the Overland Fund; for
37
<PAGE>
periods prior to July 1, 1993, Class C share performance of the Stagecoach Fund
reflects performance of the Class A shares of the Overland Fund adjusted to
reflect the sales charges and expenses of the Class C shares. Performance shown
or advertised for the Class B shares of the Stagecoach Fund reflects performance
of the Class D shares of the Overland Fund; for periods prior to July 1, 1993,
Class B share performance of the Stagecoach Fund reflects performance of the
Class A shares of the Overland Fund adjusted to reflect sales charges and
expenses of the Class B shares.
Performance shown or advertised for the Class A shares of the
Stagecoach U.S. Government Allocation Fund for periods prior to January 2, 1992,
reflects performance of the shares of the Fixed Income Strategy Fund of the
Wells Fargo Investment Trust for Retirement Programs, a predecessor portfolio
with the same investment objective and policies as the Stagecoach Fund.
Performance shown or advertised for Class B shares of the Stagecoach Fund for
the period from January 2, 1992 to January 1, 1995, reflects performance of the
Class A shares of the Stagecoach Fund, adjusted to reflect Class B expenses and
sales charges. For periods prior to January 2, 1992, performance shown or
advertised for Class B shares of the Stagecoach Fund, reflects performance of
the predecessor portfolio, adjusted to reflect Class B expenses and sales
charges.
AVERAGE ANNUAL TOTAL RETURN: Each Fund may advertise certain total
---------------------------
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in
shares of the Fund ("P") over a period of years ("n") according to the following
formula: P(1+T)/n/ = ERV.
Average Annual Total Return for the Applicable Period Ended March 31, 1998/1/
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five
Inception/1/ Inception Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge Charge Charge
---- -------- ------ ------ ------ ------ ------ ------ ------
Asset Allocation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 12.73% 13.19% 14.39% 15.44% 19.81% 21.67% 29.93% 36.08%
Class B 12.53% 12.53% 14.66% 14.85% 20.30% 20.99% 30.15% 35.16%
[CLASS C] 12.53% 12.53% 14.85% 14.85% 20.99% 20.99% 34.16% 35.16%
Index Allocation
Class A 14.34% 14.87% 17.54% 18.74% 25.39% 27.33% 33.52% 40.10%
Class B 14.07% 14.07% 17.89% 17.90% 25.73% 26.36% 33.83% 38.83%
Class C 14.08% 14.08% 17.92% 17.82% 26.39% 26.39% 37.94% 38.94%
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Allocation
Class A 7.43% 7.88% 4.84% 5.81% 5.40% 7.03% 4.47% 9.35%
Class B 7.28% 7.28% 5.04% 5.27% 5.39% 6.29% 3.64% 8.84%
</TABLE>
- --------------------
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Asset Allocation - 11/13/86; U.S. Government Allocation
- 3/31/87; Index Allocation - 4/7/88.
CUMULATIVE TOTAL RETURN: In addition to the above performance
-----------------------
information, the Funds may advertise the cumulative total return for one-month,
three-month, six-month and year-to-date periods. The cumulative total return for
such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended March 31, 1998/1/
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception Inception Ten Year Ten Year Five Year Five Year Three Year Three Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge Charge Charge
---- --------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset
Allocation
Class A 290.76% 309.13% 242.37% 258.57% 95.84% 105.05% 71.89% 80.10%
Class B 284.94% 284.94% 240.05% 240.05% 98.18% 99.67% 74.12% 77.12%
[CLASS C] 284.94% 284.94% 240.05% 240.05% 99.87% 99.87% 77.12% 77.12%
Index
Allocation
Class A 281.90% 299.85% N/A N/A 125.31% 136.00% 97.16% 106.45%
Class B 273.09% 273.09% N/A N/A 125.77% 127.77% 96.76% 101.76%
Class C 273.39% 273.39% N/A N/A 127.95% 127.95% 101.92% 101.92%
U.S.
Government
Allocation
Class A 119.83% 130.27% 105.78% 115.41% 26.68% 32.65% 17.08% 22.59%
Class B 115.51% 115.51% 103.87% 103.87% 27.90% 29.29% 17.07% 20.07%
</TABLE>
- --------------------
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
39
<PAGE>
/2/ For purposes of showing performance information, the inception date of
each Fund is as follows: Asset Allocation - 11/13/86; U.S. Government
Allocation- 3/31/87; Index Allocation - 4/7/88.
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
Yield for the Year Ended March 31, 1998/1/
------------------------------------------
Fund Thirty Day Yield
---- ----------------
Asset Allocation
Class A 0.69%
Class B 0.11%
Class C N/A
Index Allocation
Class A 0
Class B 0
Class C N/A
40
<PAGE>
U.S. Government Allocation
Class A 3.77%
Class B 3.24%
----------------------
/1/ This figure reflects the maximum front-end sales load of 4.50% and the
maximum applicable Contingent Deferred Sales Charge ("CDSC").
The yield on each Class of the U.S. Government Allocation Fund will
fluctuate from time to time, unlike bank deposits or other investments that pay
a fixed yield for a stated period of time, and does not provide a basis for
determining future yields since it is based on historical data. Yield is a
function of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each Class of the U.S. Government Allocation Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders of each Fund. Yield information for
the Fund or each Class of shares of the Fund, as the case may be, may be useful
in reviewing the performance of such Fund and for providing a basis for
comparison with investment alternatives. The yield of the Fund or each Class of
a Fund, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
From time to time and only to the extent the comparison is appropriate
for a Fund or Class of shares, the Company may quote the performance or
price-earning ratio of a Fund or Class in advertising and other types of
literature as compared to the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or Class of shares, as appropriate, also may be compared
to those of other mutual funds having similar objectives. This comparative
performance
41
<PAGE>
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains, distributions and dividends paid, at the end
of the period. The Funds' comparative performance will be based on a comparison
of yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare the
past performance of a Fund or Class of shares with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is appropriate
for a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund or a Class of
shares, or on returns in general, may be illustrated by graphs, charts, etc.,
where such graphs or charts would compare, at various points in time, the return
from an investment in a Fund or Class of shares (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
The Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
42
<PAGE>
From time to time, the Company also may include in advertisements or
other marketing materials a discussion of certain of the objectives of the
investment strategy of the Funds and a comparison of this strategy with other
investment strategies. In particular, the responsiveness of these Funds as to
changing market conditions may be discussed. For example, the Company may
describe the benefits derived by having Wells Fargo Bank monitor and reallocate
investments among the asset categories described in the Prospectus of each Fund
and Fund. The Company's advertising or other marketing material also might set
forth illustrations depicting examples of recommended allocations in different
market conditions. It may state, for example, that when the model indicates that
stocks represent a better value than bonds or money market instruments, the
Asset Allocation Fund or Index Allocation Fund might consist of 70% stocks, 25%
bonds and 5% money market instruments and that when the model indicates that
bonds represent a better value than stocks or money market instruments, the
balance of assets might shift to 60% bonds, 20% stocks and 20% money market
instruments.
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a Nationally Recognized
Statistical Ratings Organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare a
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines ("ATMs"), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management (formerly
Wells Fargo Investment Management), a division of Wells Fargo Bank, is listed in
the top 100 by Institutional Investor magazine in its July 1997 survey
"America's Top 300 Money Managers." This survey ranks money managers in several
asset categories. The Company may also disclose in advertising and other types
of sales literature the assets and categories of assets under management by its
investment advisor or sub-advisor and
43
<PAGE>
the total amount of assets and mutual fund assets managed by Wells Fargo Bank.
As of December 31, 1997, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $62 billion of assets of individuals,
trusts, estates and institutions and $23 billion of mutual fund assets.
The Company also may disclose in sales literature the distribution rate
on the shares of each class of the Asset Allocation or U.S. Government
Allocation Funds. The 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 net asset value ("NAV") or maximum offering price per share
as of a date specified in the sales literature. The distribution rate will be
accompanied by the standard 30-day yield as required by the SEC.
The Company also may discuss in advertising and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Funds may be made via a "sweep" arrangement,
including, without limitation, the Managed Sweep Account, Money Market Checking
Account, California Tax-Free Money Market Checking Account, Money Market Access
Account and California Tax-Free Money Market Access Account (collectively, the
"Sweep Accounts"). Such advertisements and other literature may include, without
limitation, discussions of such terms and conditions as the minimum deposit
required to open a Sweep Account, a description of the yield earned on shares of
the Funds through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
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
44
<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 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 by the Company's Board of Directors and in accordance with procedures
adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. The Funds are open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
45
<PAGE>
Payment for shares may, in the discretion of the advisor, be made in
the form of securities that are permissible investments for the Funds. For
further information about this form of payment please contact Stephens. In
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in accordance
with the pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Company's responsibilities under the 1940 Act. In addition,
the Company may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of the Fund as
provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the Act, persons affiliated with the Company are
46
<PAGE>
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Funds may purchase
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 Investment Advisor to each of the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000
in commissions to various broker/dealers in connection with such allocated
transactions.
Asset Allocation and Index Allocation Funds. Purchases and sales of
-------------------------------------------
equity securities on a securities exchange are effected through brokers who
charge a negotiated commission for their services. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Stephens or Wells Fargo Securities Inc. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. The Asset Allocation Fund will not deal with Stephens,
Wells Fargo Bank or their affiliates in any transaction in which any of them
acts as principal without an exemptive order from the Commission.
Brokerage Commissions. For the periods indicated below, the Funds paid
---------------------
the following amounts as brokerage commissions, none of which were paid to
affiliated brokers.
47
<PAGE>
<TABLE>
<CAPTION>
Six-Month Nine-Month
Year-Ended Period Ended Year Ended Period Ended Year Ended
Fund 3/31/98 3/31/97 12/31/96 9/30/96 12/31/95
- ---- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Asset Allocation $17,322 $ 0 N/A $6,561 $34,488
Index Allocation* $ 955 $1,976 $2,317 N/A $ 0
U.S. Government N/A $ 0 N/A $ 0 $ 0
Allocation
</TABLE>
- --------------------
* Prior to December 12, 1997, these amounts reflect fees paid by the Overland
predecessor portfolio.
Securities of Regular Broker/Dealers. As of March 31, 1998, neither the
------------------------------------
Asset Allocation Fund nor the U.S. Government Allocation Fund owned securities
of their "regular brokers or dealers" or their parents, as defined in the 1940
Act. For the Index Allocation Fund, as of March 31, 1998, the Fund owned
securities of its "regular brokers or dealers" or its parents as follows:
JP Morgan $415,697
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
48
<PAGE>
preparing and printing Prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of Fund
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against a Fund's assets. General expenses of the Company
are allocated among all of the funds of the Company, including a Fund, in a
manner proportionate to the net assets of each Fund, on a transactional basis,
or on such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This section
of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 with respect to 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.
49
<PAGE>
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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions declared
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. 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 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 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 the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of
the
50
<PAGE>
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that 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 Federal income tax impact.
Offsetting positions held by a Fund 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 Fund
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 Fund 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 Fund may differ. Generally, to
the extent the straddle rules apply to positions established by the Fund, losses
realized by the Fund 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
51
<PAGE>
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 a Fund invests in a PFIC, the Fund intends to
make an available election to mark-to-market its interest in PFIC shares. Under
the election, the Fund will be treated as recognizing at the end of each taxable
year the 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 under the
election.
Income and dividends received by the Funds from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
Capital Gain Distributions. Distributions which are designated by a
--------------------------
Fund as capital gain distributions will be taxed to shareholders as long-term
term capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund
52
<PAGE>
share is held for six months or less, then (unless otherwise disallowed) any
loss on the sale or exchange of that Fund share will be treated as a long-term
capital loss to the extent of the designated capital gain distribution. In
addition, 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 have
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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company also could
subject the investor to penalties imposed by the IRS.
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 distribution by a Fund 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 such dividend income.
53
<PAGE>
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 that 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 the Funds may involve sophisticated tax rules that may result in income
or gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the Funds. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.
54
<PAGE>
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 Investor
Services at 1-800-222-8222 if you would like additional information about other
funds or classes of shares offered.
With respect to matters affecting one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, all shares of a Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by a series is required
by law or where the matter involved only affects one series. For example, a
change in a Fund's fundamental investment policy affects only one series and
would be voted upon only by shareholders of the Fund involved. Additionally,
approval of an advisory contract, since it affects only one Fund, is a matter to
be determined separately by series. Approval by the shareholders of one Series
is effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of such class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the class of the Fund. The term "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.
55
<PAGE>
Shareholders are not entitled to any preemptive rights or subscription.
All shares, when issued, will be fully paid and non-assessable by the Company
for the consideration described in the Prospectus.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
are entitled to receive the assets attributable to that Fund that are available
for distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Set forth below as of June 30, 1998 is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities of a Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
ASSET ALLOCATION Wells Fargo Bank Class A 69.01% 49.86%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
Dean Witter for the Class C 6.51% .009%
Benefit of Christine Griffith Beneficially Owned
150 La Vereda Road
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Class C 10.67% .015%
Benefit of Robert K. Halliday Beneficially Owned
150 La Vereda Road
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Class C 8.64% .012%
Benefit of Mario A. Chavez Beneficially Owned
150 La Vereda Road
P.O. Box 250
Church Street Station
New York, NY 10008-0250
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dean Witter for the Class C 13.34% .018%
Benefit of Paul Kranz Beneficially Owned
150 La Vereda Road
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Class C 7.85% .011%
Benefit of Steve F. Tognoli Beneficially Owned
150 La Vereda Road
P.O. Box 250
Church Street Station
New York, NY 10008-0250
INDEX Merrill Lynch Pierce Class A 10.72% 6.80%
ALLOCATION Fenner & Smith, Inc. Record Holder
Record Holder for
Exclusive Benefit of its
Customers
Attn: Fund Administration
4800 Deer Lake East,
3rd Floor
Jacksonville, FL 32246
Merrill Lynch Pierce Class C 26.00% 8.72%
Fenner & Smith, Inc. for Record Holder
Exclusive Benefit of
Customers
Attn: Fund Admin.
4800 Deer Lake East,
3rd Floor
Jacksonville, FL 32246
U.S. GOVERNMENT Wells Fargo Bank Class A 47.90% 37.70%
ALLOCATION P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI
for the Funds and the exhibits filed therewith, may be examined at the office of
the U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
57
<PAGE>
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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 portfolios of investments and audited financial statements for the
Funds for the year ended March 31, 1998, are hereby incorporated by reference to
the Company's Annual Report as filed with the SEC on June 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling
1-800-222-8222.
58
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds and 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 lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned
by S&P and have "an extremely strong capacity" to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity" to pay interest and
repay principal and "differ from the highest rated obligations only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Corporate and Municipal Notes
- -----------------------------
Moody's: The highest rating for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes
A-1
<PAGE>
rated "MIG 3" or "VMIG 3" are of "favorable quality," with all security elements
accounted for, but lacking the strength of the preceding grades.
S&P: The two highest ratings for corporate, state and municipal notes
are "SP-1" and "SP-2." The "SP-1" rating reflects a "very strong or strong
capacity to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of senior short-term debt obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal commercial
paper is rated "in the highest category" by S&P and "the obligor's capacity to
meet its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The A-2 rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated August 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 August 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.............................. 5
Risk Factors............................................................ 23
Management.............................................................. 25
Performance Calculations................................................ 38
Determination of Net Asset Value........................................ 42
Additional Purchase and Redemption Information.......................... 43
Portfolio Transactions.................................................. 44
Fund Expenses........................................................... 47
Federal Income Taxes.................................................... 47
Capital Stock........................................................... 52
Other................................................................... 56
Counsel................................................................. 57
Independent Auditors.................................................... 57
Financial Information................................................... 57
Appendix................................................................ A-1
</TABLE>
i
<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
2
<PAGE>
investments in that industry would be 25% or more of the current value of the
Fund's total assets, provided that there is no limitation with respect to
investments in obligations of the United States Government, its agencies or
instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except the Fund may borrow from banks up to
10% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of Fund's net assets (but investments may not be
purchased by the Fund while any such outstanding borrowings exceed 5% of the
Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Fund may purchase securities
with put rights in order to maintain liquidity and may invest up to 5% of its
net assets in warrants in accordance with its investment policies as stated
below; nor
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer or the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer.
The Fund may make loans in accordance with its investment policies.
3
<PAGE>
The Small Cap Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities; and provided
further, that the Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as the Fund, without regard to
the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein, including mortgage pass through securities),
commodities or commodity contracts or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or management;
provided that the Fund may invest all its assets in a diversified, open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as the Fund, without regard to the
limitations set forth in this paragraph (5);
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 33 1/3%
of the current value of its total assets, provided that, this restriction does
not apply to the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering; nor
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one
4
<PAGE>
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.
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.
5
<PAGE>
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two highest rating categories by a NRSRO.
Commercial paper may include variable- and floating-rate instruments.
6
<PAGE>
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 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.
7
<PAGE>
Any such economic downturn also could adversely affect the ability of the
issuers of such securities to repay principal and pay interest thereon.
The Funds may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above for each
Fund and that have a strong earnings and credit record. The Funds may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same issuer.
Convertible securities, while usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a steady
income stream (which generally yield a lower amount than similar nonconvertible
securities and a higher amount than common stocks) as well as the opportunity to
take advantage of increases in the price of the issuer's common stock through
the conversion feature. Fluctuations in the convertible security's price can
reflect changes in the market value of the common stock or changes in market
interest rates. At most, 5% of each Fund's net assets will be invested, at the
time of purchase, in convertible securities that are not rated in the four
highest rating categories by one or more NRSROs, such as Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Rating Group ("S&P"), or unrated
but determined by the Advisor to be of comparable quality.
Corporate Reorganizations
-------------------------
The Funds may invest in securities for which a tender or exchange offer has
been made or announced, and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of Wells Fargo Bank, there is a reasonable prospect of
capital appreciation significantly greater than the added portfolio turnover
expenses inherent in the short term nature of such transactions. The principal
risk associated with such investments is that such offers or proposals may not
be consummated within the time and under the terms contemplated at the time of
the investment, in which case, unless such offers or proposals are replaced by
equivalent or increased offers or proposals which are consummated, the Funds may
sustain a loss.
Custodial Receipts for Treasury Securities
------------------------------------------
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by a Fund in such
participations will not exceed 5% of the value of that Fund's total assets.
Emerging 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
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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.
11
<PAGE>
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.
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
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<PAGE>
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 issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. A Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities
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<PAGE>
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 portfolios of mortgage pass-
through securities guaranteed by the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage
14
<PAGE>
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.
15
<PAGE>
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.
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.
16
<PAGE>
The Funds may also write covered call and secured put options from time to
time as the Advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying security
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
Advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the difference between the closing price of the index at
the time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call option
is also covered if a Fund holds a call on the same instrument or index as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written provided the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. The Funds will write
put options only if they are "secured" by liquid assets maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction is ordinarily effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing
17
<PAGE>
different terms on such underlying instrument. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. There is no assurance that a liquid secondary market will exist for
any particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying instrument (in the case of
a covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned instrument or
currency is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline or appreciation in
the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by a Fund expires on the stipulated
expiration date or if a Fund enters into a closing purchase transaction, it
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the net premium received when the option is sold) and the deferred credit
related to such option is eliminated. If an option written by a Fund is
exercised, the proceeds of the sale are increased by the net premium originally
received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded over-the-
counter or on an exchange, may be absent for reasons that include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities or
currencies; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the Options Clearing
Corporation may not be adequate at all times to handle current trading value;
or one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund is likely to be unable to
control losses by closing its position where a liquid secondary market does not
exist. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
18
<PAGE>
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 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
19
<PAGE>
reduction in the price of securities purchased. The Funds also may buy or sell
stock index futures contracts to close out existing futures positions.
The Funds may also purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the Funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transaction rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of a Fund's net assets are committed to such transactions. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the 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.
20
<PAGE>
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Funds.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the investment Advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment Advisor, under guidelines approved by Board of
Directors of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by a Fund on a case-by-case basis and
will consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on
21
<PAGE>
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.
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
22
<PAGE>
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 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 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
23
<PAGE>
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.
24
<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.
25
<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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Cryster Geyser
Cryster Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of 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>
26
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------------- ------------------------------------------ ------------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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 below 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
27
<PAGE>
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%
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 periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
28
<PAGE>
<TABLE>
<CAPTION> Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
---------- --------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
- -------------------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balanced $ 326,287 $232,442 $261,078 $30,456
Equity Value $1,286,783 $ 95,512 $557,096 $ 0
Growth $1,753,825 $ 44,284 $782,529 $ 0
Small Cap $ 169,949 $227,120 $ 89,707 $ 0
</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, Wells Fargo Investment
Management, Inc. ("WFIM") and its predecessor First Interstate Capital
Management, Inc. ("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:
<TABLE>
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>
Year Ended
9/30/95
--------
Fund Fees Paid Fees Waived
- ----------------------------- -------------- ---------------
<S> <C> <C>
Balanced $579,850 $0
Equity Value $992,870 $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:
29
<PAGE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
------------------ --------
Fees Fees Fees Fees
Paid Waived Paid Waived
- ------------------ ------------ ------------- -------------
<S> <C> <C> <C>
$799,899 $0 $754,149 $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 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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
30
<PAGE>
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.25% of the first $200 million of the
Funds' average daily net assets, 0.20% of the next $200 million of the Funds'
net assets, and 0.15% of net assets over $400 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from the Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by the Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
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 also has been 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
31
<PAGE>
Committee. Mr. Hickman has a B.A. and an M.B.A. in Finance from Brigham Young
University.
Mr. Kenneth Lee became a portfolio co-manager to the Small Cap Fund as of
June, 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 in February, 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.
32
<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>
Year-Ended
3/31/98
--------
Fund Total Wells Fargo Stephens
- --------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Balanced $ 57,317 $ 38,402 $18,915
Equity Value $170,979 $114,556 $56,423
Growth $238,706 $159,933 $78,773
Small Cap $ 41,139 $ 27,563 $13,576
</TABLE>
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>
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.
33
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96* 9/30/95
------- -------
Fees Fees Fees
Fund Paid Paid Waived
- ------------------------- ------------------ ---------- -------------
<S> <C> <C> <C>
Balanced $130,709 $193,283 $19,328
Equity Value $240,273 $330,957 $33,096
</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
Fund 9/30/96 12/31/95
- ------------------------- -------- ---------
<S> <C> <C>
Growth $ 51,193 $ 45,249
Small Cap $ 492* N/A
</TABLE>
_______________
* 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").
34
<PAGE>
For the period indicated below, the dollar amount of shareholder servicing
fees paid by the Funds (on behalf of the Institutional Class shares) to Wells
Fargo Bank or its affiliates were as follows:
<TABLE>
<CAPTION>
Year-Ended
Fund 3/31/98
---- --------
<S> <C>
Balanced $137,171
Equity Value $531,300
Growth $ 52,112
Small Cap $123,628
</TABLE>
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>
Fund Year Ended
---- ----------
<S> <C>
Balanced $ 11,728
Equity Value $ 31,181
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.
35
<PAGE>
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 year-ended March 31, 1998, the Funds paid the following dollar
amounts in custody fees, after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Fund Custody Fees
---- ------------
<S> <C>
Balanced $15,551
Equity Value $46,169
Growth $68,468
Small Cap $23,391
</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 $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.
36
<PAGE>
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 year-ended March 31, 1998, 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 $ 86,476
Equity Value $217,027
Growth $525,161
Small Cap $ 52,733
</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-pocket expenses, with a minimum of
$3,000 per month, unless net
37
<PAGE>
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.
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.
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.
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.
38
<PAGE>
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.
Average Annual Total Return for the Applicable Period Ended March 31, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three One
Class Inception Year Year Year
- --------------------------------------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Balanced 13.20% 13.24% 18.86% 27.67%
Equity Value 17.53% 20.78% 29.24% 42.02%
Growth 16.93% 17.34% 25.10% 34.86%
Small Cap 35.28% N/A 33.62% 47.70%
</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.
Cumulative Total Return for the Applicable Period Ended March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three
Class Inception Year Year
- --------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Balanced 151.40% 85.23% 57.94%
Equity Value 249.76% 157.01% 115.85%
Growth 231.69% 122.48% 95.79%
Small Cap 180.78% N/A 138.56%
</TABLE>
39
<PAGE>
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
40
<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 August 1,
1998, Wells Fargo Bank and its affiliates provided investment advisory services
for approximately $63 billion of assets of individuals, trusts, estates and
institutions and $32 billion of mutual fund assets.
41
<PAGE>
The Company also may discuss in advertising and other types of literature
the features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account,
California Tax-Free Money Market Checking Account, Money Market Access Account
and California Tax-Free Money Market Access Account (collectively, the "Sweep
Accounts"). Such advertisements and other literature may include, without
limitation, discussions of such terms and conditions as the minimum deposit
required to open a Sweep Account, a description of the yield earned on shares of
the Funds through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per 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.
42
<PAGE>
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 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
43
<PAGE>
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 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
44
<PAGE>
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
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 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 year ended March 31, 1998, the Funds paid
---------------------
brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund Commissions
- ----------------------------------------------------------- -----------
<S> <C>
Balanced $ 101,472
Equity Value $ 448,506
Growth $1,089,196
Small Cap $ 233,382
</TABLE>
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 year ended December 31, 1995:
45
<PAGE>
<TABLE>
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
- ----------------------------- -------- ---------
<S> <C> <C>
Growth $531,052 $ 607,442
</TABLE>
During the years ended September 30, 1996 and 1995, the Equity Value and
Balanced Funds paid the following amounts in brokerage commissions:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 9/30/96 9/30/95
- -------------- -------- --------
<S> <C> <C>
Equity Value $575,504 $619,124
Balanced $254,191 $197,751
</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.
Securities of Regular Brokers or Dealers. As of March 31, 1998, 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. $ 85,000
J.P. Morgan $ 633,000
Equity Value Goldman Sachs & Co. $3,671,000
HSBC Securities $1,465,000
J.P. Morgan $ 678,000
Morgan Stanley $5,009,000
Growth Goldman Sachs & Co. $6,938,000
J.P. Morgan $7,900,000
Small Cap Goldman Sachs & Co. $ 577,000
HSBC Securities $1,318,000
J.P. Morgan Securities $3,549,000
Morgan Stanley $ 811,000
</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
46
<PAGE>
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 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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each
47
<PAGE>
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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 generally will 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.
48
<PAGE>
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 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 securities are purchased
by a Fund pursuant to the exercise of a put option written by it, such Fund will
subtract the premium received from its cost basis in the securities
purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, generally will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
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, generally will be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid federal adverse tax impact.
Offsetting positions held by a Fund 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 Fund 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 Fund 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 Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the
49
<PAGE>
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 a Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the 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 under the election.
Income and dividends received by the Funds from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
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
50
<PAGE>
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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 distribution by a Fund 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 such dividend income.
51
<PAGE>
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of capital gains are generally not subject to
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, 1999, 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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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.
52
<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 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 Investor 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 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.
53
<PAGE>
Set forth below as of June 30, 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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Address OF OWNERSHIP of Class of Fund
- ---------------------- ------------------------------------- --------------------------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCED FUND Wells Fargo Bank, TTEE Institutional Class 40.93% 21.05%
Choicemaster Record Holder
Attn: Mutual Funds A88-4
P.O. Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 46.75% 24.05%
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 18.04% 10.41%
FUND Choicemaster Record Holder
Attn: Mutual Funds A88-4
P.O. Box 9800
Calabasas, CA 91372
Dim & Co. Institutional Class 40.46% 23.35%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Virg. & Co. Institutional Class 11.14% 6.43%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 24.25% 13.99%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
Wells Fargo Bank Class A 16.45% N/A
FBO Retirement Plans Record Holder
Omnibus
P.O. Box 63015
San Francisco, CA 94163
Dean Witter for the Benefit of Class C 9.21% N/A
Jay P. Holland Beneficially Owned
P.O. Box 946 for Jay P. Holland
P.O. Box 250 Church Street
Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 8.55% N/A
Jodie H. Hadfield and Beneficially Owned
Gordon R. Hadfield JTTEN for Gordon Hadfield
P.O. Box 250 Church Street
Station
New York, NY 10008-0250
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Address OF OWNERSHIP of Class of Fund
- ---------------------- ------------------------------------- --------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Dean Witter for the Benefit of Class C 13.62% N/A
Hanna Harrar Beneficially Owned
P.O. Box 250 Church Street for Hanna Harrar
Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 9.01% N/A
A D E C Retirement Trust Beneficially Owned
P.O. Box 250 Church Street for A D E C Retirement
Station Trust
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 6.38% N/A
John J. & Hazel M. Semoni TTEES for T Beneficially Owned
P.O. Box 250 Church Street for John M. Hazel
Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 7.22% N/A
Tak-Ming Lam Beneficially Owned
P.O. Box 250 Church Street for Tak-Ming Lam
Station
New York, NY 10008-0250
Dean Witter Reynolds Cust for Class C 11.26% N/A
Steve F. Tognoli Beneficially Owned
P.O. Box 250 Church Street for Steve F. Tognoli
Station
New York, NY 10008-0250
GROWTH FUND Wells Fargo Bank Class A 49.31% 39.26%
P.O. Box 63015 Record Holder
San Francisco, CA 94163
Dim & Co. Institutional Class 5.06% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Virg. & Co. Institutional Class 44.21% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 47.80% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
SMALL CAP Wells Fargo Bank Class A 30.41% N/A
FUND FBO Retirement Plans Record Holder
Omnibus
P.O. Box 63015
San Francisco, CA 94163
State Street Bank and Trust Class A 12.97% N/A
as Trustee for Various Plans Record Holder
Two Heritage Drive
Quincy, MA 02171
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Address OF OWNERSHIP of Class of Fund
- ---------------------- ------------------------------------- --------------------------- ----------- -----------
<S> <C> <C> <C> <C>
MLPF&S for the Sole Benefit Class A 5.28% N/A
of its Customers Record Holder
Attn: Mutual Fund
Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
MLPF&S for the Sole Benefit Class C 37.16% N/A
of its Customers Beneficially Owned
Attn: Mutual Fund
Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
Wells Fargo Bank Institutional Class 72.92% 48.36%
420 Montgomery Street Record Holder
San Francisco, CA 94104
Virg. & Co. Institutional Class 14.17% 9.40%
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.
56
<PAGE>
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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 portfolios of investments, audited financial statements and independent
auditors' report for the Funds as of and for the year ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9, 1998.
The Company's Semi-Annual and Annual Reports may be obtained by calling 1-
800-260-5969.
57
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality
by all standards," but margins of protection or other elements make long-term
risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess
many favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in
each rating category from "Aa" through "Baa" in its rating system. The modifier
1 indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
Moody's: The highest rating for corporate commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for corporate commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
BALANCED FUND
DIVERSIFIED EQUITY INCOME FUND
EQUITY VALUE FUND
GROWTH FUND
INTERNATIONAL EQUITY FUND
SMALL CAP FUND
STRATEGIC GROWTH FUND
CLASS A, CLASS B AND CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about seven funds in the Stagecoach Family of Funds
(each, a "Fund" and collectively, the "Funds") -- the BALANCED, DIVERSIFIED
EQUITY INCOME, EQUITY VALUE, GROWTH, INTERNATIONAL EQUITY, SMALL CAP and
STRATEGIC GROWTH FUNDS. Each Fund offers Class A Shares and Class B Shares.
The International Equity, Small Cap and Strategic Growth Funds also offer Class
C shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated August 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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Historical Fund Information................................... 1
Investment Restrictions....................................... 2
Additional Permitted Investment Activities.................... 9
Risk Factors.................................................. 35
Management.................................................... 37
Performance Calculations...................................... 57
Determination of Net Asset Value.............................. 64
Additional Purchase and Redemption Information................ 64
Portfolio Transactions........................................ 65
Fund Expenses................................................. 68
Federal Income Taxes.......................................... 69
Capital Stock................................................. 74
Other......................................................... 77
Counsel....................................................... 78
Independent Auditors.......................................... 78
Financial Information......................................... 78
Appendix...................................................... A-1
</TABLE>
i
<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 Diversified Equity Income Fund was originally organized as a Fund of
the Company and commenced operations on November 18, 1992. The Class B shares
of the Fund commenced operations on January 1, 1995. Prior to December 12,
1997, the Fund was known as the "Diversified Income Fund."
The Growth Fund commenced operations on January 1, 1992, as the successor
to the Select Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor fund's date of inception was August 2, 1990. Prior
to December 12, 1997, the Growth Fund was known as the "Growth and Income Fund."
The International Equity Fund was originally organized as a fund of the
Company and commenced operations on September 24, 1997.
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 with a
corresponding investment objective of Master Investment Trust, another
investment company, 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.
The Strategic Growth Fund commenced operations on March 5, 1996. Prior to
December 12, 1997, the Strategic Growth Fund was known as the "Aggressive Growth
Fund." On December 12, 1997, the Strategic Growth Fund of Overland Express
Funds, Inc. ("Overland"), another investment company advised by Wells Fargo
Bank, was reorganized with and into the Company's Strategic Growth Fund (the
"Consolidation"). For accounting purposes, the Overland Fund is considered the
survivor of the Consolidation. The Class A shares and the Class D shares of the
Overland Fund commenced operations on January 20, 1993 and July 1, 1993,
respectively. The Overland Fund did not offer Class B shares and for accounting
purposes the Class B shares are considered to have commenced operations on
December 12, 1997. The Overland Fund is sometimes referred to throughout this
SAI as the "predecessor portfolio" to the Company's Strategic Growth Fund.
The Class C shares of the International Equity, and Equity Value Funds
commenced operations on April 1, 1998.
1
<PAGE>
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;
(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;
2
<PAGE>
(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 Diversified Equity Income Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities;
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein), commodities or commodity contracts or
interests in oil, gas, or other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets,
3
<PAGE>
but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets;
(7) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund would own more than 10% of the
outstanding voting securities of such issuer; nor
(8) write, purchase or sell puts, calls or options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity.
The Growth Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except the Fund may borrow from banks up to
10% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of Fund's net
4
<PAGE>
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 International Equity Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(2) issue senior securities, except as permitted by applicable law;
(3) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, more than 5% of the value of
the Fund's total assets would be invested in the securities of any one issuer or
the Fund would hold more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of the Fund's total assets may be invested without
regard to these limitations; nor
(4) borrow money, except as permitted by applicable law.
(5) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(6) underwrite securities of other issuers, except to the extent that the
purchase of securities directly from the issuer thereof or from an underwriter
for an issuer and the later disposition of such securities in accordance with
the Fund's investment program may be deemed to be an underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) make loans, except as permitted by applicable law;
5
<PAGE>
(9) purchase or sell commodities or commodities contracts, except that the
Fund may, on such conditions as may be set forth in the Fund's Prospectus and
this Statement of Additional Information, purchase, sell or enter into futures
contracts, foreign currency forward contracts, options on futures contracts,
foreign currency forward contracts, foreign currency options, or any interest
rate, securities-related or foreign currency-related hedging instrument, subject
to compliance with any applicable provisions of the federal securities or
commodities laws; nor
The Small Cap Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities; and provided
further, that the Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as the Fund, without regard to
the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein, including mortgage pass through securities),
commodities or commodity contracts or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or management;
provided that the Fund may invest all its assets in a diversified, open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as the Fund, without regard to the
limitations set forth in this paragraph (5);
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
6
<PAGE>
(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.
The Strategic Growth Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; and provided further, that
the Fund may invest all its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein),
commodities or commodity contracts, or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
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<PAGE>
(5) make investments for the purpose of exercising control or management,
provided that the Fund may invest all its assets in a diversified open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (5);
(6) issue senior securities except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 50% of
the current value of its total assets, provided that, this restriction does not
apply to the purchase of fixed time deposits, repurchase agreements, commercial
paper and other types of debt instruments commonly sold in a public or private
offering; nor
(8) purchase securities of any issuer (except securities issued by the
U.S. Government, its agencies or instrumentalities ) if, as a result, with
respect to 75% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer or, with respect to
100% of its total assets, the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer, provided that the Fund may invest
all its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
With respect to fundamental investment policy (7), the Fund does not intend
to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by a vote of a majority of the Directors of the Company or at any time
without approval of such Fund's shareholders.
(1) Each Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, a Fund's investment in such securities currently is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) Each Fund may not invest 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
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<PAGE>
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 of the Balanced, Diversified Equity Income, Equity Value, Growth,
Small Cap and Strategic Growth Funds may invest up to 25% of its net assets in
securities of foreign governmental and foreign private issuers that are
denominated in and pay interest in U.S. dollars.
(4) Each Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of each Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Funds will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
The International Equity Fund does not invest in the following types of
derivatives that generally are considered to be potentially volatile: capped
floaters, leveraged floaters, range floaters, dual index floaters or inverse
floaters. Additionally, the Fund will not invest in securities whose interest
rate reset provisions materially lag short-term interest rates, such as Cost of
Funds Index Floaters or other derivative instruments the Fund considers to have
the potential for excessive volatility.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Bank Obligations
----------------
The Funds [(EXCEPT THE INTERNATIONAL EQUITY 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.
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Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Funds [(EXCEPT THE INTERNATIONAL EQUITY FUND)] may invest in commercial
paper (including variable amount master demand notes) which refers to short-
term, unsecured promissory notes issued by corporations to finance short-term
credit needs. Commercial paper is usually sold on a discount basis and has a
maturity at the time of issuance not exceeding nine months. Variable amount
master demand notes are demand obligations which permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a commercial bank acting as agent for the payee of such
notes whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Investments by the 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 Nationally Recognized Statistical Ratings
Organization ("NRSRO"). Commercial paper may include variable- and floating-
rate instruments.
Convertible Securities (Lower Rated Securities)
-----------------------------------------------
The Funds [(EXCEPT THE INTERNATIONAL EQUITY FUND)] 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 include securities
also known as junk bonds, generally are higher than the yields available on
higher-rated securities. However, investments in lower rated securities and
comparable unrated securities generally involve greater volatility of price and
risk of loss of income and principal, including the probability of default by or
bankruptcy of the issuers of such securities. Lower rated securities and
comparable unrated securities (a) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are outweighed
by large uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held in a Fund's portfolio, with a
commensurate effect on the value of the Fund's shares.
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<PAGE>
While the market values of lower rated securities and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities often
are highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt obligations during
an economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because lower rated securities and comparable unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. The Funds may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on their portfolio holdings. The existence of limited markets for
lower rated securities and comparable unrated securities may diminish a Fund's
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (b) sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in financial markets.
Certain lower rated debt securities and comparable unrated securities
frequently have call or buy-back features that permit their issuers to call or
repurchase the securities from their holders, such as a Fund. If an issuer
exercises these rights during periods of declining interest rates, a Fund may
have to replace the security with a lower yielding security, thus resulting in a
decreased return to the Fund.
The market for certain lower rated securities and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known.
Any such recession, however, could 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
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rating categories by one or more NRSROs, such as Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"), or unrated but
determined by the Advisor to be of comparable quality.
Corporate Reorganizations
-------------------------
The Funds [(EXCEPT THE INTERNATIONAL EQUITY FUND)] may invest in securities
for which a tender or exchange offer has been made or announced, and in
securities of companies for which a merger, consolidation, liquidation or
similar reorganization proposal has been announced if, in the judgment of Wells
Fargo Bank, 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 [(EXCEPT THE INTERNATIONAL EQUITY 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 a Fund in such participations will not exceed 5% of
the value of that Fund's total assets.
Emerging Market Securities
--------------------------
The Diversified Equity Income, Growth, Small Cap and Strategic Growth Funds
each may invest up to 15% (25% for the International Equity Fund) 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 Depository Receipts ("ADRs"),
Canadian Depository Receipts ("CDRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") and International Depository Receipts
("IDRs") of such issuers.
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<PAGE>
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. The financial markets of emerging markets
countries are generally less well capitalized and thus securities of issuers
based in such countries may be less liquid. Most are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries may still have obsolete financial systems, economic problems or
archaic legal systems. The currencies of certain emerging market countries, and
therefore the value o securities denominated in such currencies, may be more
volatile than currencies of developed countries. In addition, many of these
nations are experiencing political and social uncertainties.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds [(EXCEPT THE INTERNATIONAL EQUITY FUND)] 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
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<PAGE>
floating- and variable-rate demand obligations in such Fund's portfolio. No
Fund will invest more than 15% of the value of its total net assets in
floating- or variable-rate demand obligations whose demand feature is not
exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists. Floating- and variable-rate
instruments are subject to interest-rate risk and credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
The Balanced and Equity Value Funds may also hold floating- and variable-
rate instruments that have interest rates that re-set inversely to changing
current market rates and/or have embedded interest rate floors and caps that
require the issuer to pay an adjusted interest rate if market rates fall below
or rise above a specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these instruments is
less developed than the markets for traditional types of debt instruments. It is
uncertain how these instruments will perform under different economic and
interest-rate scenarios. The market value of these instruments may be more
volatile than other types of debt instruments and may present greater potential
for capital-gain or loss. In some cases, it may be difficult to determine the
fair value of a structured or derivative instrument because of a lack of
reliable objective information and an established secondary market for some
instruments may not exist.
Foreign Obligations and Securities
----------------------------------
The foreign securities in which the International Equity Fund may invest
include common stocks, preferred stocks, warrants, convertible securities and
other securities of issuers organized under the laws of countries other than the
United States. Such securities also include equity interests in foreign
investment funds or trusts, real estate investment trust securities and any
other equity or equity-related investment whether denominated in foreign
currencies or U.S. dollars.
The 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, except the International Equity Fund, may not invest
25% or more of its assets in foreign obligations.
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<PAGE>
For temporary defensive purposes, the International Equity Fund may invest
in fixed income securities of non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other similar debt
securities, including convertible securities.
Investments in foreign obligations involve certain considerations that are
not typically associated with investing in domestic 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.
From time to time, investments in other investment companies may be the
most effective available means by which the International Equity Fund may invest
in securities of issuers in certain countries. Investment in such investment
companies may involve the payment of management expenses and, in connection with
some purchases, sales loads, and payment of substantial premiums above the value
of such companies' portfolio securities. At the same time, the Fund would
continue to pay its own management fees and other expenses. The Fund may invest
in these investment funds and in registered investment companies subject to the
provisions of the Investment Company Act of 1940 ("1940 Act"). Such investment
funds or investment companies may be "passive foreign investment companies" (as
described in "Federal Income Taxes" in this SAI) and may result in special
federal income tax consequences.
Investment income on certain foreign securities in which the International
Equity Fund may invest may be subject to foreign withholding or other taxes that
could reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount of
foreign taxes to which the Fund would be subject.
Foreign Currency Transactions
-----------------------------
Equity Value and Balanced Funds. The Equity Value and Balanced Funds may
enter into foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are entered into the interbank market conducted
between currency traders (usually large commercial banks) and their customers.
Forward foreign currency exchange contracts may be bought or sold to protect a
Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
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<PAGE>
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.
International Equity Fund. The Fund's investments in foreign securities
involve currency risks. The U.S. dollar value of a foreign security tends to
decrease when the value of the U.S. dollar rises against the foreign currency in
which the security is denominated, and tends to increase when the value of the
U.S. dollar falls against such currency. To attempt to minimize risks to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies, the Fund may engage in foreign currency transactions on a
spot (i.e., cash) basis and may purchase or sell forward foreign currency
exchange contracts ("forward contracts"). The Fund may also purchase and sell
foreign currency futures contracts (see "Purchase and Sale of Currency Futures
Contracts"). A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date that is individually negotiated
and privately traded by currency traders and their customers.
Forward contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and is traded at a net
price without commission. The Fund will direct its custodian, to the extent
required by applicable regulations, to segregate high grade liquid assets in an
amount at least equal to its obligations under each forward contract. Neither
spot transactions nor forward contracts eliminate fluctuations in the prices of
the Fund's portfolio securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
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The Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when Wells Fargo Bank believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency, or when Wells Fargo Bank believes that the
U.S. dollar may suffer a substantial decline against the foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge").
The Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where Wells Fargo Bank
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which the fund securities are denominated (a
"cross-hedge").
Foreign currency hedging transactions are an attempt to protect the Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will, to the extent required by applicable
regulations, segregate cash, U.S. Government securities or other high-quality
debt securities having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the segregated securities declines,
additional cash or securities will be segregated on a daily basis so that the
value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
Wells Fargo Bank considers on an ongoing basis the creditworthiness of the
institutions with which the Fund enters into foreign currency transactions. The
use of forward currency exchange contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. If a devaluation generally is
anticipated, the Fund may not be able to contract to sell the currency at a
price above the devaluation level it anticipates.
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<PAGE>
Foreign Currency Futures Contracts
----------------------------------
In General. A foreign currency futures contract is an agreement between
two parties for the future delivery of a specified currency at a specified time
and at a specified price. A "sale" of a futures contract means the contractual
obligation to deliver the currency at a specified price on a specified date, or
to make the cash settlement called for by the contract. Futures contracts have
been designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
brokerage firm, known as a futures commission merchant, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on currencies do provide for the delivery and
acceptance of a particular currency, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. A Fund will incur brokerage fees when it purchases and
sells futures contracts. At the time such a purchase or sale is made, a Fund
must provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order to hedge its
portfolio and to protect it against possible variations in foreign exchange
rates pending the settlement of securities transactions, the Fund may buy or
sell currency futures contracts. If a fall in exchange rates for a particular
currency is anticipated, the Fund may sell a currency futures contract as a
hedge. If it is anticipated that exchange rates will rise, a Fund may purchase
a currency futures contract to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts will be used only as a hedge against anticipated
currency rate changes.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified futures time for a special price. A currency futures contract
purchase creates an obligation by a Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although
the terms of currency futures contracts specify actual delivery or receipt, in
most instances the contracts are closed out before the settlement date without
the making or taking of delivery of the currency. Closing out of a currency
futures contract is effected by entering into an offsetting purchase or sale
transaction.
In connection with transactions in foreign currency futures, a Fund will be
required to deposit as "initial margin" an amount of cash or short-term
government securities equal to from 5% to 8% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the futures
contract.
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<PAGE>
Risk Factors Associated with Futures Transactions. The effective use of
futures strategies depends on, among other things, the Fund's ability to
terminate futures positions at times when Wells Fargo Bank deems it desirable to
do so. Although the Fund will not enter into a futures position unless Wells
Fargo Bank believes that a liquid secondary market exists for such future, there
is no assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price. The Fund generally expects that its
futures transactions will be conducted on recognized U.S. and foreign securities
and commodity exchanges.
Futures markets can be highly volatile and transactions of this type carry
a high risk of loss. Moreover, a relatively small adverse market movement with
respect to these transactions may result not only in loss of the original
investment but also in unquantifiable further loss exceeding any margin
deposited.
The use of futures involves the risk of imperfect correlation between
movements in futures prices and movements in the price of currencies which are
the subject of the hedge. The successful use of futures strategies also depends
on the ability of Wells Fargo Bank to correctly forecast interest rate
movements, currency rate movements and general stock market price
movements.
In addition to the foregoing risk factors, the following sets forth certain
information regarding the potential risks associated with the Fund's futures
transactions.
Risk of Imperfect Correlation. The Fund's ability effectively to hedge
currency risk through transactions in foreign currency futures depends on the
degree to which movements in the value of the currency underlying such hedging
instrument correlate with movements in the value of the relevant securities held
by the Fund. If the values of the securities being hedged do not move in the
same amount or direction as the underlying currency, the hedging strategy for
the Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the currency
underlying a futures contract and the portfolio securities being hedged, which
could result in losses both on the hedging transaction and the fund securities.
In such instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken.
Under certain extreme market conditions, it is possible that the Fund will
not be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Fund.
The Fund will purchase or sell futures contracts only if, in Wells Fargo
Bank's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that Wells Fargo Bank's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation
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<PAGE>
margin requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of
the futures market may be lacking. Prior to exercise or expiration, a futures
position may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the exchange on which the
position was originally established. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In such event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the position, make or receive a cash
settlement, or meet ongoing variation margin requirements. The inability to
close out futures positions also could have an adverse impact on the Fund's
ability effectively to hedge its securities, or the relevant portion
thereof.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges, which
limit the amount of fluctuation in the price of a contract during a single
trading day and prohibit trading beyond such limits once they have been reached.
The trading of futures contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of the brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Trading and Position Limits. Each contract market on which futures
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. Wells Fargo Bank does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Fund's investments.
Regulations on the Use of Futures Contracts. Regulations of the CFTC
require that the Fund enter into transactions in futures contracts for hedging
purposes only, in order to assure that it is not deemed to be a "commodity pool"
under such regulations. In particular, CFTC regulations require that all short
futures positions be entered into for the purpose of hedging the value of
investment securities held by the Fund, and that all long futures positions
either constitute bona fide hedging transactions, as defined in such
regulations, or have a total value not in excess of an amount determined by
reference to certain cash and securities positions maintained for the Fund, and
accrued profits on such positions. In addition, the Fund may not purchase or
sell such instruments if, immediately thereafter, the sum of the amount of
initial margin deposits on its existing futures positions and premiums paid for
options on futures contracts would exceed 5% of the market value of the Fund's
total assets.
When the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at
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<PAGE>
all times equal the value of the futures contract, thereby insuring that the
use of such futures is unleveraged.
The Fund's ability to engage in the hedging transactions described herein
may be limited by the policies and concerns of various Federal and state
regulatory agencies. Such policies may be changed by vote of the Board of
Directors.
Wells Fargo Bank uses a variety of internal risk management procedures to
ensure that derivatives use is consistent with the Fund's investment objective,
does not expose the Fund to undue risk and is closely monitored. These
procedures include providing periodic reports to the Board of Directors
concerning the use of derivatives.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
------------
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.
Foreign Fixed Income Securities
-------------------------------
The International Equity Fund may invest in foreign fixed income
securities, including:
Foreign Private Debt. The Fund may invest in fixed income securities of
private issuers, provided that they are rated, at the time of investment, within
the top four rating categories by an NRSRO or determined to be of equivalent
quality by Wells Fargo Bank. Fixed income securities in which the Fund may
invest include, without limitation, corporate bonds, notes, debentures and other
similar corporate debt securities, including convertible securities. In
addition, such securities may or may not have warrants attached. For a
discussion of the risks associated with investing in foreign securities, see
"Risk Factors" in the Prospectus.
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<PAGE>
Foreign Sovereign Debt. The Fund may invest in debt securities or
obligations of foreign governments and their political subdivisions or agencies
("Sovereign Debt") provided that they are rated, at the time of investment,
within the top four rating categories by a Nationally Recognized Statistical
Ratings Organization ("NRSRO") or determined to be of equivalent quality by
Wells Fargo Bank. Investments in Sovereign Debt involves special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal and/or interest when due
in accordance with the terms of such debt, and the Fund may have limited legal
recourse in the event of a default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Wells Fargo Bank manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.
Brady Bonds. The Fund may invest a portion of its assets in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructurings. Brady Bonds may be collateralized or uncollateralized and are
issued in various currencies (primarily the U.S. dollar). Brady bonds are not
considered U.S. government securities.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal by U.S. Treasury zero coupon bonds having the same maturity
as the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by
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<PAGE>
cash or securities in an amount that, in the case of fixed rate bonds, is
equal to at least one year of interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Certain Brady Bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Brady Bonds involve various risk factors including the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. There can be no assurance that Brady Bonds in
which the Fund may invest will not be subject to restructuring arrangements or
to requests for new credit, which may cause the Fund to suffer a loss of
interest or principal on any of its holdings.
Hedging and Related Strategies
------------------------------
The International Equity Fund may attempt to protect the U.S. dollar
equivalent value of one or more of its investments (hedge) by purchasing and
selling foreign currency futures contracts and by purchasing and selling
currencies on a spot (i.e., cash) or forward basis. Foreign currency futures
contracts are bilateral agreements pursuant to which one party agrees to make,
and the other party agrees to accept, delivery of a specified type of currency
at a specified future time and at a specified price. Although such futures
contracts by their terms call for actual delivery or acceptance of currency, in
most cases the contracts are closed out before the settlement date without the
making or taking of delivery. A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
The Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to
specific transactions or with respect to portfolio positions. For example, the
Fund may enter into a forward currency contract to sell an amount of a foreign
currency approximating the value of some or all of the Fund's securities
denominated in such currency. The Fund may use forward contracts in one
currency or a basket of currencies to hedge against fluctuations in the value of
another currency when Wells Fargo Bank anticipates there will be a correlation
between the two and may use forward currency contracts to shift the Fund's
exposure to foreign currency fluctuations from one country to another. The
purpose of entering into these contracts is to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies.
Wells Fargo Bank might not employ any of the strategies described above,
and there can be no assurance that any strategy used will succeed. If Wells
Fargo incorrectly forecasts exchange rates, market values or other economic
factors in utilizing a strategy for the Fund, the Fund might have been in a
better position had it not hedged at all. The use of these strategies involves
certain special risks, including (1) the fact that skills needed to use hedging
instruments are different from
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<PAGE>
those needed to select the Fund's securities, (2) possible imperfect
correlation, or even no correlation, between price movements of hedging
instruments and price movements of the investments being hedged, (3) the fact
that, while hedging strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of the Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for the Fund to sell
a portfolio security at a disadvantageous time, due to the need for the Fund
to maintain "cover" or to segregate securities in connection with hedging
transactions and the possible inability of a Fund to close out or to liquidate
its hedged position.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its investment objectives and regulatory and tax
considerations.
Loans of Portfolio Securities
-----------------------------
Each Fund [(EXCEPT THE INTERNATIONAL EQUITY 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
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<PAGE>
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 issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. A Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, a Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
The Balanced 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 Diversified Equity Income, Growth,
International Equity, Small Cap and Strategic Growth 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.
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<PAGE>
Mortgage-Related Securities
---------------------------
The Balanced and Diversified Equity Income Funds may invest in mortgage-
related securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgages in which payments of both
interest and principal on the securities are made monthly, in effect "passing
through" monthly payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer or
guarantor of the securities). Early repayment of principal on mortgage pass-
through securities (arising from prepayments of principal due to sale of the
underlying property, refinancing, or foreclosure, net of fees and costs which
may be incurred) may expose a Fund to a lower rate of return upon reinvestment
of principal. Also, if a security subject to prepayment has been purchased at a
premium, in the event of prepayment the value of the premium would be lost. Like
other fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. Payment of principal and
interest on some mortgage pass-through securities (but not the market value of
the securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government or its agencies or instrumentalities. Mortgage pass-through
securities created by non-government issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers. The Balanced Fund may also invest in
investment grade Collateralized Mortgage Obligations ("CMOs"). CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association (" FNMA").
CMOs are structured into multiple classes, with each class bearing a different
stated maturity. Payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes receive principal only after the first class has been
retired. As new types of mortgage-related securities are developed and offered
to investors, the advisor will, consistent with a Fund's investment objective,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.
There are risks inherent in the purchase of mortgage-related securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lessor or greater rate than expected. To the extent
that the advisor's assumptions about prepayments are inaccurate, these
securities may expose the Funds to significantly greater market risks than
expected.
Other Asset-Backed Securities
-----------------------------
The Balanced, Diversified Equity Income, Equity Value and Growth Funds may
purchase asset-backed securities unrelated to mortgage loans. These asset-backed
securities may consist of
26
<PAGE>
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 [(EXCEPT THE INTERNATIONAL EQUITY FUND)] may purchase or sell
options on individual securities or options on indices of securities as
described below. The purchaser of an option risks a total loss of the premium
paid for the option if the price of the underlying security does not increase or
decrease sufficiently to justify exercise. The seller of an option, on the other
hand, will recognize the premium as income if the option expires unrecognized
but foregoes any capital appreciation in excess of the exercise price in the
case of a call option and may be required to pay a price in excess of current
market value in the case of a put option.
Call and Put Options on Specific Securities. The Equity Value and Small
Cap Funds may invest in call and put options on a specific security. The
Strategic Growth Fund may invest up to 15% of its assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities (or groups of "baskets" of specific securities). Each of the Balanced
and Equity Value Funds may purchase put and call options listed on a national
securities exchange and issued by the Options Clearing Corporation in an amount
not exceeding 5% of its net assets.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, an underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, an underlying
security at the exercise price at any time during the option period. Investments
by a Fund in off-exchange options will be treated as "illiquid" and therefore
subject to the Fund's policy of not investing more than 15% of its net assets in
illiquid securities.
The Balanced, Equity Value and Small Cap Funds may write covered call
option contracts and secured put options as Wells Fargo Bank deems appropriate.
A covered call option is a call option for which the writer of the option owns
the security covered by the option. Covered call options written by a Fund
expose the Fund during the term of the option (i) to the possible loss of
opportunity to realize appreciation in the market price of the underlying
security or (ii) to possible
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loss caused by continued holding of a security which might otherwise have been
sold to protect against depreciation in the market price of the security. If a
Fund writes a secured put option, it assumes the risk of loss should the
market value of the underlying security decline below the exercise price of
the option. The aggregate value of the securities subject to options written
by a Fund will not exceed 25%. The use of covered call options and securities
put options will not be a primary investment technique of the Funds, and they
are expected to be used infrequently. If the advisor is incorrect in its
forecast of market value or other factors when writing the foregoing options,
a Fund would be in a worse position than it would have been had the foregoing
investment techniques not been used.
Each Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. A Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Each Fund may buy put and call options and write covered call and secured
put options. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option.
The Funds may also write covered call and secured put options from time to
time as the advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying security
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the
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<PAGE>
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 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
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<PAGE>
purchase the option, or a loss if it is less. If an option written by a Fund
expires on the stipulated expiration date or if a Fund enters into a closing
purchase transaction, it realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold)
and the deferred credit related to such option is eliminated. If an option
written by a Fund is exercised, the proceeds of the sale are increased by the
net premium originally received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded over-the-
counter or on an exchange, may be absent for reasons that include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities or
currencies; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the Options Clearing
Corporation may not be adequate at all times to handle current trading value;
or one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund is likely to be unable to
control losses by closing its position where a liquid secondary market does not
exist. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
The Small Cap and Strategic Growth Funds may purchase or sell options on
individual securities or options on indices of securities as described below.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option.
The Small Cap and Strategic Growth Funds may engage in unlisted over-the-
counter options with broker/dealers deemed creditworthy by the advisor. Closing
transactions for such options are usually effected directly with the same
broker/dealer that effected the original option transaction. A Fund bears the
risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a liquid secondary trading market exists for closing out an
unlisted option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.
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Stock Index Options. The Funds may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 25% of the value of its
net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value of
a stock index option depends upon changes to the price of all stocks comprising
the index rather than the price of a particular stock, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the price of all stocks in the index, rather than
movements in the price of a particular stock. Accordingly, successful use by a
Fund of options on stock indexes will be subject to Wells Fargo Bank's ability
to correctly analyze movements in the direction of the stock market generally or
of particular industry or market segments.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts.
The Funds may participate in stock index futures contracts and options on stock
index futures contracts. A futures transaction involves a firm agreement to buy
or sell a commodity or financial instrument at a particular price on a specified
future date, while an option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller recognizes a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser realizes a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against an
increase in the prices of stocks that Fund intends to purchase. If a Fund is
unable to invest its cash (or cash equivalents) in stock in an orderly fashion,
a Fund may purchase a stock index futures contract to offset any increase in the
price of the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If Fund then concludes
not to invest in stock at that time, or if the price of the securities to be
purchased remains constant or increases, a Fund realizes a loss on the stock
index futures contract that is not offset by a reduction in the price
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<PAGE>
of securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The Funds may also purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the Funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transaction rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of a Fund's net assets are committed to such transactions. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Funds intend to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.
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Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Funds.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the investment advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment advisor, under guidelines approved by Board of
Directors of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by a Fund on a case-by-case basis and
will consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as
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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.
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.
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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 FDIC and are not insured against loss of principal.
When the value of the securities that a Fund owns declines, so does the value of
your Fund shares. You should be prepared to accept some risk with the money you
invest in a Fund.
The portfolio equity securities of each Fund are subject to equity market
risk. Equity market risk is the risk that stock prices will fluctuate or
decline over short or even extended periods. Throughout most of 1997, the stock
market, as measured by the S&P 500 Index and other commonly used indices, has
been trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of a Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which a Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which the Funds invest and hence the value of your investment in a Fund.
The market value of a Fund's investment in fixed-income securities will
change in response to various factors, such as changes in market interest-rates
and the relative financial strength of an issuer. During periods of falling
interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities can be reduced, but
not eliminated, by variable and floating-rate features.
Securities rated in the fourth highest rating category are regarded by S&P
as having an adequate capacity to pay interest and repay principal, but changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make such repayments. Moody's considers such securities as
having speculative characteristics. Subsequent to its purchase by the
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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.
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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.
37
<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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Year Ended March 31, 1998
-------------------------
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------- ----------------------- -------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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 below 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
39
<PAGE>
Joseph N. Hankin and Peter G. Gordon, who only serve the aforementioned members
of the Wells Fargo Fund Complex. The Directors are compensated by other
companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or any
other member of each fund complex.
As of the date of this SAI, Directors and officers of the Company, as a
group, beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market security
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rates indicated below of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
- ---- -----------------------------
<S> <C>
Balanced 0.60%
Diversified Equity Income 0.50%
Equity Value 0.50%
Growth 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
International Equity 1.00%
Small Cap 0.60%
Strategic Growth 0.50%
</TABLE>
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated
amounts:
40
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
----------- ----------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balanced $ 326,287 $ 232,442 $ 261,078 $30,456
Diversified Equity Income $ 1,048,267 $ 150,357 $ 443,468 $ 0
Equity Value $ 1,286,783 $ 95,512 $ 557,096 $ 0
Growth $ 1,753,825 $ 44,284 $ 782,529 $ 0
International Equity* $ 145,743 $ 111,696 N/A N/A
Small Cap $ 169,949** $227,120** $ 89,707** $ 0**
Strategic Growth*** $ 853,705** $ 0** $733,756** $ 0**
</TABLE>
____________________
* These amounts indicate fees paid since September 24, 1997, the commencement
date.
** These amounts reflect fees allocated from the Master Portfolios for the
Small Cap and Strategic Growth Funds.
*** Indicates fees paid by, or on behalf of, the Fund for the year ended
December 31, 1997, the Fund's most recently completed fiscal year.
Balanced and Equity Value Funds. On January 12, 1995, San Diego Financial
-------------------------------
Management, Inc. merged into First Interstate Investment Services, Inc., 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:
<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 period 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
41
<PAGE>
effect. For such fiscal year, the prior advisor was entitled to receive the
advisory fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended
9/30/95
--------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Balanced $579,850 $0
Equity Value $992,870 $0
</TABLE>
Diversified Equity Income and Growth Funds. For the periods indicated
------------------------------------------
below, the Funds paid to Wells Fargo Bank the following advisory fees and Wells
Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
-------- --------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
- ---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Diversified Equity Income $415,025 $0 $312,512 $0
Growth $799,899 $0 $754,149 $0
</TABLE>
Small Cap Fund. Prior to September 16, 1996, Wells Fargo provided advisory
--------------
services to the Collective Investment Fund, the predecessor to the Small Cap
Fund. For these services Wells Fargo charged fees at an annual rate of 0.75% of
the Collective Investment Fund's average net assets. Wells Fargo was also
entitled to be reimbursed by the Collective Investment Fund for expenses
incurred on its behalf, excluding costs incurred in establishing and organizing
the Fund. The Collective Investment Fund was entitled to pay up to 0.10% of its
net assets for "Audit Expenses." There were no sales charges. The Collective
Investment Fund paid all brokerage commissions incurred on its portfolio
transactions.
Prior to December 12, 1997, the Small Cap Fund did not engage an investment
advisor because it invested all of its assets in a Master Portfolio (which had
the same investment objective as the Fund) that was advised by Wells Fargo Bank.
The Small Cap Fund invested in the Small Cap Master Portfolio. The terms of the
Master Portfolio's advisory contract were identical in all material respects to
the terms of the Fund's existing advisory contract.
For the period begun September 16, 1996 (the Small Cap Fund's commencement
of operations) and ended September 30, 1996, the Small Cap Master Portfolio paid
to Wells Fargo Bank $6,129 in advisory fees on behalf of the Small Cap Fund. No
fees were waived.
Strategic Growth Fund. Immediately prior to the Consolidation, the
---------------------
Strategic Growth Fund did not engage an investment advisor because it invested
all of its assets in a Master Portfolio (which had the same investment objective
as the Fund) that was advised by Wells
42
<PAGE>
Fargo Bank. The terms of the Master Portfolio's advisory contract were identical
in all material respects to the terms of the Fund's existing advisory contract.
For the period from inception (January 20, 1993) to February 20, 1996, the
predecessor portfolio operated on a stand-alone basis, did not participate in a
master/feeder structure and retained the services of Wells Fargo Bank as
investment advisor for the Fund.
As discussed herein under "Historical Fund Information," on December 12,
1997, the Overland Strategic Growth Fund was reorganized with and into the Fund.
For financial reporting purposes the Overland Fund is considered the accounting
survivor of the reorganization and the Fund has adopted the financial statements
of the Overland Fund. Therefore, the information shown below concerning the
dollar amount of advisory (and other) fees paid shows the dollar amount of fees
paid by the Overland Fund.
For the year ended December 31, 1995, the predecessor portfolio incurred
$302,821 in advisory fees payable to Wells Fargo Bank. For the period beginning
January 1, 1996 and ended February 20, 1996, the predecessor portfolio incurred
$59,742 in advisory fees payable to Wells Fargo Bank. For the period begun
February 20, 1996 and ended December 31, 1996, the Master Portfolio incurred
$674,014 in advisory fees payable to Wells Fargo Bank on behalf of the Fund.
Wells Fargo Bank did not waive advisory fees in 1995 and 1996.
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.25% of the first $200 million of the
Funds' average daily net assets, 0.20% of the next $200 million of the Funds'
net assets, and 0.15% of net assets over $400 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from the Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by each Fund to Wells
Fargo Bank. This minimum annual fee payable to WCM does not increase the
advisory fee paid by each Fund to Wells Fargo Bank. These fees may be paid by
Wells Fargo Bank or directly by the Funds. If the sub-advisory fee is paid
directly by a Fund, the compensation paid to Wells Fargo Bank for advisory fees
will be reduced accordingly.
43
<PAGE>
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, Equity Value and Diversified
Equity Income Funds since February 1, 1997. Mr. Wardlaw joined Wells Fargo Bank
in 1986 and has eight years of investment experience. He is the Private Client
Services investment manager for the Portland office and is responsible for stock
market research in healthcare, basic industries and transportation sectors. He
holds an M.B.A. from the University of Oregon and a B.A. from Northwest Nazarene
College. Mr. Wardlaw is a chartered financial analyst and a member of the
Portland Society of Financial Analysts. He is also a member of the Association
for Investment management and Research and the American Association of
Individual Investors.
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.
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-
day management of the portfolio of the Diversified Equity Income Fund since
November 1992. Mr. Wisniewski is also responsible, as co-manager, for the day-
to-day management of the portfolio of the Equity Value Fund. He also is
responsible for managing equity and balanced accounts for high-net-worth
individuals and pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987
with the acquisition of Bank of America's consumer trust services, where he was
a portfolio manager. He received his B.A. and M.B.A. in Economics and Finance
from the University of California at Los Angeles. He is a member of the Los
Angeles Society of Financial Analysts.
Mr. Jon Hickman 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 also has been a co-manager of
the Strategic Growth Fund since January 1993. Mr. Hickman has over sixteen
years' experience in the investment management field. He
44
<PAGE>
joined Wells Fargo Bank in 1986 managing equity and balanced portfolios for
individuals and employee benefit plans. He is a senior member of Wells Fargo
Bank's Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in
Finance from Brigham Young University.
Mr. Kenneth Lee became a portfolio co-manager to the Small Cap Fund as of
June 18, 1997, and is responsible for providing fundamental security analysis
and portfolio management. Mr. Lee joined Wells Fargo Bank in 1993 and went from
Investment Operations to the Portfolio Management group in 1995. Prior to 1993,
he worked as an associate at Wells Fargo Nikko Investment Advisors and at Dean
Witter Reynolds (Morgan Stanley Dean Witter Discover) Mr. 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. Chris Greene joined Wells Fargo Bank on April 1, 1997, to work as
portfolio co-manager of the Strategic Growth Fund. Immediately prior to joining
Wells Fargo Bank, Mr. Greene worked for three years in the Mergers &
Acquisitions group for Hambrecht & Quist, an investment banking firm focusing on
growth companies. Before that, he worked for two years at GB Capital Management
and prior to that, he worked at Wood Island Associates, firms focusing on equity
and fixed-income securities. He has over five years experience in the industry.
Mr. Greene received his B.A. in Economics from Claremont McKenna College.
Ms. Katherine Schapiro directs the international equity strategy at Wells
Capital Management and is responsible for the day-to-day management of the Fund.
In addition, she manages international equity portfolios for institutional
accounts. Schapiro joined Wells Fargo Bank in August 1992. Prior to joining
Wells Fargo, Ms. Schapiro was a vice president and fund manager for Newport
Pacific Management, an international investment advisory firm based in San
Francisco. She began her career in 1981 as a technology industry analyst for
Western Asset Management, and subsequently, she managed the Western Technology
Fund at Harris Bretall Sullivan & Smith. From 1986 to 1988, Ms. Schapiro was a
fund manager at Thornton Management Ltd. in San Francisco and in London,
England. She joined Tyndall International Management of London in late 1988,
then an affiliate of Newport Pacific. Ms. Schapiro is a graduate of Stanford
University, is a Chartered Financial Analyst and President of the Security
Analysts of San Francisco.
Ms. Stacey Ho manages international equity portfolios for institutional
accounts and co-manages the Fund. She joined Wells Capital Management in 1997.
Prior to joining the firm, she was a portfolio manager from 1995 through late
1996 at Clemente Capital Management, an international investment advisory firm
based in New York. Ms. Ho began her investment career in 1990 with Edison
International, where she managed Japanese and U.S. equity portfolios. As a
member of the company's pension fund investment team, her additional
responsibilities included asset allocation and management of the $2 billion
pension fund's domestic managers. Ms. Ho has a BS in Civil Engineering from San
Diego State University and an MS in Environmental Engineering from Stanford
University. She received her MBA from UCLA. Ms. Ho is working toward her
Chartered Financial analyst designation.
45
<PAGE>
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of each Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Funds' operations, including coordination of the services performed by
each Fund's investment advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy statements and shareholder
reports for each Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's officers and Board of Directors. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the Funds'
business together with ordinary clerical and bookkeeping services. Stephens
pays the compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee of 0.03% and 0.04%, respectively, of the average daily
net assets of each Fund. Prior to February 1, 1998, the Administrator and Co-
Administrator received a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund. 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:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
--------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Balanced $ 57,317 $ 38,402 $18,915
Diversified Equity Income $148,167 $ 99,272 $48,895
Equity Value $170,979 $114,556 $56,423
Growth $288,706 $159,933 $78,773
International Equity* $ 22,395 $ 15,005 $ 7,390
Small Cap $ 41,139 $ 27,563 $13,576
Strategic Growth** $162,175 $129,740 $32,435
</TABLE>
_______________
* These amounts reflect fees paid since September 24, 1997, the Funds
commencement date.
** Indicate fees paid by, or on behalf of, the Fund for the year ended December
31, 1997, the Fund's most recently completed fiscal year.
46
<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
Diversified Equity Income $ 36,085 $ 7,217 $ 28,868
Equity Value $ 59,479 $11,896 $ 47,583
Growth $ 64,992 $12,998 $ 51,994
Small Cap $ 8,027 $ 1,605 $ 6,422
Strategic Growth** $211,420* N/A* $211,420*
</TABLE>
__________________
* These amounts reflect fees allocated from the Master Portfolios for the
Small Cap and Strategic Growth Funds.
** Indicates fees paid by, or on behalf of, the Fund for the year ended
December 31, 1997, the Fund's most recently completed fiscal year.
Balanced and Equity Value Funds. The Pacifica Balanced and Equity Value
-------------------------------
Funds were reorganized as the Company's Balanced and Equity Value Funds on
September 6, 1996. Prior to September 6, 1996, the Administrator, Furman Selz
LLC ("Furman Selz"), of the Pacifica Balanced and Equity predecessor portfolios
provided management and administration services necessary for the operation of
such Funds, pursuant to an Administrative Services Contract. For these services,
Furman Selz was entitled to receive a fee, payable monthly, at the annual rate
of 0.15% of the average daily net assets of the predecessors portfolios.
From September 6, 1996 to February 1, 1997, Stephens served as the Funds'
sole Administrator and was entitled to receive a fee, payable monthly, at the
annual rate of 0.05% of each Fund's average daily net assets. The following
table reflects administration fees paid by the Funds to Stephens for the period
begun September 6, 1996 and ended September 30, 1996. The table also reflects
the net administration fees paid to the respective former Administrators of the
predecessor portfolios for periods prior to September 6, 1996.
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96* 9/30/95
--------- --------
Fees Fees Fees
Fund Paid Paid Waived
---- ---- ---- ------
<S> <C> <C> <C>
Balanced $130,709 $193,283 $19,328
Equity Value $ 240,273 $330,957 $33,096
</TABLE>
____________________
* The amounts for the year ended September 30, 1996 reflect fees after
waivers.
Diversified Equity Income, Growth and Small Cap Funds. For the periods
-----------------------------------------------------
indicated below, the Funds paid the following dollar amounts of administration
fees to Stephens who, as
47
<PAGE>
sole Administrator during these periods, was entitled to receive a fee, payable
monthly, at the annual rate of 0.03% of the Diversified Equity Income Fund's
average daily net assets and 0.05% of the Growth and Small Cap Funds' average
daily net assets:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
- ----- -------- ---------
<S> <C> <C>
Diversified Equity Income $ 24,902 $ 18,751
Growth $ 51,193 $ 45,249
Small Cap* $ 492* N/A
</TABLE>
____________________
* The fees are for the period begun September 16, 1996 and ended
September 30, 1996.
Strategic Growth Fund. Prior to February 1, 1997, Stephens served as sole
---------------------
Administrator to the predecessor portfolio. Stephens was entitled to receive a
fee, payable monthly, at the annual rate of 0.15% of the predecessor portfolio's
average daily net assets up to $200 million and 0.10% of the average daily net
assets in excess of $200 million.
For the period indicated below, the predecessor portfolio paid the
following dollar amounts of administration fees to Stephens:
Year Ended
12/31/95
---------
$ 91,128
DISTRIBUTOR. Stephens Inc. ("Stephens," the "Distributor"), located at 111
-----------
Center Street, Little Rock, Arkansas 72201, serves as Distributor for the
Funds. Each Fund has adopted a distribution plan (a "Plan") under Section 12(b)
of the 1940 Act and Rule 12b-1 thereunder (the "Rule") for its shares. The
Plans were adopted by the Company's Board of Directors, including a majority of
the Directors who were not "interested persons" (as defined in the 1940 Act) of
the Funds and who had no direct or indirect financial interest in the operation
of the Plans or in any agreement related to the Plans (the "Non-Interested
Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
indicated Funds pay Stephens the amounts listed below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net
assets attributable to each Class.
48
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Balanced
Class A 0.10%
Class B 0.75%
Diversified Equity Income
Class B 0.70%
Equity Value
Class A 0.10%
Class B 0.75%
Growth
Class B 0.70%
International Equity
Class A 0.10%
Class B 0.75%
Class C 0.75%
Small Cap
Class A 0.10%
Class B 0.75%
Class C 0.75%
Strategic Growth
Class A 0.10%
Class B 0.75%
Class C 0.75%
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Company and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
Under the Plans in effect for the Class A shares of the Diversified Equity
Income and Growth Funds, each Fund may defray all or part of the cost of
preparing and printing
49
<PAGE>
prospectuses and other promotional materials and of delivering those
prospectuses and promotional materials to prospective shareholders by paying on
an annual basis up to 0.05% of the respective Fund's average daily net assets
attributable to Class A shares. The Plans for the Class A shares of these Funds
provide only for reimbursement of actual expenses.
For the year ended March 31, 1998, the Fund's Distributor received the
following fees for distribution-related services, as set forth below, under each
Fund's Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Balanced
Class A $ 13,267 $13,257 $ 10 N/A
Class B $ 30,347 N/A N/A $ 15,205
Diversified Equity Income
Class A $ 38,657 $ 6,040 $32,617 N/A
Class B $370,427 N/A N/A $232,252
Equity Value
Class A $ 13,353 $13,349 $ 6 N/A
Class B $215,875 N/A N/A $101,596
Growth
Class A $ 66,891 $ 2,409 $64,482 N/A
Class B $273,076 N/A N/A $170,070
International Equity
Class A $ 0 $ 0 $ 0 N/A
Class B $122,802 N/A N/A $ 37,162
Class C N/A N/A N/A N/A
Small Cap
Class A $ 1 $ 0 $ 1 N/A
Class B $ 35,640 N/A N/A $ 28,898
Class C $ 4,926 N/A N/A $ 135
Strategic Growth*
Class A $297,542 N/A N/A $297,542
Class B $ 3,426 N/A N/A $ 3,426
Class C $255,090 N/A N/A $255,090
</TABLE>
____________________
* These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor
portfolio.
50
<PAGE>
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Directors on not more than 60 days'
written notice. The Plans may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plans require that the Treasurer of Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plans. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
Shareholder Servicing Agent. The Funds have approved Servicing Plans and
---------------------------
have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank, for both Class A and Class B shares.
The Equity Value, International Equity, Small Cap and Strategic Growth Funds
also have entered into Shareholder Servicing Agreements for Class C shares.
Under the agreements, Shareholder Servicing Agents (including Wells Fargo Bank)
agree to perform, as agents for their customers, administrative services, with
respect to Fund shares, which include aggregating and transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the applicable Fund, on an annualized
basis, of the average daily net assets of the class of shares owned of record or
beneficially by the customers of the Servicing Agent during the period for which
payment is being made. The amounts payable under the Shareholder Servicing
Plans and Agreements are shown below. The Servicing Plans and related
Shareholder Servicing Agreements were approved by the Company's Board of
Directors and provide that a Fund shall not be obligated to make any payments
under
51
<PAGE>
such Plans or related Agreements that exceed the maximum amounts payable under
the Conduct Rules of the NASD.
<TABLE>
<CAPTION>
Fund Fee
- --- ---
<S> <C>
Balanced
Class A 0.25%
Class B 0.25%
Diversified Equity Income
Class A 0.30%
Class B 0.30%
Equity Value
Class A 0.25%
Class B 0.25%
Class C 0.25%
Growth
Class A 0.30%
Class B 0.30%
International Equity
Class A 0.25%
Class B 0.25%
Class C 0.25%
Small Cap
Class A 0.25%
Class B 0.25%
Class C 0.25%
Strategic Growth
Class A 0.25%
Class B 0.25%
Class C 0.25%
</TABLE>
For the period indicated below, the dollar amounts of shareholder servicing
fees paid, after waivers, by the Funds to Wells Fargo Bank or its affiliates
were as follows:
52
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- -------- --------
<S> <C> <C>
Balanced
Class A $ 85,517 $ 41,580
Class B $ 10,072 $ 79
Diversified Equity Income
Class A $560,061 $227,203
Class B $158,898 $ 38,878
Equity Value
Class A $ 87,889 $ 24,608
Class B $ 71,959 $ 736
Class C N/A N/A
Growth
Class A $981,942 $426,074
Class B $116,604 $ 27,329
International Equity
Class A $ 28,018 N/A
Class B $ 35,247 N/A
Class C N/A N/A
Small Cap
Class A $ 21,635 $ 0
Class B $ 18,547 $ 0
Class C $ 1,627
Strategic Growth*
Class A $ 15,403 N/A
Class B $ 2,610 N/A
Class C $115,868 N/A
</TABLE>
__________________
* Indicates fees paid by the Fund for the year ended December 31, 1997, the
Fund's most recently completed fiscal year.
Balanced and Equity Value Funds. For the period begun October 1, 1995 and
-------------------------------
ended September 5, 1996, and under similar service agreements for the Pacifica
Balanced and Equity Value Funds, payments were made to First Intestate Bancorp.
For the period begun September 6, 1996 and ended September 30, 1996, shareholder
servicing fees, after waivers and reimbursements, were paid to Wells Fargo Bank
or its affiliates. The indicated classes of each
53
<PAGE>
Fund paid the following dollar amounts in shareholder servicing fees for the
year ended September 30, 1996:
Year Ended
Fund 9/30/96
---- --------
Balanced
Class A $ 76,743
Class B N/A
Equity Value
Class A $ 36,350
Diversified Equity Income and Growth Funds. The dollar amount of
------------------------------------------
shareholder servicing fees paid by the Diversified Equity Income and Growth
Funds to Wells Fargo Bank or its affiliates for the period ended September 30,
1996 were as follows:
Nine-Month
Period Ended
Fund 9/30/96
---- --------
Diversified Equity Income $249,015
Growth $457,088
Small Cap Fund. The Class A and B shares of the Small Cap Fund did not pay
--------------
any shareholder servicing fees to Wells Fargo Bank or its affiliates for the
period begun September 16, 1996 and ended September 30, 1996.
General. Each Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and the Non-Interested Directors. Servicing Agreements
may be terminated at any time, without payment of any penalty, by a vote of a
majority of the Board of Directors, including a majority of the Non-Interested
Directors. No material amendment to the Servicing Plans or related Servicing
Agreements may be made except by a majority of both the Directors of the Company
and the Non-Interested Directors.
Each Servicing Plan requires that the Administrator of the Company shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the
Servicing Plan.
CUSTODIAN. Wells Fargo Bank acts as Custodian for each Fund, except the
---------
International Equity Fund, for which IBT acts as Custodian. 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
54
<PAGE>
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 its services as Custodian, IBT is entitled to receive fees as
follows: a net asset charge at the annual rate of 0.01% payable monthly, plus
specified transaction charges.
For the year ended March 31, 1998, the Funds paid the following dollar
amounts in custody fees, after waivers, to Wells Fargo Bank (to IBT for the
International Equity Fund):
<TABLE>
<CAPTION>
Fund Custody Fees
- ---- ------------
<S> <C>
Balanced $15,551
Diversified Equity Income $50,571
Equity Value $46,169
Growth $68,468
International Equity $48,209
Small Cap $23,391
Strategic Growth* $49,596
</TABLE>
___________________
* Indicates fees paid by, or on behalf of, the Fund for the year ended
December 31, 1997, the Fund's most recently completed fiscal year.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Funds. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the average daily net assets of each Fund's Class A and B shares (and Class C
shares for the International Equity Fund).
For the year ended March 31, 1998, 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 $ 86,476
Diversified Equity Income $335,515
Equity Value $217,027
Growth $525,161
International Equity $ 35,428
Small Cap $ 52,733
Strategic Growth* $229,667
</TABLE>
__________________
* Indicates fees paid by the Fund for the year ended December 31, 1997, the
Fund's most recently completed fiscal year.
55
<PAGE>
Balanced and Equity Value Funds. Under the prior transfer agency agreement
-------------------------------
for the Balanced and Equity Value Funds, Wells Fargo Bank was entitled to
receive monthly payments at the annual rate of 0.07% of the average daily net
assets of each Class of the Funds, as well as reimbursement for all reasonable
out-of-pocket expenses. Furman Selz acted as Transfer Agent for the Pacifica
predecessor portfolios. Pacifica compensated Furman Selz for providing personnel
and facilities to perform transfer agency related services for Pacifica at a
rate intended to represent the cost of providing such services.
Diversified Equity Income Fund. Under the prior transfer agency agreement
------------------------------
for the Diversified Equity Income Fund, Wells Fargo Bank was entitled to receive
a per account fee plus transaction fees and out-of-pocket related costs with a
minimum of $3,000 per month, unless net assets of the Fund were under $20
million. For as long as the Fund's assets remained under $20 million, the Fund
was not charged any transfer agency fees.
Growth Fund. Under the prior transfer agency agreement for the Growth
-----------
Fund, Wells Fargo Bank was entitled to receive a per account fee plus
transaction fees and out-of-pocket related costs with a minimum of $3,000 per
month, unless net assets of the Fund were under $20 million. For as long as the
Fund's assets remained under $20 million, the Fund was not charged any transfer
agency fees.
Small Cap Fund. Under the prior transfer agency agreement for the Small
--------------
Cap Fund, Wells Fargo Bank was entitled to receive monthly payments at the
annual rate of 0.07% of the Fund's average daily net assets of each class of the
Fund, as well as reimbursement for all reasonable out-of-pocket expenses.
Strategic Growth Fund. Under the prior transfer agency agreement for the
---------------------
Strategic Growth Fund, Wells Fargo Bank was entitled to receive monthly payments
at the annual rate of 0.10% of the Fund's average daily net assets, regardless
of Class, as well as reimbursement for reasonable out-of-pocket expenses.
UNDERWRITING COMMISSIONS. For the year ended March 31, 1998, the aggregate
------------------------
dollar amount of underwriting commissions paid to Stephens on sales/redemption
of the Company's shares was $7,671,295. Stephens retained $939,892 of such
commissions. Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer
of the Company retained $5,348,626.
For the six-month period ended March 31, 1997, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,296,243 and Stephens retained 241,806 of such
commissions. WFSI and its registered representatives received $1,719,000 and
$335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,917,738. Stephens retained $198,664 of such commissions. WFSI
and its registered representatives retained $2,583,027 and $136,047,
respectively, of such commissions.
56
<PAGE>
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,333. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives received $399,809 of such commissions.
For the period begun October 1, 1995 and ended September 5, 1996 with
respect to the predecessor funds, the aggregate amount of underwriting
commissions on sales/redemptions of Pacifica's shares was $150,771. Pacifica
Funds Distributor Inc. ("PFD"), retained $18,139 and its registered
representatives retained $132,632 of such commissions.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in a Fund, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Class A shares of the Stagecoach
Balanced Fund for periods prior to September 6, 1996, reflects performance of
the Investor Class shares of the Pacifica Balanced Fund, a predecessor portfolio
with the same investment objective and policies as the Stagecoach Balanced Fund.
Performance shown or advertised for the Class B shares of the Stagecoach
Balanced Fund for periods prior to September 6, 1996, reflects performance of
the Investor Class shares of the predecessor portfolio adjusted to reflect Class
B expenses in effect on September 6, 1996.
Performance shown or advertised for the Class B shares of the Stagecoach
Diversified Equity Income Fund for periods prior to January 1, 1995, reflects
performance of the Class A shares of the Fund adjusted to reflect Class B
expenses in effect on January 1, 1995.
57
<PAGE>
Performance shown or advertised for the Class A shares of the Stagecoach
Equity Value Fund for periods prior to September 6, 1996, reflects performance
of the Investor Class shares of the Pacifica Equity Value Fund, a predecessor
portfolio with the same investment objective and policies as the Stagecoach
Equity Value Fund. Performance shown or advertised for the Class B shares of
the Stagecoach Equity Value Fund for periods prior to September 6, 1996,
reflects performance of the Investor Class shares of the predecessor portfolio
adjusted to reflect Class B expenses in effect on September 6, 1996.
Performance shown or advertised for the Class A shares of the Stagecoach
Growth Fund for periods prior to January 1, 1992, reflects performance of the
shares of the Select Stock Fund of Wells Fargo Investment Trust for Retirement
Programs, a predecessor portfolio with the same investment objective and
policies as the Stagecoach Growth Fund. Performance shown or advertised for the
Class B shares of the Stagecoach Growth Fund for the period from January 1, 1992
to January 1, 1995, reflects performance of the Class A shares of such Fund
adjusted to reflect Class B expenses in effect on January 1, 1995. Performance
shown or advertised for the Class B shares of the Stagecoach Growth Fund for
periods prior to January 1, 1992, reflects performance of the shares of the
predecessor portfolio adjusted to reflect Class B expenses in effect on January
1, 1995.
Performance shown or advertised for the Class A shares of the Stagecoach
Small Cap Fund for periods prior to September 16, 1996, reflects performance of
the shares of the Small Capitalization Growth Fund for BRP Employment Retirement
Plans (an unregistered bank collective investment fund), a predecessor portfolio
with the same investment objective and policies as the Stagecoach Small Cap
Fund. Performance shown or advertised for the Class B shares of the Stagecoach
Small Cap Fund for periods prior to September 16, 1996, reflects performance of
the shares of the predecessor portfolio adjusted to reflect Class B expenses in
effect on September 16, 1996. Performance shown or advertised for the Class C
shares of the Stagecoach Small Cap Fund reflects the performance of the Class B
shares, which as discussed above, reflects performance of the shares of the
predecessor portfolio for periods prior to September 16, 1996, adjusted for
Class B sales charges and expenses.
Performance shown or advertised for the Class A shares of the Stagecoach
Strategic Growth Fund, reflects performance of the Class A shares of the
Overland Express Strategic Growth Fund (the accounting survivor of a merger of
the Funds on December 12, 1997). Performance shown for the Class B and Class C
shares of the Fund for the period from July 1, 1993 to December 12, 1997,
reflects performance of the Class D shares of the Overland Fund. For periods
prior to July 1, 1993, Class B share and Class C share performance reflects
performance of the Class A shares of the Overland Fund, adjusted to reflect the
expenses of the Class B or Class C shares, as applicable.
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.
58
<PAGE>
Average Annual Total Return for the Applicable Period Ended March 31, 1998/1/
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three One
Inception/2/ Year Year Year
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Balanced
Class A 13.12% 13.12% 18.66% 27.49%
Class B 12.35% 12.35% 17.85% 26.64%
Diversified Equity Income
Class A 28.28% 18.18% 25.32% 38.15%
Class B 17.44% 17.51% 24.56% 37.29%
Equity Value
Class A 17.48% 20.66% 29.03% 41.76%
Class B 16.67% 19.86% 28.19% 40.87%
Growth
Class A 16.92% 17.33% 25.09% 34.65%
Class B 15.92% 16.65% 24.23% 33.83%
International Equity
Class A 10.52% N/A N/A N/A
Class B 10.10% N/A N/A N/A
Class C [_____%] N/A N/A N/A
Small Cap
Class A 34.08% N/A 32.34% 47.03%
Class B 33.24% N/A 31.52% 46.02%
Class C 33.24% N/A 31.52% 46.02%
Strategic Growth/3/
Class A 18.32% N/A 17.38% 2.87%
Class B 18.07% N/A 17.64% 2.02%
Class C 18.26% N/A 18.34% 5.98%
</TABLE>
_______________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of
each Fund is as follows: Balanced - July 1, 1990; Diversified Equity
Income -November 18, 1992; Equity Value - July 1, 1990; Growth - August 2,
1990; International Equity - September 24, 1997; Small Cap - November 11,
1994; Strategic Growth - January 20, 1993. The actual inception date of
each Class may differ from the inception date of the corresponding
Fund.
/3/ Performance shown is for the Fund's fiscal year ended December 31,
1997.
59
<PAGE>
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 March 31, 1998/1/
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three
Inception/2/ Year Year
------------ ------ ------
<S> <C> <C> <C>
Balanced
Class A 160.02% 85.62% 67.06%
Class B 145.50% 79.02% 63.69%
Diversified Equity Income
Class A 146.50% 130.50% 96.84%
Class B 138.91% 124.04% 93.24%
Equity Value
Class A 248.06% 155.77% 114.80%
Class B 230.31% 147.38% 110.67%
Growth
Class A 231.57% 122.40% 95.72%
Class B 216.56% 115.96% 91.74%
International Equity
Class A 10.52% N/A N/A
Class B 10.10% N/A N/A
Class C [____%] N/A N/A
Small Cap
Class A 172.34% N/A 131.78%
Class B 166.61% N/A 127.48%
Class C 166.61% N/A 127.48%
Strategic Growth/3/
Class A 130.26% N/A 61.71%
Class B 129.41% N/A 62.81%
Class C 131.32% N/A 65.74%
</TABLE>
60
<PAGE>
- ---------------
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Balanced - July 1, 1990; Diversified Equity Income -
November 18, 1992; Equity Value - July 1, 1990; Growth - August 2, 1990;
Small Cap - November 11, 1994; Strategic Growth - January 20, 1993. The
actual inception date of each Class may differ from the inception date of
the corresponding Fund.
/3/ Performance shown is for the Fund's fiscal year ended December 31,
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 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
61
<PAGE>
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 an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the 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
62
<PAGE>
other types of sales literature the assets and categories of assets under
management by the Company's investment adviser. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by a fund's investment adviser or sub-adviser and the
total amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
December 31, 1997, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $62 billion of assets of individual, trusts,
estates and institutions and $23 billion of mutual fund assets.
The Company also may discuss in advertising and other types of literature
the features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may 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.
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<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 by the Company's
Board of Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business. Each Fund
is open for business each day the NYSE is open for trading (a "Business Day").
Currently, the NYSE is closed on New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on
a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that a Fund receives satisfactory assurances
that (i) it will have good and marketable title to the securities received by
it; (ii) that the securities are in proper form for transfer to the Fund; and
(iii) adequate information will be provided concerning the basis and other
matters relating to the securities.
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<PAGE>
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may suspend redemption rights or postpone
redemption payments for such periods as are permitted under the 1940 Act. The
Company may also redeem shares involuntarily or make payment for redemption in
securities or other property if it appears appropriate to do so in light of the
Company's responsibilities under the 1940 Act. In addition, the Company may
redeem shares involuntarily to reimburse the Fund for any losses sustained by
reason of the failure of a shareholders to make full payment for shares
purchased or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to shares of the Fund as provided
from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.
In placing orders for portfolio securities of a Fund, Wells Fargo Bank is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that Wells Fargo Bank will seek to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Directors.
65
<PAGE>
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Balanced, Diversified Equity Income and Equity Value Funds. Purchases and
----------------------------------------------------------
sales of non-equity securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. 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 year ended March 31, 1998, the Funds paid
---------------------
brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund Commissions
---- -----------
<S> <C>
Balanced $ 101,472
Diversified Equity Income $ 458,942
Equity Value $ 448,506
Growth $1,089,196
International Equity* $ 214,167
Small Cap $ 233,382
Strategic Growth** $ 788,479
</TABLE>
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<PAGE>
- ------------------
* The amount reflects fees paid since September 24, 1997, the Funds
commencement date.
** Indicates fees paid by, or on behalf of, the Fund for the year ended
December 31, 1997, the Fund's most recently completed fiscal year.
The predecessor portfolio to the Strategic Growth Fund paid brokerage
commissions as indicated below for the year ended December 31, 1995. The
Diversified Equity Income and Growth Funds paid the following brokerage
commissions for the nine-month period ended September 30, 1996 and the year
ended December 31, 1995:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
- ---- -------- ---------
<S> <C> <C>
Strategic Growth N/A $ 190,359
Diversified Equity Income $267,469 $ 193,078
Growth $531,052 $ 607,442
</TABLE>
During the years ended September 30, 1996 and 1995, the Equity Value and
Balanced Funds paid the following amounts in brokerage commissions:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 9/30/96 9/30/95
- ---- -------- --------
<S> <C> <C>
Equity Value $575,504 $619,124
Balanced $254,191 $197,751
</TABLE>
During the time periods stated above, no brokerage commissions were paid by
the Funds to an affiliated broker.
For the period beginning September 16, 1996 and ended September 30, 1996,
the Small Cap Fund paid $1,856 for brokerage commissions.
Securities of Regular Brokers or Dealers. As of March 31, 1998, 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. $ 85,000
J.P. Morgan $ 633,000
Diversified Equity Income Goldman Sachs & Co. $3,184,000
J.P. Morgan $6,220,000
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Equity Value Goldman Sachs & Co. $3,671,000
HSBC Securities $1,465,000
J.P. Morgan $ 678,000
Morgan Stanley $5,009,000
Growth Goldman Sachs & Co. $6,938,000
J.P. Morgan $7,900,000
International Equity None None
Small Cap Goldman Sacs & Co. $ 577,000
HSBC Securities $1,318,000
J.P. Morgan Securities $3,549,000
Morgan Stanley $ 811,000
Strategic Growth* Goldman Sacs & Co. $1,045,000
J.P. Morgan Securities $3,889,000
</TABLE>
__________________
* As of December 31, 1997.
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
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
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<PAGE>
of portfolio transactions; fees and expenses of its custodian, including those
for keeping books and accounts and calculating the NAV per share of the Fund;
expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services, and any
extraordinary expenses. Expenses attributable to the Fund are charged against
Fund assets. General expenses of the Company are allocated among all of the
funds of the Company, including the Funds, in a manner proportionate to the net
assets of a Funds, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 with respect to 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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
69
<PAGE>
in the 12 months following the taxable year. Furthermore, distributions
declared 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. 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 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 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 the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the
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<PAGE>
remainder will be treated as short-term capital gain or loss. Transactions that
qualify as designated hedges are excepted from the "mark-to-market" rule and the
"60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that 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 Federal income tax impact.
Offsetting positions held by a Fund 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 Fund 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 Fund 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 Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund 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 a Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the 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 under the election.
71
<PAGE>
Income and dividends received by the Funds from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 have 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 20%; 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
72
<PAGE>
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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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 distribution by a Fund 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 such dividend income.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 that will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
73
<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.
Foreign Taxes. Income and dividends received by the Fund from sources
-------------
within foreign countries may be subject to withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If more than 50% in value of a
regulated investment company's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the regulated investment company
will be eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. Only the International Equity Fund
expects to qualify for the election. However, even if a Fund qualifies for the
election, foreign taxes will only pass-through to a Fund shareholder generally
if (i) the shareholder holds the Fund shares for at least 16 days during the 30
day period beginning 15 days prior to the date upon which the shareholder
becomes entitled to receive Fund dividends corresponding with the pass-through
of the foreign taxes paid by the Fund, and (ii) with respect to foreign source
dividends received by the Fund on shares giving rise to foreign tax, the Fund
holds the shares during the 30 day period beginning 15 days prior to the date
upon which the Fund becomes entitled to the dividend.
For tax years beginning after December 31, 1997, an individual with $300
or less of creditable foreign taxes generally is exempt from foreign source
income and certain other limitations imposed by the Code on claiming a credit
for such taxes. The $300 amount is increased to $600 for joint filers.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are seven 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 Investor Services
at 1-800-222-8222 if you would like additional information about other funds or
classes of shares offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by Series, except where voting by a Series is required by law
or where the matter involved only affects one Series. For example, a change in
a Funds' fundamental investment policy affects only one Series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract, since it only affects one Fund, is a matter to be
determined separately by each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other series to approve the proposal as to
those Series.
74
<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 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 June 30, 1998 is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities of the Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
STRATEGIC GROWTH FUND Wells Fargo Bank Class A 14.99% 11.50%
FBO Retirement Plans Omnibus Record Holder
P.O. Box 63015
San Francisco, CA 94163
MLPF&S for the Sole Benefit of its Class A 7.54% 5.79%
Customers Record Holder
Attn Mutual Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Charles Schwab & Co. Inc. Special Custody Class A 7.95% 6.10%
A/C for Benefit of Customers - Reinvest Record Holder
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
MLPF&S for the Sole Benefit of its
Customers
Attn Mutual Fund Administration Class C 42.05% N/A
4800 Deer Lake Drive East Record Holder
3rd Floor
Jacksonville, FL 32246
EQUITY VALUE Wells Fargo Bank Class A 16.45% N/A
FUND FBO Retirement Plans Omnibus Record Holder
P.O. Box 63015
San Francisco, CA 94163
Dean Witter for the Benefit of Class C 9.21% N/A
Jay P. Holland Beneficially Owned
P.O. Box 946
P.O. Box 250, Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 8.55% N/A
Jodie H. Hadfield and Beneficially Owned
Gordon R. Hadfiled Jtten
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 13.62% N/A
Hanna Harrar Beneficially Owned
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 9.01% N/A
A D E C Retirement Trust Beneficially Owned
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 6.38% N/A
John J. & Hazel M. Semoni Beneficially Owned
TTEES for T
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Class C 7.22% N/A
Tak-Ming Lam Beneficially Owned
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust for Class C 11.26% N/A
Steve F. Tognoli Beneficially Owned
P.O. Box 250
Church Street Station
New York, NY 10008-0250
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
DIVERSIFIED EQUITY Wells Fargo Bank Class A 27.76% 20.26%
INCOME FUND FBO Retirement Plans Omnibus Record Holder
P.O. Box 63015
San Francisco, CA 94163
GROWTH FUND Wells Fargo Bank Class A 49.31% 39.26%
FBO Retirement Plans Omnibus Record Holder
P.O. Box 63015
San Francisco, CA 94163
SMALL CAP FUND Wells Fargo Bank Class A 30.41% N/A
FBO Retirement Plans Omnibus Record Holder
P.O. Box 63015
San Francisco, CA 94163
State Street Bank and Trust as Trustee Class A 12.97% N/A
for Various Plans Record Holder
Two Heritage Drive
Quincy, MA 02171
MLPF&S for the Sole Benefit of its Class A 5.28% N/A
Customers Record Holder
Attn Mutual Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
MLPF&S for the Sole Benefit of its Class C 37.16% N/A
Customers Record Holder
Attn Mutual Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246
</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 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.
77
<PAGE>
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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 portfolios of investments, audited financial statements and independent
auditors' reports for the Funds for the year ended March, 31, 1998 are hereby
incorporated by reference to the Company's Annual Reports as filed with the SEC
on June 9, 1998.
The portfolio of investments, audited financial statements and independent
auditors' reports for the Strategic Growth Fund for the year ended December 31,
1997 are hereby incorporated by reference to the Company's Annual Reports as
filed with the SEC on March 3, 1998.
The Company's Annual Reports may be obtained by calling 1-800-222-8222.
78
<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 August 1, 1998
CALIFORNIA TAX-FREE MONEY MARKET TRUST
__________________________________
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains information
about a fund in the Stagecoach Family of funds -- the CALIFORNIA TAX-FREE MONEY
MARKET TRUST (the "Fund"). The Fund offers a single class of shares. The
investment objective of the Fund is described in its prospectus under "How the
Fund Works --- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated August 1, 1998. All terms used in this SAI that are
defined in the Prospectus will have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by writing Stephens Inc.
("Stephens"), the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at the
telephone number indicated above.
__________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Restrictions................................................. 1
Additional Permitted Investment Activities.............................. 3
Special Considerations Affecting California Municipal Obligations....... 5
Management.............................................................. 9
Servicing Plan.......................................................... 14
Performance Calculations................................................ 15
Determination of Net Asset Value........................................ 18
Additional Purchase and Redemption Information.......................... 19
Portfolio Transactions.................................................. 20
Fund Expenses........................................................... 21
Federal Income Taxes.................................................... 22
Capital Stock........................................................... 27
Other................................................................... 29
Counsel................................................................. 29
Independent Auditors.................................................... 29
Financial Information................................................... 30
SAI Appendix............................................................ A-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
The Fund is subject to the following investment restrictions, all of which
are fundamental policies.
The Fund may not:
----------------
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in (i) municipal securities (for the
purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers), (ii)
obligations of the United States Government, its agencies or instrumentalities,
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 (including futures
contracts);
(3) 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;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets); or
(7) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity.
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,
1
<PAGE>
repurchase agreements, commercial paper and other short-term obligations, and
other types of debt instruments commonly sold in public or private offerings.
The Fund is subject to the following non-fundamental policies:
The Fund may not:
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, a Fund's investment in such securities currently is limited
to , subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) The Fund may not invest more than 15% (10% in the case of a money
market fund) of the Fund's net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale, (b) fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, and (c) repurchase
agreements not terminable within seven days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of the Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Fund will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
In addition, the Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act, provided that any such purchases will be limited to temporary investments
in shares of unaffiliated investment companies. However, the Fund's investment
adviser will waive its advisory fees for that portion of the Fund's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. These unaffiliated investment companies must
have a fundamental investment policy of investing at least 80% of their net
assets in obligations that are exempt from federal income taxes and are not
subject to the federal alternative minimum tax.
In addition, as provided in Rule 2a-7 under the 1940 Act, the Fund may only
purchase "Eligible Securities" (as defined in Rule 2a-7) and only if,
immediately after such purchase: the Fund would have no more than 5% of its
total assets in "First Tier Securities" (as defined in Rule 2a-7) of any one
issuer, excluding government securities and except as otherwise permitted for
temporary purposes and for certain guarantees and unconditional puts; the Fund
would own no
2
<PAGE>
more than 10% of the voting securities of any one issuer; the Fund would have no
more than 5% of its total assets in "Second Tier Securities" (as defined in Rule
2a-7); and the Fund would have no more than the greater of $1 million or 1% of
its total assets in Second Tier Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Fund may purchase instruments that are not rated
-------------------
if, in the opinion of Wells Fargo Bank, such obligations are of comparable
quality to other rated investments that are permitted to be purchased by the
Fund. The Fund may purchase unrated instruments only if they are purchased in
accordance with the procedures of the Fund adopted by the Company's Board of
Directors in accordance with Rule 2a-7 under the 1940 Act. After purchase by
the Fund, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require a
sale of such security by the Fund, provided that when a security ceases to be
rated, the Company's Board of Directors determines that such security presents
minimal credit risks and, provided further that, when a security rating is
downgraded below the eligible quality for investment or no longer presents
minimal credit risks, the Board finds that the sale of such security would not
be in the Fund's best interest. To the extent the ratings given by Moody's or
S&P may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the Fund's
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which the 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, provided that the Company's
Board approves or ratifies such investments.
When-Issued Securities. Certain of the securities in which the Fund may
----------------------
invest will be purchased on a when-issued basis, in which case delivery and
payment normally take place within 45 days after the date of the commitment to
purchase. However, the Fund has no present intention to invest in when-issued
securities during the coming year. The Fund will only make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery
3
<PAGE>
may be lower than the agreed-upon purchase price, in which case there could be
an unrealized loss at the time of delivery.
The Fund will establish a segregated account in which it will maintain
cash, U.S. Government obligations, or other high-quality debt instruments in an
amount at least equal in value to their respective commitments to purchase when-
issued securities. If the value of these assets declines, the Fund will place
additional liquid assets in the account on a daily basis so that the value of
the assets in the account is equal to the amount of such commitments.
Municipal Bonds. The Fund may invest in municipal bonds. As discussed in
---------------
the Fund's Prospectus, the two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. Municipal bonds are debt obligations
issued to obtain Fund 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 Fund 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 Fund to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.
Municipal Notes. Municipal notes include, but are not limited to, tax
---------------
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
----
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
----
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
----
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on
4
<PAGE>
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 Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium. Changes in the value of municipal
securities held in the Fund's portfolio arising from these or other factors will
cause changes in the net asset value per share of the Fund.
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related
to defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
5
<PAGE>
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grew 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. Unemployment, while remaining higher than the national average, has
come down from its 10% recession peak to under 6% in the Spring of 1998.
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 and has forecast an overall balanced budget by June 30, 2000. Also,
Standard & Poors upgraded its rating of California municipal obligations back to
"A+" on July 15, 1996 and the projected level of the SFEU as of June 30, 1998
was $329 million. However, the Asian economic difficulties since mid-1997 are
expected to have had a moderate dampening effect on California's economy. Any
delay or reversal of the recovery may create new shortfalls in revenues.
Local Governments. On December 6, 1994, Orange County, California became
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real property owned by the county. In June 1996, the county
emerged from bankruptcy, and the county's investment rating by Standard & Poors
was "B" as of October 31, 1997.
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. The county has received federal
and state assistance and the proposed fiscal 1999 budget for Los Angeles County
is the first in several years that does not begin with an operating deficit.
Even
6
<PAGE>
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. The moneys of California are segregated into the General
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be credited
to any other fund, as well as earnings from state moneys not allocable to
another fund. The General Fund is the principal operating fund for the majority
of governmental activities and is the depository of most major revenue sources
of the state. The General Fund may be expended as the result of appropriation
measures by California's Legislature and approved by the Governor, as well as
appropriations pursuant to various constitutional authorizations and initiative
statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-99
Executive Budget projections submitted to the State Legislature in February
1998, forecast a 1999-00 General Fund budget gap of approximately $1.7 billion
and a 2000-01 gap of $3.7 billion. As a result of changes made in the 1998-99
enacted budget, the 1999-00 gap is now expected to be roughly $1.3 billion, or
about $400 million less than previously projected, after application of reserves
created as part of the 1998-99 budget process. Such reserves would not be
available against subsequent year imbalances.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local
7
<PAGE>
government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee
schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
In 1996, California voters approved "Proposition 218," which added Articles
XIIIC and XIIID to the state's Constitution generally requiring voter approval
of most tax or fee increases by local governments and curtailing 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. The interpretation and application of Proposition 218 will ultimately
be determined by the courts. Proposition 218 is generally viewed as restricting
the fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced. It
remains to be seen, as such, what impact these Articles will have on existing
and future California security obligations.
The Governor recently proposed that California reduce its Vehicle License
Fee (a personal property tax on the value of automobiles, the 'VLF') by 75% over
five years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget
process.
Other Information. Certain debt obligations held by the Fund may be
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by the Fund would not be paid in a timely manner.
8
<PAGE>
Certain debt obligations held by the Fund may be obligations payable solely
from the revenues of health care institutions. The method of reimbursement for
indigent care, California's selective contracting with health care providers for
such care and selective contracting by health insurers for care of its
beneficiaries now in effect under California and federal law may adversely
affect these revenues and, consequently, payment on those debt obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
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.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Fund and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ----------------------- ------------ -------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ----------------------- ------------ -------------------------
<S> <C> <C>
*R. Greg Feltus, 46 Director, Executive Vice President
Chairman and of Stephens Inc.; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 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 1983.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal
Crystal Geyser Water Co. Geyser Water Company and President of
55 Francisco Street Crystal Geyser Roxane Water Company
San Francisco, CA 94133 since 1977.
Joseph N. Hankin, 57 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ----------------------- ------------ -------------------------
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor; Chairman of
10 Legrae Street Home Account Network, Inc.
Charleston, SC 29401 Real Estate Developer;
Chairman of Renaissance
Properties Ltd.; President of
Morse Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Vice President of Stephens Inc.;
Operating Director of Stephens Sports
Officer, Management Inc.; and
Secretary Director of Capo Inc.
and
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ------------------------ ------------------------------------------ ------------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ------------------------ ------------------------------------------ ------------------------------------
<S> <C> <C>
J. Tucker Morse $22,250 $33,000
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 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 ADVISOR. The Fund is advised by Wells Fargo Bank pursuant to an
------------------
Advisory Contract. The Advisory Contract provides that Wells Fargo Bank shall
furnish to the Fund investment guidance and policy direction in connection with
the daily portfolio management of the Fund. Pursuant to the Advisory Contract,
Wells Fargo Bank furnishes to the Company's Board of Directors periodic reports
on the investment strategy and performance of the Fund. Wells Fargo Bank has
agreed to provide to the Fund with, among other things, money market security
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and security market trends, portfolio
composition, credit conditions and average maturities of the Fund's portfolio.
Wells Fargo is entitled to receive a monthly fee at the annual rate of 0.50% of
the Fund's average daily net assets for providing investment advisory services.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Fund's outstanding voting securities or by the Company's Board of
Directors and (ii) by a majority of the Directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the 1940
Act) of any such party. The Advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
12
<PAGE>
For the period begun May 5, 1997 and ended March 31, 1998 as indicated
below, the Fund paid to Wells Fargo Bank the following for advisory fees, and
waived the indicated amounts:
<TABLE>
<CAPTION>
Period Ended
3/31/98
-------
Total Fees Paid Fees Waived
- ----------------------------------- --------------------------- ---------------------------------
<S> <C> <C>
$1,762,602 $177,771 $1,584,831
</TABLE>
INVESTMENT SUB-ADVISOR. Effective as of August 1, 1998 Wells Fargo Bank
----------------------
has engaged Wells Capital Management ("WCM") to serve as Investment Sub-Advisor
to each Fund. Subject to the direction of the Company's Board of Directors and
the overall supervision and control of Wells Fargo Bank and the Company, WCM
makes recommendations regarding the investment and reinvestment of the Funds'
assets. WCM furnishes to Wells Fargo Bank periodic reports on the investment
activity and performance of the Funds. WCM and also furnishes such additional
reports and information as Wells Fargo Bank and the Company's Board of Directors
and officers may reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from the Fund. The
minimum annual fee payable to WCM does not increase the advisory fee paid by the
Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or
directly by the Fund. If the sub-advisory fee is paid directly by the Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
The Administration Agreement between Wells Fargo and the Fund, and the Co-
Administration Agreement among Wells Fargo, Stephens and the Fund, state that
Wells Fargo and Stephens shall provide as administrative services, among other
things: (i) general supervision of the 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% (prior to
February 1, 1998, 0.04% and 0.02%), respectively, of the average daily net
assets of the Fund.
13
<PAGE>
For the period beginning May 5, 1997 and ended March 31, 1998 as indicated
below, the Fund paid to Wells Fargo Bank and Stephens the following dollar
amounts after waivers for administration and co-administration fees:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------
Total Wells Fargo Stephens
- ------------------------------ ------------------------------- -------------------------------
<S> <C> <C>
$91,088 $ 61,029 $30,059
</TABLE>
Sponsor and Distributor. As discussed in the Fund's prospectus under the
-----------------------
heading "Management and Servicing Fees," Stephens serves as the Fund's
distributor.
SHAREHOLDER SERVICING AGENT. As discussed in the Fund's prospectus under
---------------------------
the heading "Shareholder Servicing Agent," the Fund has entered into shareholder
servicing agreements with Wells Fargo Bank. See "Servicing Plan" in this SAI.
For the period beginning May 5, 1997 and ended March 31, 1998 as indicated
below, the dollar amount of shareholder servicing fees paid, after waivers, by
the Fund to Wells Fargo Bank or its affiliates was as follows:
Period Ended
3/31/98
-------
$372,771
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has
-----------------------------------------------------
been retained to act as custodian and transfer and dividend disbursing agent for
the Fund, pursuant to a Custody Agreement and an Agency Agreement with the
Company on behalf of the Fund. The custodian, among other things, maintains a
custody account or accounts in the name of the Fund, receives and delivers all
assets for the Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of the Fund and pays all expenses of the Fund. For its services as
custodian, Wells Fargo Bank is entitled to receive fees as follows: a net asset
charge at the annual rate of 0.0167%, payable monthly, plus specified
transaction charges. Wells Fargo Bank also will provide portfolio accounting
services under the Custody Agreement for a fee calculated as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For its services as transfer and dividend disbursing agent for the 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.
14
<PAGE>
For the period begun May 5, 1997 and ended March 31, 1998, the Fund did not
pay any fees for custody, transfer agency, dividend disbursing agency or
portfolio accounting services.
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.
DEFENSIVE 12B-1 PLAN. The Fund has entered into a "defensive" Distribution
--------------------
Plan under Rule 12b-1 of the 1940 Act (the "Plan"). The Plan reflects that, to
the extent any fees paid pursuant to the servicing plan are deemed to be
"primarily intended to result in the sale of shares" of the Fund, such fees are
approved pursuant to the Plan. The Plan will not result in any separate payment
of fees by the Fund.
SERVICING PLAN
As indicated in the prospectus, the Company's Board of Directors, adopted a
Servicing Plan ("Servicing Plan") and related form of Shareholder Servicing
Agreement on October 24, 1996, with respect to the Fund. The Board of Directors
included a majority of the Directors who were not "interested persons" (as
defined in the Act) of the Fund and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee at an annual rate of up to 0.20% of the
average daily net assets of the Fund's shares attributable to the servicing
agent's customers. The actual fee payable to servicing agents is determined,
within such limits, from time to time by mutual agreement between the Company
and each servicing agent and will not exceed the maximum service fees payable by
mutual funds sold by members of the NASD under the NASD Rules.
The Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
The Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
15
<PAGE>
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "Determination of Net Asset Value"
and "Performance Data."
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 is calculated based on the net changes, exclusive of
capital changes, over a seven-day period, in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. Tax-equivalent yield
for the Fund is computed by dividing that portion of the yield of the Fund which
is tax-exempt by one minus a stated income tax rate and adding the product to
that portion, if any, of the yield of the Fund that is not tax-exempt.
Effective yield and effective tax-equivalent yield for the Fund are
calculated by determining the net change, or tax-equivalent assumed net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result.
The Fund's performance, calculated as described above for the indicated
periods ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
7 Day 30 Day
7 Day Effective Tax-Equivalent Tax-Equivalent
7 Day Yield 30 Day Yield Yield Yield Yield
- ------------------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
3.20% 2.89% 3.25% 5.93% 5.28%
</TABLE>
The yield for the Fund will fluctuate from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
the Fund.
Yield information for the Fund may be useful in reviewing the performance
of Fund shares and for providing a basis for comparison with investment
alternatives. The Fund's yield, however, may not be comparable to the yields
from investment alternatives because of differences in the foregoing variables
and differences in the methods used to value portfolio securities, compute
expenses and calculate yield.
16
<PAGE>
From time to time and only to the extent the comparison is appropriate, 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 Fund 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 Fund 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 Fund. 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. 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 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
17
<PAGE>
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 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 Fund, provides various
services to its customers that are also shareholders of the Fund. 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 Fund through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Fund account statements." 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 August 1, 1998, Wells Fargo Bank and its affiliates provided
investment Advisory services for approximately $63 billion of assets of
individuals, trusts, estates and institutions and $32 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
18
<PAGE>
Channels (an "Information Site") and may describe the contents and features of
the Information Site and instruct investors on how to access the Information
Site and open a Sweep Account. Advertising and other literature may also
disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
services for accessing Electronic Channels. Such advertising or other literature
may include discussions of the advantages of establishing and maintaining a
Sweep Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a Fund's
shares.
Net asset value per Fund share is determined by the Custodian on each
Business Day at 9:00 a.m. Pacific time.
As indicated under "Investing In The Fund -- Share Price" in the
Prospectus, the Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Fund's portfolio on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, 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
19
<PAGE>
rate instruments subject to demand features. Pursuant to the Rule, the Board has
established procedures designed to stabilize, to the extent reasonably possible,
the Fund's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the Fund's portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Directors. If such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Fund shares may be purchased on any day the Fund is open (a "Business
Day"). The Fund is open on any day that Wells Fargo Bank is open. Currently
the holidays observed by 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 Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
20
<PAGE>
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 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 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 municipal obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the investment adviser to 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
21
<PAGE>
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
SECURITIES OF REGULAR BROKER/DEALERS. As of the date of this SAI, the Fund
------------------------------------
owned no securities of its "regular brokers or dealers" or their parents, as
defined in the Act.
PORTFOLIO TURNOVER. Because the Fund's portfolio consists of securities
------------------
with relatively short-term maturities, the Fund 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.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of the Fund
describe generally the tax
22
<PAGE>
treatment of distributions by the Fund. This section of the SAI includes
additional information concerning Federal 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 federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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 the Fund (a) 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) 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 gains) 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. Furthermore, distributions declared 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. The Fund intends 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.
23
<PAGE>
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.
If the Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose,
a constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i)
a short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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
24
<PAGE>
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 in acquiring the Fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales charges
on the new purchase) for the purpose of determining the amount of gain or loss
on the disposition, but will be treated as having been incurred in the
acquisition of such other shares. Also, any loss realized on a redemption or
exchange of shares of the Fund will be disallowed to the extent that
substantially identical shares are acquired within the 61-day period beginning
30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have 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 20%; 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 tax payment on the shareholder's Federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
25
<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. fiduciaries 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.
withholding tax (at a rate of 30% or a lower treaty rate). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of net long-term capital gains are generally
not subject to 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 that will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
General
The Fund intends that at least 50% of the value of its total assets at the
close of each quarter of its taxable years will consist of obligations the
interest on which is exempt from federal income tax, so that they will qualify
under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by the Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. In general, exempt-interest dividends will be
exempt from Federal income taxation in the hands of the Fund's shareholders.
Long-term and/or short-term capital gain distributions will not constitute
exempt-interest dividends and will be taxed as capital gain or ordinary income
dividends, respectively. The exemption of interest income derived from
investments in tax-exempt obligations for Federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, the Fund will
notify its respective 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 Fund will not be
deductible to the extent that the Fund's distributions are exempt from Federal
income tax.
26
<PAGE>
In addition, the Federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that the Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a
corporate shareholder of the 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 tax advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
Shares of the Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs (including Education IRAs, Spousal IRAs and Roth
IRAs) since such plans and accounts are generally tax-exempt and, therefore,
would not benefit from the exempt status of dividends from the Fund.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
CAPITAL STOCK
The Fund is one of the Stagecoach Family of funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty-four other funds.
27
<PAGE>
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 Investor Services at 1-800-260-5969 if you would like
additional information about other funds or classes of shares offered.
In situations where voting by series is required by law or where the matter
involved only affects one series, shares of the Fund will be voted by series.
For example, a change in a Fund's fundamental investment policy would be voted
upon only by shareholders of the Fund involved. Additionally, approval of an
advisory contract is a matter to be determined separately by Fund. Approval by
the shareholders of one Fund is effective as to that Fund whether or not
sufficient votes are received from the shareholders of the other investment
portfolios to approve the proposal as to those investment portfolios. As used
in the Prospectus and this SAI, the term "majority," when referring to approvals
to be obtained from shareholders of the Fund, means the vote of the lesser of
(i) 67% of the shares of the Fund represented at a meeting if the holders of
more than 50% of the outstanding shares of the Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect Directors under the 1940 Act. However, the
Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of the Company's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.
Each 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 a fund are entitled to receive the assets
attributable to the fund that are available for distribution, and a distribution
of any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
28
<PAGE>
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
Set forth below as of June 30, 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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE
Fund Name and Address of Ownership of Class
- ------------------------------------- ---------------------------------------- -------------------- ----------------------
<S> <C> <C> <C>
California Tax-Free Money Market VIRG & Co. Record 95.92%
Trust Attn: MF Dept A88-4 Holder
POB 9800
Calabasas, CA 91372-0800
</TABLE>
OTHER
The Registration Statement, including the Prospectus of the Fund, the SAI
and the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectus or the SAI of the Fund
as to the contents of any contract or other document are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
29
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' reports for the Fund for the fiscal period ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Report as filed with
the SEC on June 10, 1998. The Company's annual report may be obtained by
calling 1-800-260-5969.
30
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
-------
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
-------
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
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: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
NATIONAL TAX-FREE 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 a fund of the Stagecoach Family
of Funds -- NATIONAL TAX-FREE 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 August 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>
Investment Restrictions............................................... 1
Additional Permitted Investment Activities............................ 3
Management............................................................ 7
Performance Calculations.............................................. 13
Determination of Net Asset Value...................................... 17
Additional Purchase and Redemption Information........................ 18
Portfolio Transactions................................................ 19
Fund Expenses......................................................... 21
Federal Income Taxes.................................................. 21
Capital Stock......................................................... 27
Other................................................................. 29
Counsel............................................................... 29
Independent Auditors.................................................. 29
Financial Information................................................. 30
Appendix.............................................................. A-1
</TABLE>
i
<PAGE>
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 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), (ii)
obligations of the United States Government, its agencies or instrumentalities,
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 (including futures
contracts);
(3) 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;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets); or
(7) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity.
1
<PAGE>
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 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.
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.
2
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
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.
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
3
<PAGE>
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.
Municipal Bonds. The Fund may invest in municipal bonds. As discussed in
---------------
the Fund's Prospectus, the two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. Municipal bonds are debt obligations
issued to obtain Fund 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 Fund 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 Fund to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.
Municipal Notes. Municipal notes include, but are not limited to, tax
---------------
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
4
<PAGE>
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
----
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
----
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
----
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
- -
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
- -
outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium. Changes in the value of municipal
securities held in the Fund's portfolio arising from these or other factors will
cause changes in the net asset value per share of the Fund.
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
5
<PAGE>
Fund under a repurchase agreement. Repurchase agreements are considered by the
staff of the Securities and Exchange Commission to be loans by the Fund. The
Fund may enter into repurchase agreements only with respect to securities of the
type in which the Fund may invest, including government securities and mortgage-
related securities, regardless of their remaining maturities, and requires that
additional securities be deposited with the custodian if the value of the
securities purchased should decrease below resale price. Wells Fargo Bank
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Fund in
connection with insolvency proceedings), it is the policy of the Fund to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. The Fund considers on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered to be loans by the
Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
-----------------------------
purposes by entering into reverse repurchase agreements with financial
institutions such as banks and 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.
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.
Unrated and Downgraded Investments. The Fund may purchase instruments that
----------------------------------
are not rated if, in the opinion of Wells Fargo Bank, such obligations are of
comparable quality to other rated investments that are permitted to be purchased
by the Fund. The
6
<PAGE>
Fund may purchase unrated instruments only if they are purchased in accordance
with the procedures of the Fund adopted by the Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by the Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require a sale of such
security by the Fund, provided that when a security ceases to be rated, the
Company's Board of Directors determines that such security presents minimal
credit risks and, provided further that, when a security rating is downgraded
below the eligible quality for investment or no longer presents minimal credit
risks, the Board finds that the sale of such security would not be in the Fund's
best interest. To the extent the ratings given by Moody's or S&P may change as a
result of changes in such organizations or their rating systems, the Fund will
attempt to use comparable ratings as standards for investments in accordance
with the investment policies contained in the 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 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.
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 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 Geiser 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)
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
*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>
8
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- ---------------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $22,250 $33,000
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
9
<PAGE>
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 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 ADVISOR. 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%.
The Fund commenced operations on November 10, 1997. For the period from
November 10, 1997 through March 31, 1998 as indicated below, the Fund paid to
Wells Fargo Bank the following advisory fees, without waivers:
<TABLE>
<CAPTION>
Period Ended
3/31/98
------------
Total Fees Paid Fees Waived
-------- --------- -----------
<S> <C> <C>
$216,969 $113,030 $103,939
</TABLE>
Investment Sub-Advisor. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Fund's average
10
<PAGE>
daily net assets and 0.04% of net assets over $960 million. WCM receives a
minimum annual sub-advisory fee of $120,000 from the Fund. This minimum annual
fee payable to WCM does not increase the advisory fee paid by the Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
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 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.
For the period from November 10, 1997 to March 31, 1998 as indicated below,
the Fund paid the following dollar amounts to Wells Fargo Bank and Stephens for
administration and co-administration fees:
<TABLE>
<CAPTION>
Period Ended
3/31/98
------------
Total Wells Fargo Stephens
----- ----------- --------
<S> <C> <C>
$52,520 $ 35,188 $17,332
</TABLE>
DISTRIBUTOR. Stephens serves as the Fund's distributor. Stephens receives
-----------
no compensation from the Fund for distribution services.
DEFENSIVE 12B-1 PLAN. The Fund has entered into a "defensive" Distribution
--------------------
Plan under Rule 12b-1 of the 1940 Act (the "Plan"). The Plan reflects that, to
the extent any
11
<PAGE>
fees paid pursuant to the servicing plan are deemed to be "primarily intended to
result in the sale of shares" of the Fund, such fees are approved pursuant to
the Plan. The Plan will not result in any separate payment of fees by the Fund.
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
the 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 period begun November 10, 1997 and ended March 31, 1998, all
shareholder servicing fees payable to Wells Fargo Bank or its affiliates
pursuant to the Plan were waived.
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
12
<PAGE>
will provide portfolio accounting services under the Custody Agreement as
follows: a monthly base fee of $2,000 plus a net asset fee at the annual rate
of 0.070% of the first $50,000,000 of the Fund's average daily net assets,
0.045% of the next $50,000,000, and 0.020% of the average daily net assets in
excess of $100,000,000.
For the period beginning November 10, 1997 and ended March 31, 1998, Wells
Fargo Bank waived all fees payable by the Fund for custody services.
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.
For the period beginning November 10, 1997 and ended March 31, 1998, Wells
Fargo Bank waived all transfer and dividend disbursing agency fees payable to it
by the Fund.
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.
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.
13
<PAGE>
Yield For The Applicable Period Ended March 31, 1998/1/
-----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Yield Seven-Day Effective Yield
--------------- -------------------------
<S> <C>
3.37% 3.42%
</TABLE>
____________________________
/1/ The Fund does not assess sales charges.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated period
of time. Yields for the Fund are calculated on the same basis as other money
market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Quotations of yield reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Yield varies
based on changes in market conditions and the level of 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
14
<PAGE>
by the U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average,
S&P's Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The performance of the Fund also may be compared to the performance of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services that monitor the performance of mutual funds. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results. The Company also may include, from time to time,
a reference to certain marketing approaches of the Distributor, including, for
example, a reference to a potential shareholder being contacted by a selected
broker or dealer. General mutual fund statistics provided by the Investment
Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
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.
15
<PAGE>
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold any class of the Fund's
shares since the rating would not comment on the market price of the Fund's
shares or the suitability of the Fund for a particular investor. In addition,
the assigned rating would be subject to change, suspension or withdrawal as a
result of changes in, or unavailability of, information relating to the Fund or
its investments. The Company may compare the Fund's performance with other
investments that are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with other
rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on
the Fund's shares. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells 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 August 1, 1998, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $63 billion
of assets of individuals, trusts, estates and institutions and $32 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
16
<PAGE>
account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may maintain
Web sites, pages or other information sites accessible through Electronic
Channels (an "Information Site") and may describe the contents and features of
the Information Site and instruct investors on how to access the Information
Site and open a Sweep Account. Advertising and other literature may also
disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
services for accessing Electronic Channels. Such advertising or other literature
may include discussions of the advantages of establishing and maintaining a
Sweep Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of 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 (defined below).
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
17
<PAGE>
less, and invest only in securities that are determined to present minimal
credit risks pursuant to guidelines adopted by the Directors or the adviser
under guidelines approved by the Directors. Instruments having variable or
floating interest rates or demand features may be deemed to have remaining
maturities as follows: (a) a government security with a variable rate of
interest readjusted no less frequently than every thirteen months may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (b) an instrument with a variable rate of interest, the
principal amount of which is scheduled on the face of the instrument to be paid
in thirteen months or less, may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (c) an instrument
with a variable rate of interest that is subject to a demand feature may be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand; (d) an instrument with a
floating rate of interest that is subject to a demand feature may be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand; and (e) a repurchase agreement may be deemed to have a
maturity equal to the period remaining until the date on which the repurchase of
the underlying securities is scheduled to occur or, where no date is specified
but the agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which the Fund's NAV as calculated by using available market
quotations deviates from $1.00 per share, such deviation may result in material
dilution or other unfair results to existing shareholders or investors. In the
event the Directors determine that such a material deviation exists, they have
agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Fund to maintain a per share net
asset value of $1.00, but there can be no assurance that the Fund will do so.
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 Wells Fargo Bank is open. Currently the
holidays observed by Wells Fargo Bank are New Year's Day, Presidents' Day,
Martin Luther King, Jr.'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.
18
<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 as described in
the Prospectus. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to make
full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When Wells Fargo Bank determines that a particular
security should be bought or sold for
19
<PAGE>
the Fund and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transactions among the participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Fund also purchases
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing the Fund's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Company are prohibited from dealing with
the Company as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.
The Fund may purchase certain obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Fund's investment adviser, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received is in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the advisory contracts, and the expenses of
Wells Fargo Bank are not necessarily reduced as a result of the receipt of this
supplemental research information. Furthermore, research services furnished by
dealers through which Wells Fargo Bank places securities transactions for the
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Fund.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
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.
20
<PAGE>
Such purchases are usually effected as principal transactions and therefore do
not involve the payment of brokerage commissions.
Securities of Regular Broker Dealers. The Fund may from time to time
------------------------------------
purchase securities issued by its regular broker/dealers. As of March 31, 1998,
the Fund owned no securities of its "regular brokers or dealers" or their
parents as defined in the Act.
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.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of the Fund
describe generally the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning Federal income taxes.
21
<PAGE>
General. The Company intends to qualify the Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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 the Fund (a) 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) 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 their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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. Each Fund intends
22
<PAGE>
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.
If the Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose,
a constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
23
<PAGE>
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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have 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 20%; 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
24
<PAGE>
the shareholder, and may be claimed as a tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could
subject the investor to penalties imposed by the IRS.
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. fiduciaries 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.
withholding tax (at a rate of 30% or a lower treaty rate). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of net long-term capital gains are generally
not subject to 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 that will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Tax-Deferred Plans. The shares of the Fund are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes.
Investors should contact their selling agents for details concerning retirement
plans.
Special Tax Considerations
--------------------------
General
The 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 Fund with respect to any
taxable year that constitutes exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. In general, exempt-
25
<PAGE>
interest dividends will be exempt from Federal income taxation in the hands of
the National Tax-Free Money Market Fund's shareholders. Long-term and/or short-
term capital gain distributions will not constitute exempt-interest dividends
and will be taxed as capital gain or ordinary income dividends, respectively.
The exemption of interest income derived from investments in tax-exempt
obligations for Federal income tax purposes may not result in a similar
exemption under the laws of a particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, the National
Tax-Free Money Market Fund will notify its respective 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 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
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 Fund. Persons who may be "substantial users" (or "related persons"
of substantial users) of facilities financed by private activity bonds should
consult their tax advisors before purchasing shares in the National Tax-Free
Money Market Fund. Furthermore, shareholders will not be permitted to deduct
any of their share of the Fund's expenses in computing their AMT. With respect
to a corporate shareholder of the National Tax-Free Money Market 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 tax advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
26
<PAGE>
Shares of the National Tax-Free Money Market 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 (including
Education IRAs, Spousal IRAs and Roth IRAs) since such plans and accounts are
generally tax-exempt and, therefore, would not benefit from the exempt status of
dividends from the 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 laws.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
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 Investor Services at 1-800-260-5969 if you would like
additional information about other funds or classes of shares offered.
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
27
<PAGE>
shares are voted in the aggregate. For example, a change in a series'
fundamental investment policy affects only one series and are voted upon only by
shareholders of the series and not by shareholders of the Company's other
series. Additionally, approval of an advisory contract is a matter to be
determined separately by each series. Approval by the shareholders of one series
is effective as to that series whether or not sufficient votes are received from
the shareholders of the other series to approve the proposal as to those series.
As used in the prospectus and in this SAI, the term "majority" when referring to
approvals to be obtained from shareholders of the Fund, means the vote of the
lesser of (i) 67% of the Fund shares represented at a meeting if the holders of
more than 50% of the outstanding Fund shares are present in person or by proxy,
or (ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held. The Company may
dispense with an annual meeting of shareholders in any year in which it is not
required to elect directors under the 1940 Act.
A 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 June 30, 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.
28
<PAGE>
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
Name and Address Type of Ownership Percentage of Fund
- ---------------- ----------------- ------------------
<S> <C> <C>
Virg & Co. Record Holder 100%
Attn: MF Dept. A88-4
P.O. Box 9800
Mutual Funds MAC-9139-027
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 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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
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.
29
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments and audited financial statements for the
period ended March 31, 1998, are hereby incorporated by reference to the
Company's Annual Reports as filed with the SEC on June 10, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
30
<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."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
NATIONAL TAX-FREE MONEY MARKET FUND
PRIME MONEY MARKET FUND
TREASURY PLUS MONEY MARKET 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 NATIONAL TAX-FREE MONEY MARKET,
PRIME MONEY MARKET and TREASURY PLUS MONEY MARKET FUNDS. The word "Mutual" was
removed from the name of each of the Company's money market 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 August 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...... 4
Risk Factors.................................... 14
Management...................................... 15
Performance Calculations........................ 24
Determination of Net Asset Value................ 29
Additional Purchase and Redemption Information.. 31
Portfolio Transactions.......................... 32
Fund Expenses................................... 33
Federal Income Taxes............................ 34
Capital Stock................................... 39
Other........................................... 43
Counsel......................................... 43
Independent Auditors............................ 43
Financial Information........................... 44
Appendix........................................ A-1
</TABLE>
i
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HISTORICAL FUND INFORMATION
The National Tax-Free Money Market 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 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 Fund. The word "Mutual" was dropped from the name of each of the
Company's Money Markets as of August 1, 1998.
The Treasury Plus Money Market 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 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 Fund. The word "Plus" was added to the Fund's name as of August 1,
1998.
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 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);
1
<PAGE>
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts) except that the Fund 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
2
<PAGE>
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.
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 and Treasury Plus Money Market 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 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
4
<PAGE>
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, except the Treasury Plus Money Market 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 ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Funds, except the Treasury Plus Money Market 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
5
<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 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.
Foreign Obligations
-------------------
Each Fund, except the Treasury Plus Money Market 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.
6
<PAGE>
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 Funds (other than the Treasury Plus Money Market 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.
7
<PAGE>
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 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 and Prime Money Market 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
8
<PAGE>
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 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.
9
<PAGE>
Municipal Notes
---------------
The National Tax-Free Money Market 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 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 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.
10
<PAGE>
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 Prime Money Market and
Treasury Plus Money Market 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 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 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;
11
<PAGE>
(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 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 Plus Money Market 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 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 Plus Money
Market 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.
12
<PAGE>
The Treasury Plus Money Market 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 Plus Money Market 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.
13
<PAGE>
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 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 Plus Money Market 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 of many types of floating-rate
derivative securities that are considered potentially volatile. The following
types of derivative securities ARE NOT permitted investments for the Funds:
. capped floaters (on which interest is not paid when market rates
move above a certain level);
. leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the relationship
between these indices may result in the value of the instrument
falling below face value); and
. inverse floaters (which reset in the opposite direction of their
index).
14
<PAGE>
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 Plus Money Market 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, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
15
<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.
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)
Joseph N. Hankin 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
16
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- --------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $ 25,750 $ 34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $ 25,750 $ 34,500
Director
Peter G. Gordon $ 24,250 $ 30,500
Director
Joseph N. Hankin $ 25,750 $ 34,500
Director
W. Rodney Hughes $ 25,250 $ 33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $ 25,250 $ 33,000
Director
</TABLE>
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 below 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
17
<PAGE>
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>
National Tax-Free Money Market 0.30%
Prime Money Market 0.25%
Treasury Plus Money Market 0.25%
</TABLE>
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees
---- --------- ----------- --------- ----
Waived
------
<S> <C> <C> <C> <C>
National Tax-Free Money Market $ 45,696 $ 176,925 $ 19,989 $ 0
Prime Money Market $1,174,300 $3,028,364 $1,311,073 $568,969
Treasury Plus Money Market $1,216,164 $3,368,585 $1,518,347 $751,971
</TABLE>
National Tax-Free Money Market Fund. Prior to the Consolidation, the
-----------------------------------
National Tax-Free Money Market Fund invested all of its assets in a
corresponding Master Portfolio of Master
18
<PAGE>
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 Fund paid to Wells Fargo
Bank $76,987 in advisory fees and $10,704 in advisory fees were waived during
this period.
Prime Money Market and Treasury Plus Money Market Funds. The Pacifica
-------------------------------------------------------
Prime Money Market and Treasury Money Market Funds were reorganized as the
Company's Prime Money Market and Treasury Plus Money Market 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 and Treasury Plus Money Market 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 $1,845,269 $1,553,968
Treasury Plus Money Market $2,442,922 $2,073,426
</TABLE>
For the period indicated below, the advisory fees paid to the former
advisor by the predecessor portfolios of the Prime Money Market and Treasury
Plus Money Market Funds were as shown below. These amounts reflect voluntary
fee waivers and expense reimbursements by the advisor.
<TABLE>
<CAPTION>
Fund Year Ended
9/30/95
-------
<S> <C>
Prime Money Market $ 693,315
Treasury Plus Money Market $1,160,424
</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
19
<PAGE>
Advisory Contract or "interested persons" (as defined in the 1940 Act) of any
such party. A Fund's Advisory Contract may be terminated on 60 days' written
notice by either party and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of each
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from each Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by the
Funds to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or
directly by each Fund. If the sub-advisory fee is paid directly by a Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
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
the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank.
20
<PAGE>
For the periods indicated below, the Funds paid the following dollar amount
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
----------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
National Tax-Free Money Market $ 47,644 $ 31,921 $ 15,723
Prime Money Market $1,047,654 $701,928 $345,726
Treasury Plus Money Market $1,133,896 $759,710 $374,186
</TABLE>
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 $ 3,744 $ 749 $ 2,995
Prime Money Market $400,123 $80,025 $320,098
Treasury Plus Money Market $483,198 $96,640 $386,558
</TABLE>
National Tax-Free Money Market 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 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 and Treasury Plus Money Market Funds. The Pacifica
-------------------------------------------------------
Prime Money Market and Treasury Money Market Funds were reorganized as the
Company's Prime Money Market and Treasury Plus Money Market 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 and Treasury Plus
Money Market 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,
21
<PAGE>
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 $1,230,872
Treasury Plus Money Market $1,745,759
</TABLE>
During the fiscal year ended September 30, 1995, the administration fees
paid to Dreyfus by the predecessor portfolios of the Prime Money Market Fund and
the Treasury Plus Money Market Fund were as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/95
---- ---------
<S> <C>
Prime Money Market $577,763
Treasury Plus Money Market $921,886
</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 and Treasury Plus
---------------------------
Money Market 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 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 and Treasury
Plus Money Market Funds, not to exceed 0.25%, and from the National Tax-Free
Money Market 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").
22
<PAGE>
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
Year Ended Period Ended
Fund 3/31/98 9/30/97
---- ------- -------
<S> <C> <C>
National Tax-Free Money Market $ 0 N/A
Prime Money Market $ 0 $ 0
Treasury Plus Money Market $ 0 $ 0
</TABLE>
Prime Money Market and Treasury Plus Money Market 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.
For the year ended March 31, 1998, the Funds paid the following dollar
amounts in custody fees, after waivers, to Wells Fargo Bank:
23
<PAGE>
<TABLE>
<CAPTION>
Fund Custody Fees
---- --------------
<S> <C>
National Tax-Free Money Market $ 6,189
Prime Money Market $280,730
Treasury Plus Money Market $301,633
</TABLE>
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 year ended March 31, 1998, 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 $ 19,943
Prime Money Market $ 853,431
Treasury Plus Money Market $ 1,014,143
</TABLE>
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.
24
<PAGE>
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 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.
Performance shown or advertised for the Institutional Class shares of the
Prime Money Market and Treasury Plus Money Market 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.
Average Annual Total Return for the Applicable Period Ended March 31,
1998
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three One
Class Inception Year Year Year
------- --------- ---- ---- ----
<S> <C> <C> <C> <C>
National Tax-Free Money Market 2.92% N/A N/A 2.94%
Prime Money Market 7.22% 4.81% 5.51% 5.58%
Treasury Plus Money Market 5.71% 4.67% 5.35% 5.41%
</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.
Cumulative Total Return for the Applicable Period Ended March 31 1998
---------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Five Three
Class Inception Year Year
------- --------- ---- ----
<S> <C> <C> <C>
National Tax-Free Money Market 5.92% N/A N/A
Prime Money Market 227.27% 26.48% 17.47%
Treasury Plus Money Market 99.85% 25.61% 18.93%
</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
25
<PAGE>
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 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.
Yield for the Applicable Period Ended March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Seven-Day Thirty-Day
Seven-Day Effective Tax-Equivalent Thirty-Day Tax-Equivalent
Fund Yield Yield Yield/1/ Yield Yield/1/
---- ----- ----- ------- ----- --------
<S> <C> <C> <C> <C> <C>
National Tax-Free Money
Market 3.13% 3.18% 4.35% 2.97% 4.13%
Prime Money Market 5.54% 5.70% N/A 5.46% N/A
Treasury Plus Money Market 5.33% 5.48% N/A 5.30% N/A
</TABLE>
____________________
/1/ Based on a federal income tax rate of 28.00%.
26
<PAGE>
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds or a Class also may be compared to that of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant
27
<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, 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 August 1,
1998, Wells Fargo Bank and its affiliates provided investment Advisory services
for approximately $63 billion of assets of individual, trusts, estates and
institutions and $32 billion of mutual fund assets.
28
<PAGE>
The Company also may discuss in advertising and other types of literature
the features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account,
California Tax-Free Money Market Checking Account, Money Market Access Account
and California Tax-Free Money Market Access Account (collectively, the "Sweep
Accounts"). Such advertisements and other literature may include, without
limitation, discussions of such terms and conditions as the minimum deposit
required to open a Sweep Account, a description of the yield earned on shares of
the Funds through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Prime Money Market Fund is determined as
of 12:00 noon (Pacific time) on each day the Fund is open for business. Net
asset value per share of the National Tax-Free Money Market Fund is determined
as of 9:00 a.m. (Pacific time) on each day the Fund is open for business. Net
asset value per share of the Treasury Plus Money Market Fund is determined as of
2:00 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.
29
<PAGE>
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Funds would receive if the security were sold. During these periods
the yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Funds' portfolio on a particular
day, a prospective investor in the Funds would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, a Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to present minimal
credit risks. The maturity of an instrument is generally deemed to be the
period remaining until the date when the principal amount thereof is due or the
date on which the instrument is to be redeemed. However, Rule 2a-7 provides
that the maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. 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
30
<PAGE>
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 Wells Fargo Bank is open for business (a
"Business Day"). Wells Fargo Bank 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.
Purchase orders for a Fund received before such Fund's NAV calculation time
generally are processed at such time on that Business Day. Purchase orders
received after a Fund's NAV calculation time generally are processed at such
Fund's NAV calculation time on the next Business Day. Selling Agents may
establish earlier cut-off times for processing your order. Requests received by
a Selling Agent after the applicable cut-off time will be processed on the next
business 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.
31
<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 non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, municipal
obligations and taxable money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the Act, persons affiliated with the Company
are prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the 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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Funds did not pay any brokerage commissions on
---------------------
portfolio transactions for the past three years ended March 31, 1998.
32
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1998, 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>
National Tax-Free Money None None
Market Fund
Prime Money Market Goldman Sachs & Co. $270,904,000
J.P. Morgan $140,088,599
Merrill Lynch $ 74,117,500
Morgan Stanley $164,688,217
Treasury Plus Money Market Goldman Sachs & Co. $ 64,665,000
Fund HSBC Securities $310,024,000
J.P. Morgan $215,434,000
Morgan Stanley $389,735,000
</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 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
33
<PAGE>
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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) earned in each taxable year. In
general, these distributions must actually or be deemed to
34
<PAGE>
be made in the taxable year. However, in certain circumstances, such
distributions may be made in the 12 months following the taxable year.
Furthermore, distributions declared 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. 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 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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
35
<PAGE>
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 a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 have 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 20%; 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.
36
<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 tax payment on the shareholder's Federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could also subject the investor to
penalties imposed by the IRS.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 that 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.
Special Tax Considerations for National Tax-Free Money Market Fund
------------------------------------------------------------------
General
The National Tax-Free Money Market 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
37
<PAGE>
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 Fund with respect to any taxable year that
constitutes exempt-interest dividends will be the same for all shareholders
receiving dividends during such year. In general, exempt-interest dividends will
be exempt from Federal income taxation in the hands of the National Tax-Free
Money Market Fund's shareholders. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed as
capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for Federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, the National
Tax-Free Money Market Fund will notify its respective 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 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
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 Fund. Persons who may be "substantial users" (or "related persons"
of substantial users) of facilities financed by private activity bonds should
consult their tax advisors before purchasing shares in the National Tax-Free
Money Market Fund. Furthermore, shareholders will not be permitted to deduct
any of their share of the Fund's expenses in computing their AMT. With respect
to a corporate shareholder of the National Tax-Free Money Market 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 tax advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
38
<PAGE>
Shares of the National Tax-Free Money Market 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 (including
Education IRAs, Spousal IRAs and Roth IRAs) since such plans and accounts are
generally tax-exempt and, therefore, would not benefit from the exempt status of
dividends from the 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 laws.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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 Investor 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
39
<PAGE>
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 June 30, 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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NATIONAL TAX-FREE Wells Fargo Bank Class A 86.40% 29.14%
MONEY MARKET MUTUAL FBO Money Market Checking Omnibus Acct. Beneficially Owned
FUND P.O. Box 7066
San Francisco, CA 94120
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
PRIME MONEY MARKET Wells Fargo Bank Institutional Class 6.00% N/A
MUTUAL FUND Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg & Co. Institutional Class 42.04% 8.87%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Institutional Class 13.55% 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 28.31% 6.03%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 44.30% 9.43%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds 24.38% 5.19%
FBO Wells Fargo Securities
5 World Trade Center, 6th Floor
New York, NY 10048
Virg & Co. Service Class 30.28% 5.08%
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 10005-2501
TREASURY PLUS MONEY Wells Fargo Bank Institutional Class 35.57% 8.29%
MARKET FUND Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
VIRG & Co. Institutional Class 28.57% 6.65%
Attn: MF Dept. ABB-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Castle Tower Holding Corporation Institutional Class 8.93% N/A
510 Bering Drive, STE 310 Record Holder
Houston, TX 77057
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Hare & Co Institutional Class 8.49% 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 29.50% 5.66%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 5.28% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 15.09% N/A
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
WFB-Wholesale Sweep Class A 45.09% 8.65%
3440 Walnut Avenue, Building B Record Holder
Attn: Mimi Johnson MAC 0247-018
Fremont, CA 94538-2210
Hare & Co Class E 100.00% 35.93%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Wells Fargo Bank, TTEE Service Class 9.08% N/A
FBO Choicemaster Record Holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372-0800
Virg & Co. Service Class 20.05% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co Service Class 50.98% 7.52%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Wells Fargo Bank Agent FBO Administrative Class 19.96% N/A
Orlandi #143242 Record Holder
Mutual Funds #0187-112 AU #6971
201 3rd Street, 11th Floor
San Francisco, CA 94163
Wells Fargo Bank Agent For Administrative Class 5.38% N/A
Interlink Computer Science 146952 Record Holder
c/o SSP MAC 0187-112
201 3rd Street, 11th Floor
San Francisco, CA 94163
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
EKOS Corporation Administrative Class 6.57% N/A
22122 20th Avenue S.E., Suite 148 Record Holder
Bothell, WA 98021
</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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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.
43
<PAGE>
FINANCIAL INFORMATION
The portfolios of investments, audited financial statements and independent
auditor's reports for the Fund as of and for the year ended March 31, 1998, are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9, 1998.
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 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: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated August 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 a fund 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 August 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.......................... 22
Portfolio Transactions.................................................. 22
Fund Expenses........................................................... 24
Federal Income Taxes.................................................... 25
Capital Stock........................................................... 29
Other................................................................... 31
Counsel................................................................. 31
Independent Auditors.................................................... 31
Financial Information................................................... 32
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.
(6) Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
1
<PAGE>
(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.
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.
2
<PAGE>
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 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.
3
<PAGE>
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 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.
4
<PAGE>
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.
5
<PAGE>
Repurchase Agreements. The Fund may engage in a repurchase agreement with
---------------------
respect to any security in which the Fund is authorized to invest, including
U.S. Treasury STRIPS, although the underlying security may mature in more than
thirteen months. The Fund may enter into repurchase agreements wherein the
seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed-upon time and price which involve the acquisition by
the Fund of an underlying debt instrument, subject to the seller's obligation to
repurchase, and the Fund's obligation to resell, the instrument at a fixed price
usually not more than one week after its purchase. The Fund's custodian has
custody of, and holds in a segregated account, securities acquired as collateral
by the Fund under a repurchase agreement. Repurchase agreements are considered
by the staff of the Securities and Exchange Commission to be loans by the Fund.
The Fund may enter into repurchase agreements only with respect to securities of
the type in which the Fund may invest, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the value
of the securities purchased should decrease below resale price. Wells Fargo
Bank monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred by
the Fund in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Fund in
connection with insolvency proceedings), it is the policy of the Fund to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. The Fund considers on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered to be loans by the
Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
-----------------------------
purposes by entering into reverse repurchase agreements with financial
institutions such as banks and 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.
6
<PAGE>
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.
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
Chairman and of Stephens Inc.; President
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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of
Crystal Geiser Water Co. Crystal Geyser Water Company
55 Francisco Street and President of Crystal
San Francisco, CA 94133 Geyser Roxane Water Company
(as of 1/1/98) since 1977.
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
*J. Tucker Morse, 53 Director Private Investor; Chairman
4 Beaufain Street of Home Account Network,
Charleston, SC 29401 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 Stephens
Officer, Inc.; Director of Stephens
Secretary and Sports Management Inc.; and
Treasurer Director of Capo Inc.
</TABLE>
8
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- --------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $22,250 $33,000
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
9
<PAGE>
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 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%.
For the period indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Year Ended
3/31/98
----------
Fees Paid Fees Waived
--------- -----------
$338,449 $1,356,100
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 periods indicated below, the Fund paid to FICM, WFIM and
Wells Fargo Bank, the advisory fees indicated below and the indicated amount was
waived:
10
<PAGE>
<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.
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 the fiscal year ended May 31,
1995, 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
</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
11
<PAGE>
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 net assets, 2 percent of the next $70
million and 1-1/2 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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Fund's average
12
<PAGE>
daily net assets and 0.04% of net assets over $960 million. WCM receives a
minimum annual sub-advisory fee of $120,000 from the Fund. This minimum annual
fee payable to WCM does not increase the advisory fee paid by the Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
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 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.
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:
13
<PAGE>
<TABLE>
<CAPTION>
Year-Ended
3/31/98
----------
Total Wells Fargo Stephens
----- ----------- --------
<S> <C> <C>
$157,263 $105,366 $51,897
</TABLE>
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 year ended May 31, 1995, ALPS received administration fees
from the Fund as follows:
<TABLE>
<CAPTION>
Four-Month Period Ended Year Ended
Sept. 30, 1995 May 31, 1995
-------------- ------------
<S> <C>
$132,597 $387,803
</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.
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
the Customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for
14
<PAGE>
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 year-ended March 31, 1998, the Fund paid $658,406 in shareholder
servicing fees to Wells Fargo Bank or its affiliates pursuant to the Plan.
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.
15
<PAGE>
Prior to April 1, 1996, FICAL acted as custodian of the Predecessor
Portfolio, but played no role in making decisions as to the purchase or sale of
portfolio securities for the Predecessor Portfolio. FICAL was entitled to
receive a fee from Pacifica, computed daily and payable monthly, at the annual
rate of 0.02% of the first $5 billion in aggregate average daily net assets of
the Fund; 0.0175% of the next $5 billion in aggregate average daily net assets
of the Fund; and 0.015% of the aggregate average daily net assets of the Fund in
excess of $10 billion, as well as certain transaction charges.
For the year-ended March 31, 1998, the Fund paid no custody fees to Wells
Fargo Bank.
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 year-ended March 31, 1998, 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.
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
16
<PAGE>
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, 1998/1/
-------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Yield Seven-Day Effective Yield
--------------- -------------------------
<S> <C>
5.47% 5.62%
</TABLE>
_________________
1 The Fund does not assess sales charges.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated period
of time. Yields for the Fund are calculated on the same basis as other money
market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Quotations of yield reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Yield varies
based on changes in market conditions and the level of 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
17
<PAGE>
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
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;
18
<PAGE>
(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 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
19
<PAGE>
August 1, 1998, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $63 billion of assets of individuals, trusts, estates
and institutions and $32 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of 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.
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
20
<PAGE>
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the Fund's instruments, based upon their amortized cost
and the concomitant maintenance by the Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which the Fund
must adhere to certain conditions. The Fund must maintain a dollar-weighted
average maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days (thirteen months) or less, and invest only in securities
that are determined to present minimal credit risks pursuant to guidelines
adopted by the Directors or the adviser under guidelines approved by the
Directors. Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a government
security with a variable rate of interest readjusted no less frequently than
every thirteen months may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate; (b) an instrument
with a variable rate of interest, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months or less, may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which the Fund's NAV as calculated by using available market
quotations deviates from $1.00 per share, such deviation may result in material
dilution or other unfair results to existing shareholders or investors. In the
event the Directors determine that such a material deviation exists, they have
agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Fund to maintain a per share net
asset value of $1.00, but there can be no assurance that the Fund will do so.
21
<PAGE>
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 Wells Fargo Bank is open. Currently the
holidays observed by Wells Fargo Bank are New Year's Day, Presidents' Day,
Martin Luther King's Birthday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day (each, a
"Holiday"). When any Holiday falls on a weekend, the Fund typically is closed on
the weekday immediately before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described in
the Prospectus. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to make
full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the 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
22
<PAGE>
Company to obtain the best results taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors such as the dealer's risk in positioning the securities involved. While
Wells Fargo Bank generally seeks reasonably competitive spreads or commissions,
the Fund will not necessarily be paying the lowest spread or commission
available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When Wells Fargo Bank determines that a particular security
should be bought or sold for the Fund and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank undertakes to allocate those transactions among the
participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Fund also purchases
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing the Fund's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Company are prohibited from dealing with
the Company as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.
The Fund may purchase certain obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Fund's investment adviser, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received is in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the advisory contracts, and the expenses of
Wells Fargo Bank are not necessarily reduced as a result of the receipt of this
supplemental research information. Furthermore, research services furnished by
dealers through which Wells Fargo Bank places securities transactions for the
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Fund.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
23
<PAGE>
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.
The Fund and the Predecessor Portfolio did not pay any brokerage
commissions during the past three years, because all of their 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, 1998,
the Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:
<TABLE>
<CAPTION>
REGULAR BROKER/DEALER AMOUNT
--------------------- ------
<S> <C>
Goldman Sachs & Co. $103,764,000
J P Morgan Securities Inc. $ 80,175,000
Morgan Stanley & Co. $ 20,000,000
</TABLE>
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
24
<PAGE>
charges; taxes; fees and expenses of its independent accountants, legal counsel,
transfer agent and dividend disbursing agent; expenses of redeeming shares;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Plan), shareholders' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses relating
to insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of the Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to the Fund are charged against Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
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.
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 Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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
25
<PAGE>
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 their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 generally will 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
26
<PAGE>
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month 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 have 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
27
<PAGE>
20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of net long-term capital gains are generally
not subject to 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, 1999, 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.
28
<PAGE>
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
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 Investor 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.
29
<PAGE>
Voting. On any matter submitted to a vote of shareholders, all shares then
-------
entitled to vote are voted separately by series unless otherwise required by the
Act, in which case all shares are voted in the aggregate. For example, a change
in a series' fundamental investment policy affects only one series and are voted
upon only by shareholders of the series and not by shareholders of the Company's
other series. Additionally, approval of an advisory contract is a matter to be
determined separately by each series. Approval by the shareholders of one
series is effective as to that series whether or not sufficient votes are
received from the shareholders of the other series to approve the proposal as to
those series. As used in the prospectus and in this SAI, the term "majority"
when referring to approvals to be obtained from shareholders of the Fund, means
the vote of the lesser of (i) 67% of the Fund shares represented at a meeting if
the holders of more than 50% of the outstanding Fund shares are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than 50%
of the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held. The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
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 June 30, 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.
30
<PAGE>
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
Name and Address Type of Ownership Percentage of Fund
- ---------------------------- --------------------- --------------------
<S> <C> <C>
Virg & Co. Record Holder 97.84%
Attn: MF Dept. A88-4
P.O. Box 9800
Mutual Funds 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 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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds' Prospectus.
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.
31
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the year ended March 31, 1998 are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on June 10, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
32
<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."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
EQUITY INDEX FUND
CLASS A AND CLASS B
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about a fund in the Stagecoach Family of Funds (the
"Fund") -- the EQUITY INDEX FUND. This SAI relates to the Class A and Class B
shares of the Fund.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated August 1, 1998. All terms used in this SAI that are
defined in the Prospectus have the meaning assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA
94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information.............................................. 1
Investment Restrictions.................................................. 1
Additional Permitted Investment Activities............................... 3
Risk Factors............................................................. 15
Management............................................................... 17
Performance Calculations................................................. 27
Determination of Net Asset Value......................................... 32
Additional Purchase and Redemption Information........................... 33
Portfolio Transactions................................................... 34
Fund Expenses............................................................ 35
Federal Income Taxes..................................................... 36
Capital Stock............................................................ 42
Other.................................................................... 43
Counsel.................................................................. 44
Independent Auditors..................................................... 44
Financial Information.................................................... 44
Appendix................................................................. A-1
</TABLE>
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HISTORICAL FUND INFORMATION
The Equity Index Fund commenced operations on January 1, 1992, as successor
to the Corporate Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor Fund's commencement of operations was January 25,
1984. During the period from April 28, 1996 to December 12, 1997, the Fund
invested all of its assets in a Master Portfolio with a corresponding investment
objective. Prior to December 12, 1997, the Equity Index Fund was known as the
"Corporate Stock Fund."
The Class B shares of the Fund commenced operations on February 17, 1998.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
The Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
the Fund.
The Fund may not:
(1) purchase the securities of issuers conducting its principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of its total assets, provided that there is no
limitation with respect to investments in (i) obligations of the United States
Government, its agencies or instrumentalities and (ii) any industry in which the
S&P 500 Index becomes concentrated to the same degree during the same period;
and provided further, that the Fund may invest all of its assets in a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as the
Fund, without regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase or sell commodities or commodity contracts; except that the
Fund may purchase and sell (i.e., write) options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices, and may participate in interest rate and index swaps;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
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(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with transactions in options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (6);
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except to the extent the activities permitted
in Investment Restrictions Nos. 3 and 5 may be deemed to give rise to a senior
security but do not violate the provisions of section 18 of the 1940 Act, and
except that the Fund may borrow up to 20% of the current value of the Fund's net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value of the
Fund's net assets (but investments may not be purchased by the Fund while any
such outstanding borrowings exceed 5% of the Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Fund may engage in options
transactions to the extent permitted in Investment Restrictions Nos. 3 and 5,
and except that the Fund may purchase securities with put rights in order to
maintain liquidity; nor
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer or the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as the Fund, without regard to the limitations set
forth in this paragraph (10).
The Fund may make loans in accordance with its investment policies.
As a fundamental policy, the Fund may invest, notwithstanding any other
investment restrictions (whether or not fundamental), all of its assets in the
securities of a single open-end, management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund. A decision to so
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<PAGE>
invest all of its assets may, depending on the circumstances applicable at the
time, require approval of shareholders.
Non-Fundamental Investment Policies
-----------------------------------
The Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without shareholder approval.
(1) The Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, a Fund's investment in such securities currently is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) The Fund may not invest or hold more than 15% of the Fund's net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of the Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Fund will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Convertible Securities
----------------------
The Fund may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above for the
Fund and that have a strong earnings and credit record. The Fund may purchase
convertible securities that are
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<PAGE>
fixed-income debt securities or preferred stocks, and which may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same issuer. Convertible securities, while usually
subordinate to similar nonconvertible securities, are senior to common stocks in
an issuer's capital structure. Convertible securities offer flexibility by
providing the investor with a steady income stream (which generally yield a
lower amount than similar nonconvertible securities and a higher amount than
common stocks) as well as the opportunity to take advantage of increases in the
price of the issuer's common stock through the conversion feature. Fluctuations
in the convertible security's price can reflect changes in the market value of
the common stock or changes in market interest rates. At most, 5% of the Fund's
net assets will be invested, at the time of purchase, in convertible securities
that are not rated in the four highest rating categories by one or more
Nationally Recognized Statistical Ratings Organizations ("NRSROs"), such as
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Rating Group
("S&P"), or unrated but determined by the advisor to be of comparable quality.
Corporate Reorganizations
-------------------------
The Fund may invest in securities for which a tender or exchange offer has
been made or announced, and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of Wells Fargo Bank, N.A. ("Wells Fargo Bank"), there is a
reasonable prospect of capital appreciation significantly greater than the added
portfolio turnover expenses inherent in the short term nature of such
transactions. The principal risk associated with such investments is that such
offers or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Fund may sustain a loss.
Custodial Receipts for Treasury Securities
------------------------------------------
The Fund may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by the Fund in
such participations will not exceed 5% of the value of the Fund's total assets.
Derivatives
-----------
Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For example,
the futures contracts and options on futures contracts that the Fund may
purchase are considered derivatives. The Fund may
4
<PAGE>
only purchase or sell these contracts or options as substitutes for comparable
market positions in the underlying securities. Also, asset-backed securities
issued or guaranteed by U.S. Government agencies or instrumentalities and
certain floating- and variable-rate instruments can be considered derivatives.
Some derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be susceptible
to fluctuations in yield or value due to their structure or contract terms.
Wells Fargo Bank and Barclays Global Fund Advisors ("BGFA") use a variety
of internal risk management procedures to ensure that derivatives use is
consistent with the Fund's investment objective, does not expose the Fund to
undue risk and is closely monitored. These procedures include providing
periodic reports to the Board of Trustees concerning the use of derivatives.
The use of derivatives by the Fund also is subject to broadly applicable
investment policies. For example, the Fund may not invest more than a specified
percentage of its assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may the Fund use certain
derivatives without establishing adequate "cover" in compliance with the U.S.
Securities and Exchange Commission ("SEC") rules limiting the use of leverage.
Floating- and Variable-Rate Instruments
---------------------------------------
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in
the amount of interest received on the debt instruments. The floating- and
variable-rate instruments that the Fund may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
Foreign Currency Transactions
-----------------------------
If the Fund enters into a foreign currency transaction or forward contract,
the Fund deposits, if required by applicable regulations, in a segregated
account of the Fund an amount at least equal to the value of the Fund's total
assets committed to the consummation of the forward contract. If the value of
the securities placed in the segregated account declines, additional cash or
securities are placed in the account so that the value of the account equals the
amount of the Fund's commitment with respect to the contract.
At or before the maturity of a forward contract, the Fund either may sell a
portfolio security and make delivery of the currency, or may retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund obtains, on the same maturity date,
the same amount of the currency which it is obligated to deliver. If the Fund
retains the portfolio security and engages in
5
<PAGE>
an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, incurs a gain or a loss to the extent that movement has occurred in
forward contract prices. Should forward prices decline during the period between
the Fund's entering into a forward contract for the sale of a currency and the
date it enters into an offsetting contract for the purchase of the currency, the
Fund will realize a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
Wells Fargo Bank or BGFA, as appropriate, considers on an ongoing basis the
creditworthiness of the institutions with which the Fund enters into foreign
currency transactions. The use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, the Fund may not be able to contract to
sell the currency at a price above the devaluation level it anticipates.
The purchase of options on currency futures allows the Fund, for the price
of the premium it must pay for the option, to decide whether or not to buy (in
the case of a call option) or to sell (in the case of a put option) a futures
contract at a specified price at any time during the period before the option
expires.
Foreign Obligations and Securities
----------------------------------
The Fund may invest up to 25% of its assets in high-quality, short-term
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars, and similar
obligations of foreign governmental and private issuers. The Fund also may
invest in foreign securities through American Depositary Receipts ("ADRs"),
Canadian Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"),
International Depositary Receipts ("IDRs") and Global Depositary Receipts
("GDRs") or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company and
traded on a U.S. stock exchange, and CDRs are receipts typically issued by a
Canadian bank or trust 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
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<PAGE>
ownership of the underlying foreign securities. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs and IDRs in bearer
form are designed primarily for use in Europe.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
The Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Fund will generally purchase securities with the intention of acquiring them,
the Fund may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
advisor. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience price fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Futures Contracts and Options Transactions
------------------------------------------
In General. The Fund may engage in futures and options transactions as
discussed below. A futures transaction involves a firm agreement to buy or sell
a commodity or financial instrument at a particular price on a specified future
date, while an option transaction generally involves a right, which may or may
not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the
7
<PAGE>
exchange serves as the ultimate counterparty for all contracts. Consequently,
the only credit risk on futures contracts is the creditworthiness of the
exchange. Futures contracts, however, are subject to market risk (i.e., exposure
to adverse price changes).
The Fund may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange.
The Fund's futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the Commodity Futures Trading Commission.
In addition, the Fund may not engage in futures transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired options on
futures contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of the Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts;
provided, however, that in the case of an option on a futures contract that is
in-the money at the time of purchase, the in-the money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the U.S. Securities and Exchange Commission ("SEC"), the Fund may
be required to segregate cash, U.S. Government obligations or other high-quality
debt instruments in connection with its futures transactions in an amount
generally equal to the entire value of the underlying commitment.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, the Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
Although the Fund intends to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contracts prices could move to the
limit for
8
<PAGE>
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subject the Fund to
substantial losses. If it is not possible, or the Fund determines not to close a
futures position in anticipation of adverse price movements, the Fund will be
required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e. seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract.
The Fund may enter into futures contracts and may purchase and write
options thereon. Upon the exercise, the writer of the option delivers to the
holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the Fund.
Options. The Fund may purchase or sell options on individual securities or
options on indices of securities as described below. The purchaser of an option
risks a total loss of the premium paid for the option if the price of the
underlying security does not increase or decrease sufficiently to justify
exercise. The seller of an option, on the other hand, will recognize the premium
as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option.
The Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. The Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
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<PAGE>
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Stock Index Options. The Fund may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 15% of the value of its
net assets. The Fund may purchase and write (i.e., sell) put and call options
on stock indices as a substitute for comparable market positions in the
underlying securities. A stock index fluctuates with changes in the market
values of the stocks included in the index. The aggregate premiums paid on all
options purchased may not exceed 20% of the Fund's total assets and the value of
the options written may not exceed 10% of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss from purchasing
or writing stock index options depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of particular
stock.
When the Fund writes an option on a stock index, the Fund will place in a
segregated account with the Fund's custodian cash or liquid securities in an
amount at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or otherwise will cover the
transaction.
Stock Index Futures and Options on Stock Index Futures. The Fund may
invest in stock index futures and options on stock index futures as a substitute
for a comparable market position in the underlying securities. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation
of an unfavorable position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Fund may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Fund may also sell options on
interest-rate futures contracts as part of closing
10
<PAGE>
purchase transactions to terminate its options positions. No assurance can be
given that such closing transactions can be effected or as to the degree of
correlation between price movements in the options on interest rate futures and
price movements in the Fund's portfolio securities which are the subject of the
transaction.
Interest-Rate and Index Swaps. The Fund may enter into interest-rate and
index swaps in pursuit of its investment objective. Interest-rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments). Index swaps involve the exchange by the Fund with another
party of cash flows based upon the performance of an index of securities or a
portion of an index of securities that usually include dividends or income. In
each case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. The Fund will usually enter into swaps on
a net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If the Fund enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Fund These transactions generally do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with
respect to swaps generally is limited to the net amount of payments that the
Fund is contractually obligated to make. There is also a risk of a default by
the other party to a swap, in which case the Fund may not receive net amount of
payments that the Fund contractually is entitled to receive. The Fund may
invest up to 10% of its respective net assets in interest-rate and index swaps.
Future Developments. The Fund may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by the
Fund or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. Before entering into such
transactions or making any such investment, the Fund would provide appropriate
disclosure in its Prospectus or this SAI.
Loans of Portfolio Securities
-----------------------------
The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
obligations or other high-quality debt instruments equal to at least 100% of the
current market value of the
11
<PAGE>
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, Wells Fargo Bank will consider all relevant facts and
circumstances, including the creditworthiness of the broker, dealer, or
financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. Any securities that the Fund may
receive as collateral will not become part of the Fund's portfolio at the time
of the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. The Fund will not lend securities having a
value that exceeds one third of the current value of its total assets. Loans of
securities by the Fund will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, its Advisor, or its Distributor.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Fund invest can be expected to charge fees for
operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Fund.
Pass-Through Obligations
------------------------
The Fund may invest in pass-through obligations that are supported by the
full faith and credit of the U.S. Government (such as those issued by the
Government National Mortgage Association) or those that are guaranteed by an
agency or instrumentality of the U.S. Government or government-sponsored
enterprise (such as the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation) or bonds collateralized by any of the foregoing.
12
<PAGE>
Privately Issued Securities
---------------------------
The Fund may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to the Fund. Privately issued or Rule 144A Securities that
are determined by the investment advisor to be "illiquid" are subject to each
Fund's policy of not investing more than 15% of its net assets in illiquid
securities.
The Company's investment advisor, pursuant to guidelines established by the
Board of Directors of the Company will evaluate the liquidity characteristics of
each Rule 144A Security proposed for purchase by the Fund on a case-by-case
basis and will consider the following factors, among others, in their
evaluation: (1) the frequency of trades and quotes for the Rule 144A Security;
(2) the number of dealers willing to purchase or sell the Rule 144A Security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the Rule 144A Security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the Rule 144A Security, the method of soliciting offers and the mechanics of
transfer). The Fund does not intend to invest more than 15% of its net assets in
privately issued securities or Rule 144A Securities that may be considered
illiquid during the coming year.
Money Market Instruments
------------------------
The Fund may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1" or "A-1--" by S&P, or, if
unrated, of comparable quality as determined by Wells Fargo Bank, as investment
advisor; (iv) repurchase agreements; and (v) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities at the date of
purchase of no more than one year that are rated at least "Aa" by Moody's or
"AA" by S&P. The Fund also may invest in short-term U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 75 largest foreign banks in the
world as determined on the basis of assets; (iii) have branches or agencies in
the United States; and (iv) in the opinion of Wells Fargo Bank, as investment
advisor, are of comparable quality to obligations of U.S. banks which may be
purchased by the Fund.
13
<PAGE>
Letters of Credit. Certain of the debt obligations (including certificates
of participation, commercial paper and other short-term obligations) which the
Fund may purchase may be backed by an unconditional and irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of Wells Fargo Bank, are of comparable quality
to issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. The Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. The Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized at
102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of the
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. The Fund will only enter into repurchase agreements with primary
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors and that are not affiliated with the investment advisor. The
Fund may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Unrated Investments
-------------------
The Fund may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by the Fund. After purchase
by the Fund, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require a sale
of such security by the Fund. To the extent the ratings given by Moody's or S&P
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in its Prospectus and in this
SAI. The ratings of Moody's and S&P are more fully described in the Appendix.
14
<PAGE>
U.S. Government Obligations
---------------------------
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and Government National Mortgage Association ("GNMA") certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with Federal National Mortgage Association ("FNMA")
notes). In the latter case investors must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
which agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Warrants
--------
The Fund may invest in warrants (other than those that have been acquired
in units or attached to other securities). Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The price of
warrants do not necessarily correlate with the prices of the underlying
securities.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the FDIC and are not insured against loss of principal.
When the value of the securities that the Fund owns declines, so does the value
of your Fund shares. You should be prepared to accept some risk with the money
you invest in the Fund.
The portfolio equity securities of the Fund are subject to equity market
risk. Equity market risk is the risk that stock prices will fluctuate or decline
over short or even extended periods. Throughout most of 1997, the stock market,
as measured by the S&P 500 Index and other commonly used indices, has been
trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of the Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which the Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which the Fund invests and hence the value of your investment in the Fund.
15
<PAGE>
There may be some additional risks associated with investments in smaller
and/or newer companies because their shares tend to be less liquid than
securities of larger companies. Further, shares of small and new companies are
generally more sensitive to purchase and sale transactions and changes in the
issuer's financial condition and, therefore, the prices of such stocks may be
more volatile than those of larger company stocks and may be subject to more
abrupt price movements than securities of larger companies.
The Fund may invest in the securities of issuers in any foreign country,
including American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs") and similar securities, in order to replicate the S&P 500 Index. Such
securities involve special risks and considerations not typically associated
with investing in U.S. companies. These include differences in accounting,
auditing and financial reporting standards; generally higher commission rates on
foreign portfolio transactions; the possibility of nationalization,
expropriation or confiscatory taxation; adverse changes in investment or
exchange control regulations (which may include suspension of the ability to
transfer currency from a country); and political, social and monetary or
diplomatic developments that could affect U.S. investments in foreign countries.
Additionally, dispositions of foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. The Fund's performance may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
Illiquid securities, which may include certain restricted securities, may
be difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to the Fund.
The advisor may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of the Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If the Fund's advisor judges market
conditions incorrectly, the use of certain derivatives could result in a loss,
regardless of the advisor's intent in using the derivatives.
16
<PAGE>
There is, of course, no assurance that the Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Fund." The principal occupations during the past five years of the Directors and
principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------- ---------------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
18
<PAGE>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complexes 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 Complexes prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Fund. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of the Fund. Wells
Fargo Bank provides the Fund with, among other things, money market security and
fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.25% of the Fund's average daily
net assets.
Prior to April 29, 1996, the Fund invested directly in a portfolio of
securities and Wells Fargo Bank provided investment advisory services directly
to the Fund. On April 29, 1996 the Fund was converted to a "master/feeder
structure" and began to invest all of its assets in a corresponding Master
Portfolio, which had an identical investment objective, of Master Investment
Trust, another open-end management investment company. The Master Portfolio was
advised by Wells Fargo Bank and Wells Fargo Bank was entitled to receive a
monthly fee equal to an annual rate of 0.50% of the first $250 million of the
Fund's average daily net assets, 0.40% of the next $250 million, and 0.30% of
the average daily net assets in excess of $500 million. The Fund operated as
part of the
19
<PAGE>
master/feeder structure from April 29, 1996 to December 12, 1997, at which time
the master/feeder structure was dissolved.
For the period indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------
Fees Paid Fees Waived
--------- -----------
<S> <C>
$1,638,127 $288,393
</TABLE>
For the periods indicated below, the Fund paid to Wells Fargo Bank the
advisory fees indicated. No advisory fees were waived during these periods. For
the period between April 29, 1996 and December 15, 1997, these amounts represent
advisory fees paid by the Master Portfolio on behalf of the Fund.
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended Year Ended
3/31/97 9/30/96 12/31/95
------------ ------------ ----------
<S> <C> <C>
$933,498 $1,249,048 $1,398,439
</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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged BGFA to serve as
----------------------
Investment Sub-Advisor to the Fund. Subject to the direction of the Company's
Board of Directors and the overall supervision and control of Wells Fargo Bank
and the Company, BGFA makes recommendations regarding the investment and
reinvestment of the Fund's assets. BGFA furnishes to Wells Fargo Bank periodic
reports on the investment activity and performance of the Fund, and also
furnishes such additional reports and information as Wells Fargo Bank and the
Company's Board of Directors and officers may reasonably request.
As compensation for its sub-advisory services, BGFA is entitled to receive
a monthly fee equal to an annual rate of 0.02% of the first $500 million of the
Fund's
20
<PAGE>
average daily net assets and 0.01% of net assets over $500 million. This fee may
be paid by Wells Fargo Bank or directly by the Fund. If the sub-advisory fee is
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees will be reduced accordingly. The predecessor Master Portfolio was
also sub-advised by BGFA, and from October 30, 1997 to December 12, 1997, was
entitled to receive the fee described above. Prior to October 30, 1997, BGFA was
entitled to receive a monthly fee equal to an annual rate of 0.08% of the Master
Portfolio's average daily net assets plus an annual payment of $40,000.
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an
affiliate of Wells Fargo Institutional Trust Company, N.A. Prior to January 1,
1996, WFNIA served as sub-advisor to the Fund and the predecessor portfolio
under substantially similar terms to the 0.08%/$40,000 annual payment
arrangement described above.
For the year ended March 31, 1998, the Fund paid to BGFA $277,211 in sub-
advisory fees.
For the six-month period ended March 31, 1997, the Master Portfolio paid to
BGFA $182,725 in sub-advisory fees. No sub-advisory fees were waived during this
period.
For the periods indicated below, Wells Fargo paid the following sub-
advisory fees to WFNIA/BGFA. No sub-advisory fees were waived during this
period.
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended Year Ended
3/31/97 9/30/96 12/31/95
------------ ------------ ----------
<S> <C> <C>
$182,725 $242,005 $269,787
</TABLE>
General. The Fund's Sub-Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or (ii) by the Company's Board of Directors, including a majority of
the Directors of the Company who are not parties to the Sub-Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Sub-
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under the Administration and Co-Administration Agreements
among Wells Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens
shall provide as administration services, among other things: (i) general
supervision of the Fund's
21
<PAGE>
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 together with ordinary clerical and bookkeeping
services. Stephens pays the compensation of the Company's Directors, officers
and employees who are affiliated with Stephens. The Administrator and Co-
Administrator are entitled to receive a monthly fee of 0.03% and 0.04%,
respectively, of the average daily net assets of the Fund. From February 1, 1997
until February 1, 1998, the Administrator and Co-Administrator were entitled to
receive 0.04% and 0.02%, respectively, of the average daily net assets of the
Fund for administration services.
Prior to February 1, 1997 Stephens served as sole Administrator to the
Fund. Stephens performed substantially the same services now provided by
Stephens and Wells Fargo Bank and was entitled to receive for its services a fee
of 0.05% of the Fund's average daily net assets.
For the periods 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
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Total Wells Fargo Stephens Total Wells Fargo Stephens
----- ----------- -------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
$306,855 $205,593 $101,262 $80,775 $16,155 $64,620
</TABLE>
For the periods indicated below, the Fund paid the following dollar amounts
to Stephens for administration fees:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
------------ ----------
<S> <C>
$ 79,533 $ 92,555
</TABLE>
22
<PAGE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Fund. The Fund has
adopted distribution plans (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") on behalf of its Class B shares. The Plan was
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Fund and who had no direct or indirect financial interest in the operation of
the Plans or any agreement related to the Plans (the "Non-Interested
Directors").
Prior to October 30, 1997, the Fund had a distribution Plan on behalf of
its Class A shares. Under the Plan for the Fund's Class A shares and pursuant to
the related Distribution Agreement, the Fund may have defrayed all or part of
the cost of preparing and printing prospectuses and other promotional materials
and of delivering prospectuses and promotional materials to prospective
shareholders by paying on an annual basis up to 0.05% of the Fund's average
daily net assets. The Plan for the Fund provided only for reimbursement of
actual expenses.
Under the Plan in effect for the Fund's Class B shares, and pursuant to the
related Distribution Agreement, the Fund may pay Stephens on an annual basis up
to 0.75% of the Fund's average daily net assets attributable to Class B shares.
The Plan for the Class B shares of the Fund provides for compensation of
distribution-related services or reimbursement for distribution-related
expenses.
The actual fee payable to the Distributor by the Class B shares is
determined, within such limits, from time to time by mutual agreement between
the Company and the Distributor and will not exceed the maximum sales charges
payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
For the year-ended March 31, 1998, the Fund's Distributor received the
following fees for distribution-related services, as set forth below, under the
Plan for the Fund's Class A and Class B shares:
23
<PAGE>
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Total Prospectus Brochures to Underwriters
----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Class A $80,997 $680 $80,317 N/A
Class B $ 1,392 N/A N/A $525
</TABLE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plan also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund or by vote of a majority of the
Non-Interested Directors on not more than 60 days' written notice. The Plan may
not be amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendments to the Plan may be made except by a vote of a majority of
both the Directors and the Non-Interested Directors of the Company.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Fund's
shares pursuant to a selling agreement with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans is
reasonably likely to benefit the Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Fund is designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Fund has approved a Servicing Plan and
---------------------------
related form of Servicing Agreement, and has entered into a Shareholder
Servicing Agreement with Wells Fargo Bank on behalf of the Class A and Class B
shares, and may enter into agreements with other servicing agents. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their
24
<PAGE>
customers, administrative services, with respect to Fund shares, which include
aggregating and transmitting shareholder orders for purchases, exchanges and
redemptions; maintaining shareholder accounts and records; and providing such
other related services as the Company or a shareholder may reasonably request.
For providing shareholder services, a Servicing Agent is entitled to a fee of up
to 0.25%, on an annualized basis, of the average daily net assets of the Class A
shares and the Class B shares during the period for which payment is being made.
The Servicing Agreement was approved by the Company's Board of Directors and
provides that the Fund shall not be obligated to make any payments under such
Agreements that exceed the maximum amounts payable under the Conduct Rules of
the NASD.
For the periods indicated below, the dollar amount of shareholder servicing
fees paid by the Class A and Class B shares of the Fund to Wells Fargo Bank or
its affiliates were as follows:
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------
<S> <C>
Class A $1,412,406
Class B $ 493
</TABLE>
For the periods indicated below, the dollar amount of shareholder servicing
fees paid by the Class A shares of the Fund to Wells Fargo Bank or its
affiliates were as follows:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended
3/31/97 9/30/96
------- -------
<S> <C>
$606,930 $793,396
</TABLE>
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreement may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
25
<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. Barclays Global Investors, N.A. ("BGI") acts as Custodian for
---------
the Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of the Fund, receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund, and pays
all expenses of the Fund. For its services as Custodian, BGI is not entitled to
receive a fee so long as its subsidiary, BGFA, receives fees for sub-advisory
services.
For the year-ended March 31, 1998, six-month period ended March 31, 1997
and the nine-month period ended September 30, 1996, the Fund did not pay any
custody fees.
FUND ACCOUNTANT. Wells Fargo Bank acts as Fund Accountant for the Fund.
---------------
The Fund Accountant, among other things, computes net asset values on a daily
basis and performance calculations on a regular basis and as requested by the
Funds. For providing such services, Wells Fargo Bank is entitled to receive a
monthly base fee of $2,000, plus a fee equal to an annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the year-ended March 31, 1998, the Fund paid $49,394 in fund accounting
fees.
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Fund did not pay any fund accounting fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Fund. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the Fund's average daily net assets of each of the Class A and Class B of
shares. Prior to January 16, 1997, Wells Fargo Bank was entitled to receive,
for agency services on behalf of the Class A shares, a per account fee plus
transaction fees and reimbursement of out-of-pocket expenses, with a minimum of
$3,000 per month per Fund, unless net assets of the Fund were under $20 million.
For as long as a Fund's assets remained under $20 million, the Fund was not be
charged any transfer agency fees.
For the year-ended March 31, 1998, the Fund paid the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers, to Wells
Fargo Bank:
26
<PAGE>
Year-Ended
3/31/98
--------
$695,928
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Class A shares of Fund paid the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers, to Wells
Fargo Bank:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended
3/31/97 9/30/96
------- -------
<S> <C>
$53,681 $153,589
</TABLE>
Underwriting Commissions. For the year ended March 31, 1998, the aggregate
------------------------
dollar amount of underwriting commissions paid to Stephens on sales/redemptions
of the Company's shares was $7,671,295. Stephens retained $939,892 of such
commissions. Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer
of the Company, retained $5,348,626.
For the six-month period ended March 31, 1997, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
Class A shares was $2,296,243. Stephens retained $241,806 of such commissions.
WFSI and its registered representatives retained $1,719,000 and $335,437,
respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
Class A shares was $2,917,738. Stephens retained $198,664 of such commissions.
WFSI and its registered representatives received $2,583,027 and $136,047,
respectively, of such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's Class A
shares was $1,251,311. Stephens retained $162,660 of such commissions. WFSI
and its registered representatives received $399,809 of such commissions.
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
27
<PAGE>
vary based on changes in the market conditions and the level of the Fund's
expenses, and no reported performance figure should be considered an indication
of performance which may be expected in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Fund or Class of shares in the Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of the Fund and the performance of a Class of shares in the Fund, however, may
not be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Fund.
Performance shown or advertised for the Class A shares of the Stagecoach
Equity Index Fund reflects performance of the Stagecoach Corporate Stock Fund, a
predecessor portfolio with the same investment objective and policies as the
Stagecoach Equity Index Fund. Prior to January 1, 1992, performance shown or
advertised for the Class A shares of the Stagecoach Equity Index Fund reflects
performance of the Corporate Stock Fund of the Wells Fargo Investment Trust for
Retirement Programs, a predecessor portfolio of the Stagecoach Corporate Stock
Fund.
Performance shown or advertised for the Class B shares has been calculated
based on performance information for the Class A shares, as described above,
adjusted to reflect Class B share expenses and sales charges.
AVERAGE ANNUAL TOTAL RETURN: The Fund may advertise certain total return
----------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in
shares of the Fund ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV.
28
<PAGE>
Average Annual Total Return for the Applicable Period Ended March 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Year/1/ Ten Year Five Year Five Year Three Year Three Year One Year One Year
With Sales No Sales With Sales No Sales With Sales No Sales With Sales No Sales
Charge Charge Charge Charge Charge Charge Charge Charge
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 17.09% 17.63% 20.02% 21.13% 29.38% 31.36% 39.88% 46.48%
Class B/2/ 15.91% 16.31% 20.29% 20.48% 29.97% 30.58% 40.56% 45.56%
</TABLE>
/1/ The Class A shares of the Fund commenced operations 1/25/84.
/2/ The performance of the Class B shares, which commenced operations 2/17/98,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class B share expenses and sales charges.
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
------------------------
the Funds may advertise the cumulative total return for one-month, three-month,
six-month and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Year/1/ Ten Year Five Year Five Year Three Year Three Year
With No With No With No
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class A 384.47% 407.41% 149.04% 160.75% 116.59% 126.77%
Class B/2/ 377.18% 377.18% 151.86% 153.88% 119.95% 122.55%
</TABLE>
/1/ The Class A shares of the Fund commenced operations 1/25/84.
/2/ The performance of the Class B shares, which commenced operations 2/17/98,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class B share expenses and sales charges.
From time to time and only to the extent the comparison is appropriate for
the Fund or Class of shares, the Company may quote the performance or price-
earning ratio of the Fund or Class in advertising and other types of literature
as compared to the performance of the S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year
Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment Averages
(as reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from
29
<PAGE>
the Federal Reserve G-13 Statistical Releases or the Bank Rate Monitor), the
Salomon One Year Treasury Benchmark Index, the Consumer Price Index (as
published by the U.S. Bureau of Labor Statistics), other managed or unmanaged
indices or performance data of bonds, municipal securities, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Fund or Class, as appropriate, also may be compared to those of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of the Fund will be calculated by relating net asset value per share
at the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains, distributions and dividends paid, at the end
of the period. The Fund's comparative performance will be based on a
compensation 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 the Fund with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
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
30
<PAGE>
Fund or a Class of shares, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the Fund's historical performance or current or potential value with
respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Fund. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines ("ATMs"), the placement of purchase and redemption
requests for shares of the Fund through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management (formerly
"Wells Fargo Investment Management"), a division of Wells Fargo Bank, is listed
in the top 100 by Institutional Investor magazine in its July 1997 survey
"America's Top 300 Money Managers." This survey ranks money managers in several
asset categories. The Company may also disclose in advertising and other types
of sales literature the assets and categories of assets under management by its
investment advisor or sub-advisor and the total amount of assets and mutual fund
assets managed by Wells Fargo Bank. As of August 1, 1998, Wells Fargo Bank and
its affiliates provided investment advisory services for approximately $63
billion of assets of individuals, trusts, estates and institutions and $32
billion of mutual fund assets.
The Company also may disclose in sales literature the distribution rate on
the shares of a Fund. Distribution rate, which may be annualized, is the amount
determined
31
<PAGE>
by dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in the
sales literature. Distribution rate will be accompanied by the standard 30-day
yield as required by the SEC.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund is determined as of
the close of regular trading (currently 1:00 p.m., Pacific time) on each day the
New York Stock Exchange ("NYSE") is open for business. Expenses and fees,
including advisory fees, are accrued daily and are taken into account for the
purpose of determining the net asset value of the Fund's shares.
Securities of the Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other securities, including U.S. Government securities but excluding
money market instruments maturing in 60 days or less, the valuations are based
on latest quoted bid prices. Money market instruments and debt securities
maturing in 60 days or less are valued at amortized cost. The assets of the
Fund, other than money market instruments or debt securities maturing in 60 days
or less, are valued at latest quoted bid prices. Futures contracts will be
marked to market daily at their respective settlement prices determined by the
relevant exchange. Prices may be furnished by a reputable independent pricing
service approved by the Company's Board of
32
<PAGE>
Directors. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
the Fund for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Board of
Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about 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.
33
<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 Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Fund will not deal with Stephens,
Wells Fargo Bank or their affiliates in any transaction in which any of them
acts as principal without an exemptive order from the SEC.
In placing orders for portfolio securities of the Fund, Wells Fargo Bank is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that Wells Fargo Bank will seek to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Directors.
Wells Fargo Bank, as Investment Advisor to the Fund, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the Advisory Contract, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services
furnished by dealers through which Wells Fargo Bank places securities
34
<PAGE>
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. For the periods indicated below the Fund paid the
---------------------
following for brokerage commissions, none of which were paid to affiliated
brokers:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Year-Ended Period Ended Period Ended Year Ended
3/31/98 3/31/97 9/30/96 12/31/95
------- ------- ------- --------
<S> <C> <C> <C>
$13,906 $ 7,505 $ 6,233 $ 8,696
</TABLE>
Securities of Regular Broker/Dealers. As of March 31, 1998, the Fund did
------------------------------------
not own any securities of its "regular brokers or dealers" or its parents, as
defined in the 1940 Act.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Fund whenever such changes are believed to be in the best interests of the Fund
and its shareholders. The portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities by the average monthly
value of the Fund's portfolio securities. For purposes of this calculation,
portfolio securities exclude all securities having a maturity when purchased of
one year or less. Portfolio turnover generally involves some expenses to the
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover also can generate short-term capital gain tax consequences.
Portfolio turnover rate is not a limiting factor when Wells Fargo Bank deems
portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on the Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to the Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of
35
<PAGE>
preparing and printing Prospectuses (except the expense of printing and mailing
Prospectuses used for promotional purposes, unless otherwise payable pursuant to
the Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of Fund
shares; pricing services, and any extraordinary expenses. Expenses attributable
to the Fund are charged against the Fund's assets. General expenses of the
Company are allocated among all of the funds of the Company, including the Fund,
in a manner proportionate to the net assets of the Fund, on a transactional
basis, or on such other basis as the Company's Board of Directors deems
equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 with respect to 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.
36
<PAGE>
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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 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 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 the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of
the
37
<PAGE>
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that 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 Federal income tax impact.
Offsetting positions held by a Fund 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 Fund 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 Fund 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 Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund 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
38
<PAGE>
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 a Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the 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.
Income and dividends received by the Funds from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund
39
<PAGE>
share is held for six months or less, then (unless otherwise disallowed) any
loss on the sale or exchange of that Fund share will be treated as a long-term
capital loss to the extent of the designated capital gain distribution. In
addition, 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 have
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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could
subject the investor to penalties imposed by the IRS.
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. In order to qualify for the dividends-received
deduction, a corporate shareholder must generally hold the shares upon which the
dividend is made for at least 46 days prior to and following the time the
corporate shareholder becomes entitled to receive the dividend.
40
<PAGE>
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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. fiduciaries 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.
withholding tax (at a rate of 30% or a lower treaty rate). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of net long-term capital gains are generally
not subject to 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 that 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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
41
<PAGE>
CAPITAL STOCK
The Fund is one of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991, and currently
offers shares of over thirty funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in the Fund represents an equal, proportionate
interest in the Fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the Fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Investor Services
at 1-800-222-8222 if you would like additional information about other funds or
classes of shares offered.
With respect to matters affecting one Class but not another, shareholders
vote as a Class. Subject to the foregoing, all shares of the Fund have equal
voting rights and will be voted in the aggregate, and not by series, except
where voting by a series is required by law or where the matter involved only
affects one series. For example, a change in the Fund's fundamental investment
policy affects only one series and would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract, since it
affects only one Fund, is a matter to be determined separately by Series.
Approval by the shareholders of one Series is effective as to that Series
whether or not sufficient votes are received from the shareholders of the other
Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
the Fund, means the vote of the lesser of (i) 67% of the shares of such class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole, means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
42
<PAGE>
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect Directors under the 1940 Act.
Each share of a class represents an equal proportional interest in the Fund
with each other share in the same class and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Set forth below, as of June 30, 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 JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
ADDRESS OF OWNERSHIP OF CLASS OF FUND
--------- ------------ ---------- ----------
<S> <C> <C> <C>
Wells Fargo Bank Class A 90.47% 88.69%
P.O. Box 63015 Record Holder
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 the Fund, or is identified as the holder of record of
more than 25% of the Fund and has voting and/or investment powers, it may be
presumed to control the Fund.
OTHER
The Company's Registration Statements, including the Prospectus and SAI for
the Fund and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in a Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in a Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the
43
<PAGE>
Registration Statement, each such statement being qualified in all respects by
such reference.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditors for the Company.
KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund's as of and for the year ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
44
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality
by all standards," but margins of protection or other elements make long-term
risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess
many favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in
each rating category from "Aa" through "Baa" in its rating system. The modifier
1 indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
---
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
CORPORATE BOND FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT INCOME FUND
VARIABLE RATE GOVERNMENT FUND
CLASS A, CLASS B AND CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about five funds in the Stagecoach Family of Funds (each,
a "Fund" and collectively, the "Funds") -- the CORPORATE BOND, SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME, STRATEGIC INCOME, U.S. GOVERNMENT INCOME
and VARIABLE RATE GOVERNMENT FUNDS. The Variable Rate Government Fund offers
only Class A shares, the Short-Intermediate U.S. Government Income Fund offers
Class A and Class B Shares. Each of the other Funds offers Class A, Class B and
Class C shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated August 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 free of charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA
94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................... 1
Investment Restrictions................................................... 1
Additional Permitted Investment Activities................................ 6
Investment by Federal Credit Unions in the Variable Rate Government Fund.. 21
Risk Factors.............................................................. 21
Management................................................................ 26
Performance Calculations.................................................. 40
Determination of Net Asset Value.......................................... 47
Additional Purchase and Redemption Information............................ 48
Portfolio Transactions.................................................... 48
Fund Expenses............................................................. 50
Federal Income Taxes...................................................... 51
Capital Stock............................................................. 56
Other..................................................................... 58
Counsel................................................................... 59
Independent Auditors...................................................... 59
Financial Information..................................................... 59
Appendix.................................................................. A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Corporate Bond Fund commenced operations on April 1, 1998, as a Fund of
the Company.
The Short-Intermediate U.S. Government Income Fund commenced operations on
October 27, 1993, as a Fund of the Company.
The Strategic Income Fund commenced operations on July 13, 1998, as a Fund
of the Company.
The U.S. Government Income Fund commenced operations on January 1, 1992, as
the successor to the Ginnie Mae Fund of the Wells Fargo Investment Trust for
Retirement Programs, which commenced operations on January 3, 1991. On December
12, 1997, as part of the Consolidation, the U.S. Government Income Fund of
Overland was reorganized with and into the Company's U.S. Government Income
Fund. For accounting purposes, the Overland Fund is considered the survivor of
the Consolidation. The Class A shares of the Overland Fund commenced operations
on April 7, 1988. The Class D shares of the Overland Fund commenced operations
on July 1, 1993. The Overland Fund did not offer Class B shares and for
accounting purposes the Class B shares are considered to have commenced
operations on December 12, 1997. The Overland Fund is sometimes referred to
throughout this SAI as the "predecessor portfolio" to the Company's U.S.
Government Income Fund. Prior to December 12, 1997, the U.S. Government Income
Fund was known as the "Ginnie Mae Fund."
The Variable Rate Government Fund commenced operations on November 1, 1990,
as the Variable Rate Government Fund of Overland. On July 23, 1997, the Boards
of Directors of the Company and Overland approved an Agreement and Plan of
Consolidation providing for, among other things, the transfer of the assets and
stated liabilities of the predecessor Overland portfolio to the Fund. Prior to
December 12, 1997, the effective date of the Consolidation, the Fund had only
nominal assets. On December 12, 1997, the Class A and D shareholders of the
predecessor Overland portfolio became the Class A and C shareholders,
respectively, of the Company's Variable Rate Government Fund. On July 10, 1998,
Class C shareholders of the Variable Rate Government Fund became Class A
shareholders of the Fund and Class C shares of said Fund are no longer being
offered.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund.
1
<PAGE>
The Corporate Bond and Strategic Income Funds may not:
(1) purchase or sell commodity contracts or invest in oil, gas or mineral
exploration or development programs, except that the Funds, 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 Funds may enter into futures contracts and related options;
(2) purchase or sell real estate, except that the Funds 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) act as an underwriter of securities within the meaning of the
Securities Act of 1933 (the "1933 Act") except insofar as the Funds 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 Funds' investment objective, policies and limitations may be
deemed to be underwriting;
(5) borrow money or issue senior securities, except that the Funds 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 Funds' total assets at
the time of such borrowing. The Funds will not purchase securities while their
borrowings (including reverse repurchase agreements) in excess of 5% of their
total assets are outstanding. Securities held in escrow or separate accounts in
connection with the Funds' investment practices described in this SAI or in its
Prospectus are not deemed to be pledged for purposes of this limitation;
(6) purchase any securities that would cause 25% or more of the Funds'
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;
(7) 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 Funds' investment program may be deemed to be an
underwriting.
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
2
<PAGE>
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.
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,
3
<PAGE>
provided that there is no limitation with respect to investments in obligations
of the U.S. 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.
The Variable Rate 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 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
U.S. Government, its agencies or instrumentalities;
4
<PAGE>
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein), commodities or commodity contracts or
interests, in oil, gas, or other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days, restricted securities,
which are securities that must be registered under the 1933 Act before they may
be offered or sold to the public, and illiquid securities;
(6) make investments for the purpose of exercising control or management;
(7) purchase puts, calls, straddles, spreads, or any combination thereof,
except that the Fund may purchase securities with put rights in order to
maintain liquidity;
(8) 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 by the Fund while any such outstanding borrowing exists);
(9) invest more than 10% of the current value of its net assets in fixed
time deposits that are subject to withdrawal penalties and that have maturities
of more than seven days;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of the total assets of the Fund, 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 the Fund's total assets, the Fund would own
more than 10% of the outstanding voting securities of such issuer; nor
(11) lend its portfolio securities having a value that exceeds 50% of the
current value of its total assets, provided that, for purposes of this
restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
With respect to fundamental investment restriction (5), the Fund does not
intend to invest, during the coming year, in repurchase agreements maturing in
more than seven days, restricted securities, which are securities that must be
registered under the 1933 Act before they may be offered or sold to the public,
or illiquid securities. With respect to fundamental investment restriction (7),
the Fund does not intend to purchase, during the coming year, puts, calls,
straddles, spreads, or purchase securities with put rights in order to maintain
liquidity. With respect to fundamental investment restriction (9), the Fund does
not intend to invest, during the coming year,
5
<PAGE>
in fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days.
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 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 Variable
Rate Government Fund) 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. 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
6
<PAGE>
typically supported by some form of credit enhancement, such as a surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. The actual maturity and realized yield will vary based upon the
prepayment experience of the underlying asset pool and prevailing interest rates
at the time of prepayment. Asset-backed securities are relatively new
instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities. The Corporate Bond and Strategic Income Funds may
also invest in securities backed by pools of mortgages. The investments are
described under the heading "Mortgage-Related 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 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.
7
<PAGE>
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. The
Corporate Bond Fund invests no more than 25% in bonds that are below investment
grade. 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).
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
Nationally Recognized Statistical Ratings Organization ("NRSRO"). Commercial
paper may include variable- and floating-rate instruments.
Custodial Receipts for Treasury Securities
------------------------------------------
The Corporate Bond and Strategic Income 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 the Funds in such participations will not exceed 5% of the value
of the Funds' total assets.
8
<PAGE>
Derivative Securities
---------------------
The Corporate Bond, Short-Intermediate U.S. Government Income and Strategic
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 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
Funds' 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 Funds to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Funds,
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
9
<PAGE>
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% (10% for
the U.S. Government Income and Variable Rate Government Funds) of the value of
its total net assets in floating- or variable-rate demand obligations whose
demand feature is not exercisable within seven days. Such obligations may be
treated as liquid, provided that an active secondary market exists.
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
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.
Foreign Securities
------------------
The Corporate Bond and Strategic Income 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. Therefore, the Funds 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.
10
<PAGE>
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 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.
Forward Currency Exchange Contracts
-----------------------------------
The Corporate Bond and Strategic Income Funds may enter into forward
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to the Funds from adverse changes in the relationship between currencies or
to enhance income. A forward contract is an obligation to buy or sell a
specific currency for an agreed price at a future date which is individually
negotiated and is privately traded by currency traders and their customers. The
Funds will either cover a position in such a transaction or maintain, in a
segregated account with their custodian bank, cash or high-grade marketable
money market securities having an aggregate value equal to the amount of any
such commitment until payment is made.
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
11
<PAGE>
investments, they may be difficult to sell promptly at an acceptable price.
Delay or difficulty in selling securities may result in a loss or be costly to a
Fund. Each Fund may invest up to 15% (10% for the U.S. Government Income and
Variable Rate Government Funds) of its net assets in illiquid securities.
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) such Fund may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) such 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 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
12
<PAGE>
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 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 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 Corporate Bond Fund, Short-Intermediate U.S. Government Income
Fund, Strategic Income Fund and the Variable Rate Government Fund each may
invest in ARMs issued or guaranteed by the GNMA, FNMA or the FHLMC. The full
and timely payment of principal and interest on GNMA ARMs is guaranteed by GNMA
and backed by the full faith and credit of the U.S. Government. FNMA also
guarantees full and timely payment of both interest and principal, while FHLMC
guarantees full and timely payment of interest and ultimate payment of
principal. FNMA and FHLMC ARMs are not backed by the full faith and credit of
the United States. However, because FNMA and FHLMC are government-sponsored
enterprises, these securities are generally considered to be high quality
investments that present minimal credit risks. The yields provided by these ARMs
have historically exceeded the yields on other types of U.S. Government
securities with comparable maturities, although there can be no assurance that
this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMs issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specified
coupon rate and has a stated maturity or final distribution date. The principal
and interest payment on the underlying mortgages may be allocated among the
classes of CMOs in several ways. Typically, payments of principal,
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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 Government Income and Variable Rate
Government Funds may invest generally are readjusted at periodic intervals
ranging from one year or less to several years in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
Treasury note rates, the three-month Treasury bill rate, the 180-day Treasury
bill rate, rates on longer-term Treasury securities, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year LIBOR, a published
prime rate or commercial paper rates. Certain of these indices follow overall
market interest rates more closely than others.
Adjustable rate mortgages, a common form of residential financing,
generally have a specified maturity date. Most provide for amortization of
principal in a manner similar to fixed-rate mortgages, but have interest rates
that change in response to changes in a specified interest rate index. The rate
of interest due on such a mortgage is calculated by adding an agreed-upon
"margin" to the specified index, although there generally are limitations or
"caps" on interest rate movements in any given period or over the life of the
mortgage. To the extent that the interest rates on adjustable rate mortgages
cannot be adjusted in response to interest rate changes because of interest rate
caps, the ARMs or CMOs backed by such mortgages are likely to respond to changes
in market rates more like fixed rate securities. In other words, interest rate
increases in excess of such caps can be expected to cause CMOs or ARMs backed by
mortgages that have such caps to decline in value to a greater extent than would
be the case in the absence of such caps. Conversely, interest rate decreases
below interest rate floors can be expected to cause the CMOs or ARMs backed by
mortgages that have such floors to increase in value to a greater extent than
would be the case in the absence of such floors.
These adjustable rate features should reduce, but will not eliminate, price
fluctuations in such securities, particularly when market interest rates
fluctuate. Since the interest rates on mortgages typically are reset at most
annually and generally are subject to caps, it can be expected that the prices
of ARMs and CMOs backed by such mortgages will fluctuate to the extent
prevailing market interest rates are not reflected in the interest rates payable
on the underlying ARMs. In this regard, the net asset value of a Funds' 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 Funds 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
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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
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
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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
-------------------
The Funds may purchase Treasury receipts and other "stripped" securities
that evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations. The stripped
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
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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 a Fund agrees to repurchase that security
from a 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 such 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 Funds' 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 and Variable Rate Government Funds) 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 Corporate Bond and Strategic Income 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 a Fund sells their
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 Funds may decline below the price at which
the Funds are obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
Lower Rated Securities
----------------------
The Corporate Bond and Strategic Income Funds may invest up to 100% of its
net assets in non-investment grade bonds. These are commonly known as "junk
bonds." Their default and other risks are greater than those of higher rated
securities. You should carefully consider these risks before investing in a
Fund.
Various investment services publish ratings of some of the types of
securities in which the Fund may invest. Higher yields are ordinarily available
from securities in the lower rating
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categories, such as securities rated Ba or lower Moody's Investors Service, Inc.
("Moody's) or BB or lower by Standard & Poor's Ratings Group ("S&P"), or from
unrated securities deemed by advisors to be of comparable quality. These ratings
represent the opinions of the rating services with respect to the issuer's
ability to pay interest and repay principal. They do not purport to reflect the
risk of fluctuations in market value and are not absolute standards of quality.
These ratings will be considered in connection with the investment of the Fund's
assets but will not be a determining or limiting factor.
The Funds may invest in securities regardless of their rating or in
securities that are unrated, including up to 5% of their assets in securities
that are in default at the time of purchase. As an operating policy, however,
the Funds will generally invest in securities that are rated at least Caa by
Moody's or CCC by S&P, except for defaulted securities as noted below, or that
are unrated but of comparable quality as determined by the Advisor. Unrated
debt securities are not necessarily of lower quality than rated securities but
they may not be attractive to as many buyers.
The Funds may also buy debt securities of issuers that are not currently
paying interest, as well as issuers who are in default, and may keep an issue
that has defaulted. The Funds will buy defaulted debt securities if, in the
opinion of advisors, they may present an opportunity for later price recovery,
the issuer may resume interest payments, or other advantageous developments
appear likely in the near future. In general, securities that default lose much
of their value before the actual default so that the security, and thus the net
asset value of the Funds would be impacted before the default. Defaulted debt
securities may be illiquid and, as such, will be part of the 15% limit discussed
under "Illiquid Investments."
If the rating on an issue held in a Fund's portfolio is changed by the
rating service or the security goes into default, this event will be considered
by the Fund in its evaluation of the overall investment merits of that security
but will not generally result in an automatic sale of the security.
Rather than relying principally on the ratings assigned by rating services,
the investment analysis of securities being considered for the Income Fund's
portfolio may also include, among other things, consideration of relative values
based on such factors as anticipated cash flow, interest or dividend coverage,
asset coverage, earnings prospects, the experience and managerial strength of
the issuer, responsiveness to changes in interest rates and business conditions,
debt maturity schedules and borrowing requirements, and the issuer's changing
financial condition and the public recognition of such change.
Certain of the high yielding, fixed-income securities in which the Funds
may invest may be purchased at a discount. When held to maturity or retired,
these securities may include an element of capital gain. Capital losses may be
realized when securities purchased at a premium, that is, in excess of their
stated or par value, are held to maturity or are called or redeemed at a price
lower than their purchase price. Capital gains or losses also may be realized
upon the sale of securities.
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Convertible Securities
----------------------
The Corporate Bond and Strategic Income Funds may invest in convertible
securities. A convertible security is generally a debt obligation or preferred
stock that may be converted within a specified period of time into a certain
amount of common stock of the same or a different user. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when interest
rates decline and decrease in value when interest rates rise. Like a common
stock, the value of a convertible security also tends to increase as the market
value of the underlying stock rises, and it tends to decrease as the market
value of the underlying stock declines. Because its value can be influenced by
both interest rate and market movements, a convertible security is not as
sensitive to interest rats as a similar fixed-income security, nor is it as
sensitive to changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or
by an investment bank. When issued by an operating company, a convertible
security tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security
is issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security
will have recourse only to the issuer. In addition, a convertible security may
be subject to redemption by the issuer, but only after a specified date and
under circumstances established at the time the security is issued.
While the Strategic Income Fund uses the same criteria to rate a
convertible debt security that it uses to rate a more conventional debt
security, a convertible preferred stock is treated like a preferred stock for
the Fund's financial reporting, credit rating, and investment limitation
purposes. A preferred stock is subordinated to all debt obligations in the
event of insolvency, and an issuer's failure to make a dividend payment is
generally not an event of default entitling the preferred shareholder to take
action. A preferred stock generally has no maturity date, so that its market
value is dependent on the issuer's business prospects for an indefinite period
of time. In addition, distributions from preferred stock are dividends, rather
than interest payments, and are usually treated as such for corporate tax
purposes.
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by such Fund. To the extent the ratings
given
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by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings
Group ("S&P") may change as a result of changes in such organizations or their
rating systems, each Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the 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, Division of McGraw Hill, Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc. Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the 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 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
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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.
INVESTMENT BY FEDERAL CREDIT UNIONS
IN THE VARIABLE RATE GOVERNMENT FUND
The Variable Rate Government Fund will invest only in investments that are
permissible for federal credit unions under the regulations of the National
Credit Union Administration ("NCUA"). Federal credit unions may invest in CMOs
that do constitute "high-risk mortgage securities" for purposes of the FFIEC
Policy Statement. The Fund will enter into repurchase transactions and cash
forward agreements (i.e., "when-issued" securities) only to the extent
permissible for federal credit unions. Specifically, the Fund will enter into
repurchase transactions only where the purchase price of the security obtained
in the transaction will be at or below the market price and either: (1) the
repurchase transaction will be with another financial institution or (2) the
Fund will take physical possession of the security or receive written
confirmation of the purchase and a custodial or safekeeping receipt from a third
party under a written bailment for hire contract, or be recorded as the owner of
the security through the Federal Reserve Book-Entry System. In addition, the
Fund will enter into a cash forward agreement to purchase a security only where:
(1) the period from the trade date to the settlement date does not exceed 120
days; (2) the Fund has written cash flow projections evidencing its ability to
purchase the security; and (3) the cash forward agreement is settled on a cash
basis at the settlement date.
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 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.
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<PAGE>
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 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
22
<PAGE>
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 Wells Fargo Bank'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.
A Fund's investments may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.
Concentration. As market conditions change, it is conceivable that all of
the assets of the Strategic Income Fund could be invested in common stocks or,
conversely, in debt securities. It is a fundamental policy of the Fund that
concentration of investment in a single industry may not exceed 25% of the
Fund's total assets.
High Yielding, Fixed-Income Securities. Because of the Corporate Bond and
Strategic Income Funds' policy of investing in higher yielding, higher risk
securities, an investment in a Fund is accompanied by a higher degree of risk
than is present with an investment in higher rated, lower yielding securities.
Accordingly, an investment in a Fund should not be considered a complete
investment program and should be carefully evaluated for its appropriateness in
light of your overall investment needs and goals. If you are on a fixed income
or retired, you should also consider the increased risk of loss to principal
that is present with an investment in higher risk securities such as those in
which the Funds invest.
The market value of lower rated, fixed-income securities and unrated
securities of comparable quality, commonly known as junk bonds, tends to reflect
individual developments affecting the issuer to a greater extent than the market
value of higher rated securities, which react primarily to fluctuations in the
general level of interest rates. Lower rated securities also tend to be more
sensitive to economic conditions than higher rated securities. These lower
rated
23
<PAGE>
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated triple B by S&P or by Moody's, ratings which
are considered investment grade, possess some speculative characteristics.
Issuers of high yielding, fixed-income securities are often highly
leveraged and may not have more traditional methods of financing available to
them. Therefore, the risk associated with acquiring the securities of these
issuers is generally greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yielding securities may experience
financial stress. During these periods, these issuers may not have sufficient
cash flow to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
developments affecting the issuer, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities because the securities are generally
unsecured and are often subordinated to other creditors of the issuer. Current
prices for defaulted bonds are generally significantly lower than their purchase
price, and a Fund may have unrealized losses on defaulted securities that are
reflected in the price of a Fund's shares. In general, securities that default
lose much of their value in the time period before the actual default so that
the Fund's net assets are impacted prior to the default. The Funds may retain
an issue that has defaulted because the issue may present an opportunity for
subsequent price recovery.
High yielding, fixed-income securities frequently have call or buy-back
features that permit an issuer to call or repurchase the securities from a Fund.
Although these securities are typically not callable for a period from three to
five years after their issuance, if a call was exercised by the issuer during
periods of declining interest rates, Advisors may find it necessary to replace
the securities with lower yielding securities, which could result in less net
investment income to a Fund. The premature disposition of a high yielding
security due to a call or buy-back feature, the deterioration of the issuer's
creditworthiness, or a default may also make it more difficult for a Fund to
manage the timing of its receipt of income, which may have tax implications. A
Fund may be required under the Code and U.S. Treasury regulations to accrue
income for income tax purposes on any defaulted obligations and to distribute
the income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on these obligations. In order to
generate cash to satisfy any or all of these distribution requirements, a Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
the Fund shares.
The Corporate Bond and Strategic Income Funds may have difficulty disposing
of certain high yielding securities because there may be a thin trading market
for a particular security at any given time. The market for lower rated, fixed-
income securities generally tends to be concentrated among a smaller number of
dealers than is the case for securities that trade in a broader secondary retail
market. Generally, buyers of these securities are predominantly dealers and
other institutional buyers, rather than individuals. To the extent the
secondary trading market for a particular high yielding, fixed-income security
does exist, it is generally not as
24
<PAGE>
liquid as the secondary market for higher rated securities. Reduced liquidity in
the secondary market may have an adverse impact on market price and the Fund's
ability to dispose of particular issues, when necessary, to meet the Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other that actual sales.
The Corporate Bond and Strategic Income Funds are authorized to acquire
high yielding, fixed-income securities that are sold without registration under
the federal securities laws and therefore carry restrictions on resale. While
many high yielding securities have been sold with registration rights, covenants
and penalty provisions for delayed registration, if a Fund is required to sell
restricted securities before the securities have been registered, it may be
deemed an underwriter of the securities under the 1933 Act, which entails
special responsibilities and liabilities. The Funds may incur special costs in
disposing of restricted securities; however, the Funds will generally incur no
costs when the issuer is responsible for registering the securities.
The Corporate Bond and Strategic Income Funds may acquire high yielding,
fixed-income securities during an initial underwriting. These securities
involve special risks because they are new issues. The advisor will carefully
review their credit and other characteristics.
The high yield securities market is relatively new and much of its growth
prior to 1990 paralleled a long economic expansion. The recession that began in
1990 disrupted the market for high yielding securities and adversely affected
the value of outstanding securities and the ability of issuers of such
securities to meet their obligations. Although the economy has improved
considerably and high yielding securities have performed more consistently since
that time, there is no assurance that the adverse effects previously experienced
will not reoccur. For example, the highly publicized defaults of some high
yield issuers during 1989 and 1990 and concerns regarding a sluggish economy
that continued into 1993, depressed the prices for many of these securities.
While market prices may be temporarily depressed due to these factors, the
ultimate price of any security will generally reflect the true operating results
of the issuer. Factors adversely impacting the market value of high yielding
securities will adversely impact a Fund's NAV. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. Each Fund
will rely on the advisors' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the advisor will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
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.
25
<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>
Name, Age and Address Position During Past 5 Years
- --------------------- --------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- --------- -------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Wells Fargo Fund Complex
- ----------------- --------------- ----------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $24,250 $34,500
Director
Peter G. Gordon $25,750 $30,500
Director
Joseph N. Hankin $25,250 $34,500
Director
W. Rodney Hughes $ 1,500 $33,000
Director
Robert M. Joses $25,250 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
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
27
<PAGE>
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 Complex, 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>
Corporate Bond 0.50%
Short-Intermediate U.S. Government 0.50%
Strategic Income 0.60%
U.S. Government Income 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
Variable Rate Government 0.50%
</TABLE>
For the period indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
28
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
---------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Corporate Bond N/A N/A N/A N/A
Short-Intermediate U.S. Government $ 132,389 $309,195 $134,529 $121,235
Strategic Income N/A N/A N/A N/A
U.S. Government Income $ 469,051* $ 0* N/A N/A
Variable Rate Government $1,355,943* $294,181* N/A N/A
</TABLE>
________________________
*These amounts are for the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the corresponding Overland predecessor
portfolio.
Short-Intermediate U.S. Government Income Fund. For the periods indicated
----------------------------------------------
below, the Short-Intermediate U.S. Government Income 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
9/30/96 12/31/95
------- --------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C>
$213,467 $0 $56,387 $60,241
</TABLE>
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 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.
Variable Rate Government Fund. Wells Fargo Bank and Stephens have agreed
-----------------------------
to waive ten basis points (0.10%) of the fees charged to the Fund in connection
with the settlement of certain litigation involving the Fund. Prior to the
Consolidation, Wells Fargo Bank served as 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. As discussed herein under "Historical Fund
Information," on December 12, 1997 the Overland Variable Rate Government Fund
transferred its assets to a shell fund of the Company created for this purpose.
For financial reporting purposes 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.
29
<PAGE>
For the periods indicated below, the predecessor portfolios to the U.S.
Government Income and Variable Rate Government Funds paid to Wells Fargo Bank
the following advisory fees and Wells Fargo Bank waived the indicated
amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/96 12/31/95
-------- --------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
----- ---- -------- ----- ------
<S> <C> <C> <C> <C>
U.S. Government Income $ 167,516 $46,101 $ 175,052 $ 13,667
Variable Rate Government $2,696,450 $ 0 $3,561,101 $554,480
</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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $400 million of the
Funds' average daily net assets, 0.125% of the next $400 million of the Funds'
net assets, and 0.10% of net assets over $800 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from each Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by each Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
PORTFOLIO MANAGERS.
------------------
Mr. Graham Allen joined Wells Fargo Bank in January, 1998 and has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Corporate Bond Fund since April 1998. Mr. Allen also has been responsible, as a
portfolio co-manager, for the day-to-day management of the Strategic Income Fund
since its commencement of operations in July, 1998. Prior to January, 1998, Mr.
Allen had worked for Bradford & Marzec, Inc. as an International Portfolio
Manager since August 1988, and he had worked for Heron Financial Corp. as a High
Yield Portfolio Manager from June, 1985 to August, 1988. Educated in England,
Mr. Allen is a Fellow Chartered Accountant, a recognized UK Accounting
body.
30
<PAGE>
Ms. Jacqueline Flippin joined Wells Fargo Bank in January, 1998 and has
been responsible, as a portfolio co-manager, for the day-to-day management of
the Corporate Bond Fund since April, 1998. Ms. Flippin also has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Strategic Income Fund since its commencement of operations in July, 1998. Ms.
Flippin had worked for McMorgan & Co. as a Portfolio Manager from October, 1994
to January, 1998 and had worked for the Teachers Insurance Annuity Association,
College Retirement Equity Fund as a Portfolio Manager from August, 1986 to
October, 1994. Ms. Flippin received her B.A. from Northwestern University and
her M.B.A. from New York University.
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 assumed
responsibility as co-manager for the day-to-day management of the Variable Rate
Government Fund in November, 1990. Mr. Single has managed taxable bond
portfolios for over a decade, and has specific expertise in mortgage-backed
securities. Prior to joining Wells Fargo Bank, in early 1988, he was a senior
portfolio manager for Benham Capital Management Group. Mr. Single received his
B.S. from Springfield College.
Mr. Jeff Weaver assumed responsibility as a 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 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.
Mr. Scott Smith has been responsible, as a portfolio co-manager, for the
day-to-day management of the Corporate Bond Fund since April, 1998. Mr. Smith
also has been responsible as a portfolio co-manager, for the day-to-day
management of the Strategic Income Fund since its commencement of operations in
July, 1998. Mr. Smith, as co-manager, has been responsible for the day-to-day
management of the portfolio of the U.S. Government Income Fund since May 1, 1995
and the Variable Rate Government Fund since October 1993. 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.
31
<PAGE>
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-
day management of the portfolio of the Strategic Income Fund since it commenced
operations in July 1998. Mr. Wisniewski 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
Analysis.
Mr. Daniel Kokoszka joined Wells Fargo Bank in February, 1998 and has been
responsible, as a portfolio co-manager for the day-to-day management of the
Corporate Bond and Strategic Income Funds since August 1, 1998. Prior to
February, 1998, Mr. Kokoszka had worked for Bradford & Marzec, Inc. on their
international portfolio management team for more than four years. Previously,
Mr. Kokoszka worked for Lockheed Corporation in the corporate finance, mergers
and acquisitions and venture capital areas. Mr. Kokoszka is a Chartered
Financial Analyst, a Certified Management Accountant and is Certified in
Financial Management. Mr. Kokoszka received his B.S. from Villanova University,
an M.S. from George Washington University, an M.S. from George Washington
University and his M.B.A. from the University of Rochester.
Mr. John Burgess joined Wells Fargo Bank in April, 1998 and has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Corporate Bond and Strategic Income Funds since August 1, 1998. Prior to April,
1998, Mr. Burgess had worked as an independent financial advisor since August,
1995. Prior to that, Mr. Burgess had worked for Executive Life Insurance Co.
and associated Companies from 1998 to July, 1995. Previously, Mr. Burgess
worked for Bradford & Marzec, Inc. Mr. Burgess received his B.A. from Harvard
College and a J.D. from Harvard Law School.
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 a monthly fee of 0.04%
and 0.02%, respectively, of the average daily net assets of each Fund. In
connection with the change in fees, the responsibility for performing various
administration services was shifted to the Co-Administrator.
32
<PAGE>
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------------------------------------------------------------------------------
Fund Total Wells Fargo Stephens
- ---- ----- ----------- --------
<S> <C> <C> <C>
Corporate Bond N/A N/A N/A
Short-Intermediate U.S. Government $54,262 $36,356 $17,906
Strategic Income N/A N/A N/A
</TABLE>
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.
Short-Intermediate U.S. Government Income Fund. For the period indicated
----------------------------------------------
below, the Fund paid to Wells Fargo Bank and Stephens the following dollar
amounts for administration and co-administration fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Short-Intermediate U.S. Government Income $64,992 $ 51,994 $12,929
</TABLE>
For the periods indicated below, the Short-Intermediate U.S. Government
Income Fund paid to Stephens the dollar amounts in administration fees indicated
below. Stephens, as sole Administrator for the year ended December 31, 1994,
and 1995, and the nine-month period September 30, 1996, was entitled to receive
a fee, payable monthly, at the annual rate of 0.03% of the Short-Intermediate
U.S. Government Fund's average daily net assets.
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
-------- ---------
<S> <C>
$12,808 $ 6,998
</TABLE>
__________________
Beginning February 1, 1997, these amounts include fees paid to Wells Fargo Bank.
U.S. Government Income and Variable Rate Government 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 U.S. Government Income and Variable Rate
Government predecessor portfolios under substantially similar terms to the
current Administration and Co-Administration Agreements with the Funds. Prior
to February 1, 1997, Stephens served as sole Administrator to the U.S.
Government Income and Variable Rate Government predecessor portfolios and
provided the predecessor portfolios with essentially the same services described
above. Stephens was entitled to receive a monthly fee from the Variable Rate
Government predecessor portfolio at the annual rate of 0.15% of each predecessor
portfolio's average daily net assets up to $200 million and 0.10% in excess of
$200 million. Stephens was entitled to receive a fee from the U.S. Government
Income Fund's
33
<PAGE>
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 Funds paid to Stephens the dollar
amounts in administration fees indicated below. Prior to December 12, 1997,
these amounts reflect fees paid by the Overland predecessor portfolios.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
----------- ------------ ------------
<S> <C> <C> <C>
U.S. Government Income $ 66,992 $ 51,898 $ 37,744
Variable Rate Government $ 282,517 $ 400,616 $ 923,116
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the Distributor for the Funds. Each
Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") for its shares. The Plans were
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Funds and who had no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Non-Interested
Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
Funds may pay Stephens the amounts listed below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net
assets attributable to each Class of the Funds.
<TABLE>
<CAPTION>
Fund Fee
----- ---
<S> <C>
Corporate Bond
Class A 0.05%
Class B 0.75%
Class C 0.75%
Short-Intermediate U.S. Government
Class B 0.75%
Strategic Income
Class A 0.05%
Class B 0.75%
Class C 0.75%
U.S. Government Income
Class B 0.70%
Class C 0.75%
Variable Rate Government
Class A 0.25%
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Company and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold
34
<PAGE>
by members of the National Association of Securities Dealers, Inc. ("NASD")
under the Conduct Rules of the NASD. The Distributor may enter into selling
agreements with one or more selling agents (which may include Wells Fargo Bank
and its affiliates) under which such agents may receive compensation for
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to their customers. The Distributor may
retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
Under the Plans in effect for the Class A shares of the Short-Intermediate
U.S. Government Income and the U.S. Government Income Fund, each Fund may defray
all or part of the cost of preparing and printing prospectuses and other
promotional materials and of delivering those prospectuses and promotional
materials to prospective shareholders by paying on an annual basis up to 0.05%
of the respective Fund's average daily net assets attributable to Class A
shares. The Plans for the Class A shares of these Funds provide only for
reimbursement of actual expenses.
For the year March 31, 1998, the Distributor of Short-Intermediate U.S.
Government Income Fund received, and for the year ended December 31, 1997, the
U.S. Government Income and Variable Rate Government Funds received the fees
listed below for distribution-related services, as set forth below, under each
Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Short-Intermediate U.S.
Government Income
Class A $ 36,119 $36,109 $10 N/A
Class B N/A N/A N/A N/A
U.S. Government Income*
Class A $ 5,125 N/A N/A $ 5,125
Class B $ 48,409 N/A N/A $ 48,409
Class C $ 9,564 N/A N/A $ 9,564
Variable Rate Government*
Class A $120,886 N/A N/A $120,886
</TABLE>
___________________
*Prior to December 12, 1997, these amounts reflect fees paid by the Overland
predecessors portfolios.
Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer of the
Company, and its registered representatives did not receive any compensation
under the Funds' Plans for the periods described above.
35
<PAGE>
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Directors on not more than 60 days'
written notice. The Plans may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plans require that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plans. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
ADMINISTRATIVE SERVICING AGENT. The Variable Rate Government Fund has
------------------------------
adopted a Shareholder Administrative Servicing Plan (the "Administrative
Servicing Plan") on behalf of its Class A shares. Pursuant to the
Administrative Servicing Plan, the Fund may enter into Administrative Servicing
Agreements with administrative servicing agents (broker/dealers, banks and other
financial institutions, which may include Wells Fargo Bank and its affiliates)
who are dealers/holders of record, or that otherwise have a servicing
relationship with the beneficial owners of the Fund's Class A shares.
Administrative servicing agents agree to perform shareholder administrative and
liaison services which may include, among other things, maintaining an omnibus
account with the Fund, aggregating and transmitting purchase, exchange and
redemption orders from its customers, answering customer inquiries regarding a
shareholder's accounts in the Fund, and providing such other services as the
Company or a customer may reasonably request. Administrative servicing agents
are entitled to a fee which will not exceed 0.25%, on an annualized basis, of
the average daily net assets of the class of the Class A shares owned of record
or beneficially by the customers of the administrative servicing agent during
the period for which payment is being made. In no case shall shares be sold
pursuant to the Class A distribution plan while being sold pursuant to its
Administrative Servicing Plan.
36
<PAGE>
For the year ended December 31, 1997, the Variable Rate Government Fund
paid to Wells Fargo Bank or its affiliates $282,517 in administrative servicing
fees, after waivers.
The Administrative 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. Any form of Servicing Agreement related to the Plan also must be
approved by such vote of the Directors. Servicing Agreements will terminate
automatically if assigned, and may be terminated at any time, without payment of
any penalty, by a vote of a majority of the outstanding shares of the
appropriate class of the Fund. The Administrative Servicing Plan may not be
amended to increase materially the amount payable thereunder without the
approval of a majority of the outstanding shares of the appropriate class of the
Fund, and no other material amendment to the Plan or related Administrative
Servicing Agreements may be made except by a majority of the Directors.
The Administrative Servicing Plan requires that the Administrator shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under each of the
Plan.
SHAREHOLDER SERVICING AGENT. The Strategic Income (Class A, Class B and
---------------------------
Class C), Corporate Bond (Class A, Class B and Class C) and U.S. Government
Income (Class B and C) Funds have approved a Servicing Plan and have entered
into related shareholder servicing agreements with financial institutions,
including Wells Fargo Bank. The Short-Intermediate Government Income Fund and
U.S. Government Income (Class A) Funds have entered into shareholder servicing
agreements. Under the agreements, Shareholder Servicing Agents (including Wells
Fargo Bank) agree to perform, as agents for their customers, administrative
services, with respect to Fund shares, which include aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For providing
shareholder services, a Servicing Agent is entitled to a fee from the applicable
Fund, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The amounts payable under
the Shareholder Servicing Plan are shown below. The Servicing Plan and related
forms of shareholder servicing agreements were approved by the Company's Board
of Directors and provide that a Fund shall not be obligated to make any
payments under such Plans or related Agreements that exceed the maximum amounts
payable under the Conduct Rules of the NASD.
Fund Fee
---- ---
Corporate Bond
Class A 0.25%
Class B 0.25%
Class C 0.25%
Short-Intermediate U.S. Government Income
Class A 0.30%
Class B 0.30%
37
<PAGE>
Strategic Income 0.25%
Class A 0.25%
Class B 0.25%
Class C
U.S. Government Income
Class A 0.30%
Class B 0.30%
Class C 0.25%
Variable Rate Government
Class A 0.25%
For the periods indicated below, the dollar amounts of shareholder
servicing fees paid to Wells Fargo Bank or its affiliates by the Funds, after
waivers, were as follows:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ende
3/31/98 3/31/97
---------- -----------
Fund
----
<S> <C> <C>
Short-Intermediate U.S. Government Income
Class A $ 94,448 $ 54,045
Class B N/A
U.S. Government Income
Class A N/A* N/A
Class B N/A* N/A
Class C $ 4,680* N/A
</TABLE>
____________________
* These amounts are for the year ended December 31, 1997. Prior to December
12, 1997, these amounts reflect fees paid by the Overland predecessor
portfolio. The predecessor portfolio to the U.S. Government Income Fund
did not offer Class B shares and did not have a Servicing Plan in place for
its Class A shares. Therefore, no information is shown for the Class A and
B shares of the U.S. Government Income Fund.
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 periods" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreements may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
38
<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 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 year ended December 31, 1997, the U.S. Government Income and
Variable Rate Government Funds did not pay any custody fees. For the fiscal
year ended March 31, 1998, the Short-Intermediate U.S. Government Income Fund
did not pay any custody fees. The Corporate Bond and Strategic Income Funds had
not yet commenced operations during these periods.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Funds. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of each Fund's average daily net assets of each class of shares.
For the year ended March 31, 1998, 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>
Corporate Bond N/A
Short-Int. U.S. Govt. Income $ 78,169
Strategic Income N/A
U.S. Government Income $126,491
Variable Rate Government $ 0
</TABLE>
____________________
* These amounts are for the year ended December 31, 1997. Prior to December
12, 1997, these amounts reflect fees paid by the Overland predecessor
portfolio.
Short-Intermediate U.S. Government Income and U.S. Government Income Funds.
--------------------------------------------------------------------------
Under the prior transfer agency agreement with the Short-Intermediate U.S.
Government Income Fund (Class A shares) and U.S. Government Income Fund (Class A
and C shares), Wells Fargo Bank was entitled to receive a per account fee plus
transaction fees and reimbursement of out-of-pocket expenses, with a minimum of
$3,000 per month per Fund, unless net assets of the Fund were under
39
<PAGE>
$20 million. For as long as a Fund's assets remained under $20 million, a Fund
was not charged any transfer agency fees.
Variable Rate Government Fund. Under a prior transfer agency agreement
-----------------------------
with the Variable Rate Government and Short-Term Government predecessor
portfolios, Wells Fargo Bank received a base fee and per-account fees from a
Fund paid without regard to class.
UNDERWRITING COMMISSIONS. For the year ended March 31, 1998, the aggregate
------------------------
dollar amount of underwriting commissions paid to Stephens on sales/redemptions
of the Company's shares was $7,671,295 and Stephens retained $939,892 of such
commissions. WFSI, an affiliated broker-dealer of the Company, retained
$5,348,626 of such commissions.
For the six-month period ended March 31, 1997, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,296,243. Stephens retained $241,806 of such commissions. WFSI and
its registered representatives received $1,719,000 and $335,437, respectively,
of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,917,738. Stephens retained $198,664 of such commissions, WFSI
and its registered representatives received $2,583,027 and $136,047
respectively, of such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,311. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives received $399,809 of such commissions.
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.
40
<PAGE>
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Class A shares of the Stagecoach
U.S. Government Income Fund for periods prior to December 12, 1997, reflects
performance of the Class A shares of the Overland U.S. Government Income Fund
(the accounting survivor of a merger of the funds on December 12, 1997).
Performance shown or advertised for the Class B and Class C shares of the Fund
for the period from July 1, 1993 to December 12, 1997, reflects performance of
the Class D shares of the Overland Fund. For periods prior to July 1, 1993,
Class B share and Class C share performance reflects performance of the Class A
shares of the Overland Fund, adjusted to reflect the expenses of the Class B or
Class C shares, as applicable.
Performance shown or advertised for the Class A shares of the Stagecoach
Variable Rate Government Fund for periods prior to December 12, 1997, reflects
performance of the Class A shares of the Overland Express Variable Rate
Government Fund, a predecessor portfolio with the same investment objective and
policies as the Stagecoach Variable Rate Government Fund. Performance shown or
advertised for the Class C shares of the Stagecoach Fund for the period from
July 1, 1993 to December 12, 1997, reflects performance of the Class D shares of
the Overland Fund. For periods prior to July 1, 1993, Class C share performance
reflects performance of the Class A shares of the Overland Fund, adjusted to
reflect the expenses of the Class C shares.
Performance figures for the Corporate Bond and Strategic Income Funds are
not available for the periods shown.
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.
41
<PAGE>
Average Annual Total Return for the Applicable
----------------------------------------------
Period Ended March 31, 1998/1/
---------------------------
<TABLE>
<CAPTION>
Inception Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge Charge Charge
---- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
Income
Class A 8.03% 8.52% 4.89% 5.85% 6.20% 7.85% 5.97% 11.01%
Class B 7.81% 7.81% 4.72% 5.01% 6.08% 6.95% 4.88% 9.88%
Class C 7.81% 7.81% 5.01% 5.01% 6.95% 6.95% 4.88% 9.88%
Variable Rate
Government
Class A 4.26% 4.69% 2.88% 3.51% 4.22% 5.29% 1.87% 5.07%
Short-
Intermediate
U.S.
Government
Income
Class A 4.55% 5.39% N/A N/A 5.89% 6.98% 5.41% 8.69%
</TABLE>
- -------------------
1 Return calculations, except as indicted, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge ("CDSC") for Class B and Class C shares.
2 For purposes of showing performance information, the inception date of each
Fund and Class is as follows: U.S. Government Income Fund - April 7, 1988,
Variable Rate Government-Fund - November 1, 1990 and Short-Intermediate U.S.
Government Income Fund - October 27, 1993. The actual inception date of each
class may differ from the inception date of the corresponding Fund.
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.
42
<PAGE>
Cumulative Total Return for the Applicable Period Ended March 31, 1998/1/
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception Inception Five Year Five Year Three Year Three Year
With No With No With No
Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge
---- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
Income
Class A 116.43% 126.61% 26.90% 32.90% 19.77% 25.44%
Class B 112.06% 112.06% 25.92% 27.68% 19.37% 22.34%
Class C 112.05% 112.06% 27.67% 27.67% 22.23% 22.33%
Variable Rate
Government
Class A 36.25% 40.47% 15.27% 18.84% 13.20% 16.73%
Short-
Intermediate
U.S.
Government
Income
Class A 23.30% 26.09% N/A N/A 18.74% 22.45%
</TABLE>
- -------------------
1 Return calculations, except as indicated, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable CDSC for Class B
and Class C shares.
2 For purposes of showing performance information, the inception date of
each Fund is as follows: U.S. Government Income Fund - April 7, 1988,
Variable Rate Government-Fund - November 1, 1990 and Short-Intermediate U.S.
Government Income Fund - October 27, 1993. The actual inception date of each
class may differ from the inception date of the corresponding Fund.
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 reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period.
EFFECTIVE YIELD: Effective yields for the 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
43
<PAGE>
pro-rata share of each Fund's expenses accrued over that period (the "base
period"), and stated as a percentage of the investment at the start of the base
period (the "base period return"). The base period return is then annualized
multiplying by 365/30, with the resulting yield figure carried to at least the
nearest hundredth of one percent. "Effective yield" for the Funds assumes that
all dividends received during the period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Applicable Period Ended March 31, 1998/1/
----------------------------------------------------
<TABLE>
<CAPTION>
Thirty-Day Yield
----------------
Fund After Waiver Before Waiver
---- ------------ -------------
<S> <C> <C>
U.S. Government Income
Class A 5.23% 4.88%
Class C 4.73% 3.75%
Variable Rate Government
Class A 5.24% 4.71%
</TABLE>
____________________
1 The amounts shown above reflect all front-end sales charges and applicable
CDSCs. "After waiver" figures reflect any waived fees or reimbursed expenses
throughout the period.
Yield for the Applicable Period Ended March 30, 1998/1/
----------------------------------------------------
<TABLE>
<CAPTION>
Thirty-Day Yield
----------------
Fund After Waiver Before Waiver
---- ------------ -------------
<S> <C> <C>
Short-Intermediate U.S. Government Income
Class A 5.06% 4.75%
</TABLE>
______________________
1 The amounts shown above reflect all front-end sales charges and applicable
CDSCs. "After waiver" figures reflect any waived fees or reimbursed expenses
throughout the period.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future. In connection with communicating its yields or total return to
current or prospective shareholders, these figures may also be compared to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
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
44
<PAGE>
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 a Class of in advertising and other types of
literature as compared with the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a 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 Funds'
performance will be calculated by relating net asset value per share of each
class at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions paid, at the end of
the period. The 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 of shares with the performance of a Fund's
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.
45
<PAGE>
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
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
each class of shares 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 each class of shares 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 each class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance or current or potential value of each class of shares of
a Fund with respect to the particular industry or sector.
The Company also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no opportunity
for capital growth; and (2) describing Wells Fargo Bank, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Company also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRSRO, such as Standard Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by 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 a Fund or its investments. The Company may compare the performance of each
class of shares of a Fund with other investments which are assigned ratings by
NRSROs. Any such comparisons may be useful to investors who wish to compare each
class' past performance with other rated investments.
From time to time, a Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells 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
46
<PAGE>
money managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment Advisor and the total amount
of assets and mutual fund assets managed by Wells Fargo Bank. As of August 1,
1998, Wells Fargo Bank and its affiliates provided investment advisory services
for approximately $63 billion of assets of individuals, trusts, estates and
institutions and $32 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 (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 Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities 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. 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
47
<PAGE>
faith by the Company's Board of Directors and in accordance with procedures
adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. 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 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 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
48
<PAGE>
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 Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. For the period ended March 31, 1998, the Funds paid
---------------------
brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund Commissions
---- -----------
<S> <C>
Short-Intermediate U.S. Government Income $0
U.S. Government Income $0
Variable Rate Government $0
</TABLE>
For the years ended December 31, 1996 and December 31, 1995, U.S.
Government Income and Variable Rate Government predecessor portfolios did not
pay any brokerage commissions.
For the year ended December 31 and 1995, and the period ended September 30,
1996, the Short-Intermediate U.S. Government Income Fund did not pay any
brokerage commissions.
Securities of Regular Broker/Dealers. As of March 31, 1998, each Fund
------------------------------------
owned securities (pooled repurchase agreements) of its "regular brokers or
dealers" as defined in the 1940 Act or their parents, as follows:
49
<PAGE>
<TABLE>
<CAPTION>
Fund Brokers/Dealers Amount
---- --------------- ------
<S> <C> <C>
Corporate Bond Fund N/A N/A
Short-Intermediate U.S. Government Goldman Sachs & Co. $1,406,000
Income Fund JP Morgan Securities $ 300,000
Strategic Income Fund N/A N/A
U.S. Government Income Fund* Goldman Sachs & Co. $1,045,000
Morgan Stanley $3,889,000
Variable Rate Government Fund* Goldman Sachs & Co. $2,023,000
JP Morgan Securities $ 234,000
HSBC Securities $ 354,000
</TABLE>
_________________
*Figures shown are as of the year ended December 31, 1997.
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
net asset value 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
50
<PAGE>
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 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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 with respect to 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. The Funds intend to pay out substantially all of
their net investment income and net realized capital gains (if any) for each
year.
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<PAGE>
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 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 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 the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for Federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for Federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that 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
52
<PAGE>
attempt to monitor Section 988 transactions, where applicable, to avoid adverse
Federal income tax impact.
Offsetting positions held by a Fund 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 Fund 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 Fund 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 Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund 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 a Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the 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 under the election.
Income and dividends received by the Funds from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries.
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 gains 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.
53
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the
54
<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 also subject the investor to penalties imposed by the IRS.
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 distribution by a Fund 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 such dividend income.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of net long-
term capital gains are generally not subject to 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, 1999, 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 that 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 Plan. 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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
55
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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 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 Shareholder
Services at 1-800-222-8222 if you would like additional information about other
funds or classes of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
a Fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract, since it affects only one Fund, is a matter to be
determined separately by Series. Approval by the shareholders of one Series is
effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of 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.
56
<PAGE>
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company. The Company may
dispense with an annual meeting of shareholders in any year in which it is not
required to elect Directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular 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 June 30, 1998, is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities 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 JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
TYPE OF PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OWNERSHIP OF CLASS OF PORTFOLIO
---- ---------------- --------- ------- ------------
<S> <C> <C> <C> <C>
CORPORATE BOND STEPHENS INC. CLASS A 38.35% 20.21%
ATTN ACCOUNTING RECORD SHAREHOLDER
111 CENTER STREET
LITTLE ROCK, AR 72201
VIRG. & CO. CLASS A 12.55% 6.62%
C/O WELLS FARGO BANK RECORD SHAREHOLDER
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 92372
DEAN WITTER FOR THE BENEFIT OF KIT HAAN WONG CLASS C 33.85% N/A
1267 E. SALEM AVE BENEFICIALLY OWNED
P.O. BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF CLASS C 6.68% N/A
WELLS FARGO IRA CUSTODIAN FBO BENEFICIALLY OWNED
P.O. BOX 250
CHURCH STREET STATION
NEW YORK, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF CLASS C 11.86% N/A
JOHN A. & ERMA KUSANOVICH TTEES BENEFICIALLY OWNED
P.O. BOX 250, CHURCH STREET STATION
NEW YORK, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF DAVID H. DYER CLASS C 18.54% N/A
P.O. BOX 250, CHURCH STREET STATION BENEFICIALLY OWNED
NEW YORK, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF CLASS C 6.76% N/A
ROBERT M. AMEZQUITA BENEFICIALLY OWNED
P.O. BOX 250, CHURCH STREET STATION
NEW YORK, NY 10008-0250
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
DEAN WITTER FOR THE BENEFIT OF CLASS C 8.38% N/A
DENNIS J. BUTLER CUSTODIAN FBO BENEFICIALLY OWNED
P.O. BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
SHORT-INTERMEDIATE WELLS FARGO BANK CLASS A 27.20% 9.84%
U.S. GOVERNMENT INCOME FBO RETIREMENT PLANS OMNIBUS BENEFICIALLY OWNED
P.O. BOX 63015
SAN FRANCISCO, CA 94163
U.S. GOVERNMENT INCOME WELLS FARGO BANK CLASS A 18.59% 15.50%
FBO RETIREMENT PLANS OMNIBUS BENEFICIALLY OWNED
P.O. BOX 63015
SAN FRANCISCO, CA 94163
VIRG. & CO. CLASS A 7.53% 6.28%
C/O WELLS FARGO BANK BENEFICIALLY OWNED
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 91372
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS CLASS C 33.88% N/A
ATTN: MUTUAL FUND ADMINISTRATION BENEFICIALLY OWNED
4800 DEER LAKE DRIVE EAST, 3RD FLOOR
JACKSONVILLE, FL 32246
SISTERS OF ST. FRANCIS
ATTN: SISTER MARIJANE HRESKO, OSF CLASS C 10.56% N/A
809 SOUTH CONVENT ROAD BENEFICIALLY OWNED
ASTON, PA 19014
VARIABLE RATE APCO EMPLOYEES CREDIT UNION CLASS A 17.53% 17.21%
GOVERNMENT 1608 7TH AVE. RECORD HOLDER
BIRMINGHAM, AL 35203
MLPF&S FOR THE SOLE BENEFIT OF IT CUSTOMERS CLASS A 5.37% 5.27%
ATTN: MUTUAL FUND ADMINISTRATION BENEFICIALLY OWNED
4800 DEER LAKE DRIVE EAST, 3RD FLOOR
JACKSONVILLE, F: 32246
CITIZENS EQUITY CLASS A 5.38% 5.28%
P.O. BOX 1715 RECORD HOLDER
ATTN: PETE JAIN
VICE PRESIDENT
PEORIA, IL 61656-1715
MID-ATLANTIC FCH CLASS A 5.12% 5.03%
P.O. BOX 8990 RECORD HOLDER
GAITHERSBURG, MD 20898-8990
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
58
<PAGE>
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds' Prospectus.
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 portfolios of investments, audited financial statements and independent
auditors' report for the Variable Rate Government and U.S. Government Income
Funds for the year ended December 31, 1997, are hereby incorporated by reference
to the Annual Reports as filed with the SEC on March 3, 1998.
The portfolios of investments, audited financial statements and independent
auditors report for the remaining Funds for the year ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9 and 10, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
59
<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: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
CALIFORNIA TAX-FREE MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
MONEY MARKET FUND
NATIONAL TAX-FREE MONEY MARKET FUND
TREASURY PLUS MONEY MARKET FUND
100% TREASURY MONEY MARKET FUND
Class A Shares
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about six funds in the Stagecoach Family of Funds (each,
a "Fund" and collectively, the "Funds") -- the CALIFORNIA TAX-FREE MONEY MARKET,
GOVERNMENT MONEY MARKET, MONEY MARKET, NATIONAL TAX-FREE MONEY MARKET, TREASURY
PLUS MONEY MARKET (formerly, the "Treasury Money Market"), and 100% TREASURY
MONEY MARKET FUNDS. The California Tax-Free Money Market Fund offers a single
class of shares that is sometimes referred to herein as "Class A shares." Each
of the other Funds offers Class A shares. The term "Mutual" has been removed
from the name of each Fund. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated August 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, Inc., 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......................... 7
Risk Factors....................................................... 17
Special Considerations Affecting California Municipal Obligations.. 19
Management......................................................... 23
Performance Calculations........................................... 35
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
Counsel............................................................ 54
Independent Auditors............................................... 54
Financial Information.............................................. 54
Appendix........................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The California Tax-Free Money Market Fund was originally organized as a
fund of the Company and commenced operations on July 1, 1992.
The Government Money Market Fund was originally organized as the Pacifica
Government Money Market Fund on April 26, 1988, as an investment portfolio of
Pacifica Funds Trust ("Pacifica"). On September 6, 1996, the Pacifica
Government Money Market Fund was reorganized as the Company's Government Money
Market Fund.
The Money Market Fund was originally organized as a fund of the Company and
commenced operations on July 1, 1992.
The National Tax-Free Money Market Fund was originally organized as a fund
of the Company and commenced operations on April 2, 1996.
The Treasury Plus Money Market Fund commenced operations on October 1,
1985, as the Short-Term Government Fund of the Pacific American Funds. The Fund
operated as a portfolio of Pacific American Fund through October 1, 1994, when
it was reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio
of Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica
Treasury Money Market Fund. On September 6, 1996, the Pacifica Treasury Money
Market Fund was reorganized as the Company's Treasury Money Market Fund. The
word "Plus" was added to the Fund's name as of August 1, 1998.
The 100% Treasury Money Market Fund commenced operations on August 1, 1998.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund.
1
<PAGE>
The California Tax-Free Money Market Fund and Money Market 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 such Fund's investments in that industry would be 25% or
more of the current value of such Fund's total assets, provided that there is no
limitation with respect to investments in (i) by the California Tax-Free Money
Market Fund in municipal securities (for the purpose of this restriction,
private activity bonds and notes shall not be deemed municipal securities if the
payments of principal and interest on such bonds or notes is the ultimate
responsibility of non-governmental issuers), (ii) with respect to both Funds,
the obligations of the U.S. Government, its agencies or instrumentalities, 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 with respect to the California Tax-Free Money
Market Fund, or other than money market securities with respect to the Money
Market Fund, or other securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests therein),
commodities or commodity contracts (including futures contracts);
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions with regard to both Funds and except for
margin payments in connection with options, futures and options on futures with
regard to the California Tax-Free Money Market Fund) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with a 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 each 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, warrants or any
combination thereof, except that the Funds may purchase securities with put
rights in order to maintain liquidity; nor
In addition, neither the California Tax-Free Money Market Fund nor the
Money Market Fund may make loans of portfolio securities or other assets, except
that loans for purposes of this restriction will not include the purchase of
fixed time deposits, repurchase agreements,
2
<PAGE>
commercial paper and other short-term obligations, and other types of debt
instruments commonly sold in public or private offerings.
The Government Money Market Fund may not:
(1) invest more than 10% of the aggregate value of its total assets in
investments that are illiquid, or not readily marketable (including repurchase
agreements having maturities of more than seven calendar days, variable- and
floating-rate demand notes requiring receipt of principal note amount on more
than seven days notice and securities of foreign issuers that are not listed on
a recognized domestic or foreign securities exchange);
(2) borrow money or pledge or mortgage its assets, except that the 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 the Fund while any such borrowings exist);
(3) make loans, except loans of portfolio securities and except that the
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in the
Prospectuses or this SAI. The Fund may 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 the Fund,
does not exceed 10% of the value of its total assets;
(4) invest in companies for the purpose of exercising control or
management;
(5) knowingly purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization, or
where otherwise permitted by the 1940 Act;
(6) invest in real property (including limited partnership interests),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions;
(7) acquire securities subject to restrictions on disposition imposed by
the Securities Act of 1933 (the "1933 Act"), if, immediately after and as a
result of such acquisition, the value of such restricted securities and all
other illiquid securities held by the Fund would exceed 10% of the value of the
Fund's total assets;
(8) engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may technically
cause it to be considered an underwriter as that term is defined under the 1933
Act;
3
<PAGE>
(9) sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(10) mortgage, pledge, or hypothecate any of its assets, except as
described in fundamental investment policy (2);
(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 the Fund's net assets, may be warrants that are not listed on the New
York or American Stock Exchanges; nor
(13) 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 National Tax-Free Money Market 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 (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
4
<PAGE>
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 staff of the U.S. Securities and Exchange
Commission ("SEC") takes the position 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.
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 the diversification requirements under Rule 2a-7.
5
<PAGE>
The Treasury Plus Money Market Fund and 100% Treasury Money Market 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 Funds 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 Funds will not purchase securities while their
borrowings (including reverse repurchase agreements) in excess of 5% of their
total assets are outstanding. As a matter of non-fundamental policy, the Funds
intend to limit their investments in reverse repurchase agreements to no more
than 20% of their 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
Funds' total assets at the time of its borrowing. Securities held in escrow or
separate accounts in connection with the Funds' 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 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 Funds may purchase or hold debt instruments
in accordance with their 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 their portfolio securities in excess of one-third of the value of
their total assets.
6
<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 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, except the 100% Treasury Money Market 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) Each Fund, except the California Tax-Free Money Market and Money
Market Funds, may lend securities from its portfolio 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 Government Money Market 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
7
<PAGE>
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, except the Treasury Plus Money Market and 100% Treasury Money
Market Funds, may invest in bank obligations, including certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, a Fund may
be subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities and
the possible seizure or nationalization of foreign deposits. In addition,
foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Funds, except the Treasury Plus Money Market Fund and 100% Treasury
Money Market 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.
8
<PAGE>
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds, except the 100% Treasury Money Market Fund, 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.
Foreign Obligations
-------------------
Each Fund, except the Treasury Plus Money Market and 100% Treasury Money
Market Funds, 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
9
<PAGE>
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, except the 100% Treasury Money Market 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 a Fund. Each Fund may invest up to 10% of its 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, except the Treasury Plus Money Market Fund and
100% Treasury Money Market 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, except the California Tax-Free Money Market and Money Market
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 (secured
continuously by U.S. Treasury obligations only for the Treasury Plus Money
Market
10
<PAGE>
Fund) 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, and
will not exceed 20% of the total assets of the Treasury Plus Money Market 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 Government Money Market 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
11
<PAGE>
Advisor's assumptions about prepayments are inaccurate, these securities may
expose the Funds, to significantly greater market risks than expected.
Municipal Bonds
---------------
The California Tax-Free Money Market and National Tax-Free Money Market
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 20% or more of their 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 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. Moreover, with
respect to California obligations, the California Tax-Free Money Market Fund
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 California obligations, specifically, for
investment by a Fund and the liquidity and value of a Fund's portfolio. In such
an event, the Fund involved would re-evaluate its investment objective and
policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
the 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
12
<PAGE>
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 a Fund's portfolio arising from these or other factors will cause
changes in the net asset value per share.
Municipal Notes
---------------
The California Tax-Free Money Market and National Tax-Free Money Market
Funds 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 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
13
<PAGE>
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 a 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, except the 100% Treasury Money Market 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.
Taxable Investments
-------------------
The National Tax-Free Money Market and California Tax-Free Money Market
Funds 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 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
14
<PAGE>
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 Investors Service, Inc. ("Moody's") or "A-1+" or
"A-1" by Standard & Poor's Ratings Group ("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 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
----------------------------------
The Funds, except the Treasury Plus Money Market and 100% Treasury Money
Market Funds, 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
Funds. The Funds may purchase unrated instruments only if they are purchased in
accordance with the Funds' procedures adopted by Company's Board of Directors in
accordance with Rule 2a-7 under the 1940 Act. After purchase by a Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by 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 Funds may invest in obligations of agencies and instrumentalities of
the U.S. Government ("U.S. Government obligations"). The Treasury Plus Money
Market Fund and 100% Treasury Money Market 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
15
<PAGE>
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 Plus Money Market Fund and 100% Treasury Money Market Fund may
invest only in obligations issued or guaranteed by the U.S. Treasury such as
bills, notes, bonds and certificates of indebtedness ("U.S. Treasury
obligations"). The Treasury Plus Money Market Fund may invest in notes and
repurchase agreements collateralized or secured by such U.S. Treasury
obligations, whereas the 100% Treasury Money Market Fund may not. U.S. Treasury
notes, bills and bonds differ mainly in the length of their maturity. The U.S.
Treasury obligations in which the Funds invest 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 Plus Money Market [, 100% TREASURY
MONEY MARKET] and Government Money Market 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 ("NRSROs")
------------------------------------------------------------------
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
16
<PAGE>
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 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 Plus Money Market Fund
and 100% Treasury Money Market 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. As such, the Money Market Fund and the National Tax-Free Money
Market Fund are considered to be diversified for purposes of the 1940 Act. In
addition, the Funds emphasize safety of principal and high credit quality. In
particular, the internal investment policies of the investment 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:
. 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);
17
<PAGE>
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the relationship
between these indices may result in the value of the instrument
falling below face value); and
. inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Funds may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Funds may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Plus Money Market Fund and 100% Treasury Money Market Fund
restrict their investment to U.S. Treasury obligations that meet all of the
standards described above. Obligations issued or guaranteed by the U.S.
Treasury historically have 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.
Since the California Tax-Free Money Market Fund invests primarily in
securities issued by California and its agencies and municipalities, events in
California are more likely to affect the Fund's investments. While the
California Tax-Free Money Market Fund seeks to reduce risk by investing its
assets in securities of various issuers, the Fund is considered to be
nondiversified for purposes of the 1940 Act. However, the California Tax-Free
Money Market Fund will comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), diversification requirements.
18
<PAGE>
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
19
<PAGE>
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grew 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. Unemployment, while remaining higher than the national average, has
come down from its 10% recession peak to under 6% in the Spring of 1998. 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
and has forecast an overall balanced budget by June 30, 2000. Also, Standard &
Poors upgraded its rating of California municipal obligations back to "A+" on
July 15, 1996 and the projected level of the SFEU as of June 30, 1998 was $329
million. However, the Asian economic difficulties since mid-1997 are expected to
have had a moderate dampening effect on California's economy. Any delay or
reversal of the recovery may create new shortfalls in revenues.
Local Governments. On December 6, 1994, Orange County, California became
-----------------
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real property owned by the county. In June 1996, the county
emerged from bankruptcy, and the county's investment rating by Standard & Poors
was "B" as of October 31, 1997.
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. The county has received federal
and state assistance and the proposed fiscal 1999 budget for Los Angeles County
is the first in several years that does not begin with an operating deficit.
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. The moneys of California are segregated into the General
--------------
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
20
<PAGE>
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-99
Executive Budget projections submitted to the State Legislature in February
1998, forecast a 1999-00 General Fund budget gap of approximately $1.7 billion
and a 2000-01 gap of $3.7 billion. As a result of changes made in the 1998-99
enacted budget, the 1999-00 gap is now expected to be roughly $1.3 billion, or
about $400 million less than previously projected, after application of reserves
created as part of the 1998-99 budget process. Such reserves would not be
available against subsequent year imbalances.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme
21
<PAGE>
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 generally requiring voter approval
of most tax or fee increases by local governments and curtailing 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. The interpretation and application of Proposition 218 will ultimately
be determined by the courts. Proposition 218 is generally viewed as restricting
the fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced. It
remains to be seen, as such, what impact these Articles will have on existing
and future California security obligations.
The Governor recently proposed that California reduce its Vehicle License
Fee (a personal property tax on the value of automobiles, the 'VLF') by 75% over
five years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget process.
Other Information. Certain debt obligations held by the Funds may be
-----------------
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
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.
22
<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 Occupation(s)
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year-ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- --------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
24
<PAGE>
Funds, Inc. and Master Investment Trust, two investment companies previously
advised by Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to
December 12, 1997. These companies are no longer part of the Wells Fargo Fund
Complex. MasterWorks Funds Inc., Master Investment Portfolio, and Managed
Series Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As investment Advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market security
and fixed-income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rates indicated below of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
---- -----------------------------
<S> <C>
California Tax-Free Money Market 0.50%
Government Money Market 0.25%
Money Market 0.40%
National Tax-Free Money Market 0.30%
Treasury Plus Money Market 0.25%
100% Treasury Money Market 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:
25
<PAGE>
<TABLE>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
California Tax-Free Money Market $ 1,558,677 $ 6,538,104 $1,503,717 $1,687,408
Government Money Market $ 33,874 $ 136,176 $ 63,059 $ 10,775
Money Market $13,524,289 $11,407,557 $8,856,102 $ 979,244
National Tax-Free Money Market $ 45,696 $ 176,925 $ 19,989 $ 0
Treasury Plus Money Market $ 1,216,164 $ 3,368,585 $1,518,347 $ 751,971
100% Treasury Money Market N/A N/A N/A N/A
</TABLE>
California Tax-Free Money Market and Money Market Funds. For the periods
-------------------------------------------------------
indicated below, the Money Market and California Tax-Free Money Market Funds
paid to Wells Fargo Bank the following advisory fees and Wells Fargo Bank waived
the indicated amounts:
<TABLE>
Nine-Month
Period Ended Year-ended
9/30/96 12/31/95
------- --------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
California Tax-Free
Money Market $ 4,867,523 $0 $ 4,099,437 $0
Money Market $12,729,506 $0 $11,593,678 $0
</TABLE>
Government Money Market and Treasury Plus Money Market Funds. On January
------------------------------------------------------------
12, 1995, San Diego Financial Corporation merged into First Interstate
Investment Services, Inc., a direct wholly-owned subsidiary of First Interstate
Bank of California, which has since changed its name to First Interstate Capital
Management, Inc.
The Pacifica Government Money Market and Treasury Money Market Funds were
reorganized as the Company's Government Money Market and Treasury Plus Money
Market 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 Government
Money Market and Treasury Money Market Funds. As of September 6, 1996, Wells
Fargo Bank became the Advisor to the Company's Government Money Market and
Treasury Plus Money Market Funds.
For the fiscal year-ended September 30, 1996, the Government Money Market
Fund paid advisory fees of $274,640 and no fees were waived. For the same
period, the Treasury Plus Money Market Fund paid advisory fees of $2,442,922 of
which $2,073,426 were waived. These amounts include advisory fees paid by the
predecessor portfolios to FICM/WFIM for the period begun April 1, 1996 and ended
September 5, 1996.
26
<PAGE>
During the fiscal year-ended September 30, 1995, the prior Advisor was
entitled to receive advisory fees from the predecessor portfolio of the
Government Money Market Fund at the same annual rates as those currently in
effect. The prior Advisor was entitled to receive $383,269 in fees for the
fiscal year-ended September 30, 1995. The Advisor did not waive any fees during
these periods.
For the period indicated below, the advisory fees paid to the former
Advisor by the predecessor portfolio of the Treasury Plus Money Market Fund were
as shown below. This amount reflects voluntary fee waivers and expense
reimbursements by the Advisor.
Year-ended
9/30/95
-------
$1,160,424
National Tax-Free Money Market Fund. Prior to the Consolidation, the
-----------------------------------
National Tax-Free Money Market Fund invested all of its assets into a
corresponding 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 Fund invested and was entitled to receive a monthly fee at the annual rate
of 0.30% 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 Fund paid to Wells Fargo
Bank $76,987 in advisory fees, and $10,704 in advisory fees were waived during
this period.
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of each
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of
27
<PAGE>
$120,000 from each Fund. This minimum annual fee payable to WCM does not
increase the advisory fee paid by each Fund to Wells Fargo Bank. These fees may
be paid by Wells Fargo Bank or directly by the Funds. If the sub-advisory fee is
paid directly by a Fund, the compensation paid to Wells Fargo Bank for advisory
fees will be reduced accordingly.
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 SEC and state securities commissions;
and preparation of proxy statements and shareholder reports for each Fund; and
(ii) general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Wells Fargo Bank and Stephens also furnish office space and
certain facilities required for conducting the Funds' business together with
ordinary clerical and bookkeeping services. Stephens pays the compensation of
the Company's Directors, officers and employees who are affiliated with
Stephens. The Administrator and Co-Administrator are entitled to receive a
monthly fee of 0.03% and 0.04%, respectively, of the average daily net assets of
each Fund. Prior to February 1, 1998, the Administrator and Co-Administrator
were entitled to receive a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund. 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:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
----------- ----------
Fund Total Wells Stephens Total Wells Stephens
---- ----- -------- ----- --------
Fargo Fargo
----- -----
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free Money Market $1,500,092 $ 673,412 $ 331,680 $253,836 $ 50,767 $203,069
Government Money Market $ 41,964 $ 28,116 $ 13,848 $ 15,761 $ 3,152 $ 12,609
Money Market $3,861,514 $2,587,214 $1,274,300 $980,282 $196,056 $784,226
National Tax-Free Money Market $ 47,644 $ 31,921 $ 15,723 $ 3,744 $ 749 $ 2,995
Treasury Plus Money Market $1,133,896 $ 759,710 $ 374,186 $483,198 $ 96,640 $386,558
100% Treasury Money Market N/A N/A N/A N/A N/A N/A
</TABLE>
28
<PAGE>
California Tax-Free Money Market and Money Market Funds. For the nine-
-------------------------------------------------------
month period ended September 30, 1996 and the fiscal year-ended December 31,
1995, the California Tax-Free Money Market and Money Market Funds paid to
Stephens the dollar amounts of administration fees indicated below. Stephens,
as sole Administrator during these periods, was entitled to receive a monthly
fee at the annual rate of 0.03% of each Fund's average daily net assets.
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year-ended
Fund 9/30/96 12/31/95
---- -------- ---------
<S> <C> <C>
California Tax-Free Money Market $245,966 $ 292,095
Money Market $872,577 $ 954,713
</TABLE>
Government Money Market and Treasury Plus Money Market Funds. The Pacifica
------------------------------------------------------------
Government Money Market and Treasury Money Market Funds were reorganized as the
Company's Government Money Market and Treasury Money Market 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 portfolio of the Treasury Plus Money Market 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 table below reflects the net amounts paid, and the amounts waived, for
administration services by the Funds to Stephens, as sole Administrator to the
Funds, for the period begun September 6, 1996 and ended September 30, 1996.
During this time, Stephens was entitled to receive a fee, payable monthly, at
the annual rate of 0.05% of each Fund's average daily net assets. The table
also reflects the net administration fees paid to the respective former
Administrators of the predecessor portfolios during the period begun October 1,
1995 and ended September 5, 1996. During the fiscal year-ended September 30,
1995 Furman Selz was entitled to receive administration services fees and waived
administration fees in the amounts indicated below. During the fiscal years-
ended September 30, 1996, and September 30, 1995 and the administration fees
paid to the Dreyfus Corporation by the Treasury Plus Money Market Fund are
listed below.
29
<PAGE>
<TABLE>
<CAPTION>
Year-ended Year-ended
9/30/96 9/30/95
------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Government $ 120,179 $0 $255,512 $25,550
Money Market
Treasury $1,745,759 $0 $921,886 $ 0
Money Market
</TABLE>
National Tax-Free Money Market 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 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.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Funds. Each Fund has
adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for its Class A shares. The Plans were
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Funds and who had no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Non-Interested
Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
indicated Funds may pay Stephens the amounts listed below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net
assets attributable to each Class or Fund.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Government Money Market 0.05%
National Tax-Free Money Market 0.05%
Treasury Plus Money Market 0.05%
100% Treasury Money Market 0.05%
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds 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
30
<PAGE>
distribution fee payable thereunder to compensate it for distribution-related
services provided by it or to reimburse it for other distribution-related
expenses.
Under the Plans in effect for the Class A shares of the California Tax-Free
Money Market and Money Market Funds, each Fund may defray all or part of the
cost of preparing and printing prospectuses and other promotional materials and
of delivering prospectuses and promotional materials to prospective Fund
shareholders by paying on an annual basis up to 0.05% of the respective Fund's
average daily net assets attributable to Class A shares. The Plans for the
Class A shares of these Funds provide only for reimbursement of actual expenses.
For the year ended March 31, 1998, the Funds' Distributor received the
following fees for the distribution-related services, as set forth below, under
each Fund's Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Underwriters
---- ----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
California Tax-Free Money
Market $248,619 $33,470 $215,149 N/A
Government
Money Market $ 18 N/A $ 18 N/A
Money $751,911 $29,367 $722,543 N/A
Market
National Tax-
Free Money Market $ 0 $ 0 $ 0 N/A
Treasury Plus Money
Market $ 41,843 $41,826 $ 17 N/A
100% Treasury Money N/A N/A N/A N/A
Market
</TABLE>
For the periods indicated above, WFSI and its registered representatives
received no compensation under each Fund's Plan.
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and Non-Interested
Directors. Such Agreement will terminate automatically if assigned and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant Fund or by vote of a
majority of the Non-Interested Directors on not more than 60 days' written
notice. The Plans may not be
31
<PAGE>
amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plans require that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plans. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Funds have approved a Shareholder
---------------------------
Servicing Plan and have entered into related Shareholder Servicing Agreements
with financial institutions, including Wells Fargo Bank, on behalf of the Class
A shares. Under the agreements, Shareholder Servicing Agents (including Wells
Fargo Bank) agree to perform, as agents for their customers, administrative
services, with respect to Fund shares, which include aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For providing
shareholder services, a Servicing Agent is entitled to a fee from the applicable
Fund, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The amounts payable under
the Shareholder Servicing Plan and Agreements are shown below. The Servicing
Plan 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 Plan or related Agreements that exceed the maximum amounts
payable under the Conduct Rules of the NASD.
32
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
California Tax-Free Money Market 0.30%
Government Money Market 0.25%
Money Market 0.30%
National Tax-Free Money Market 0.25%
Treasury Plus Money Market 0.30%
100% Treasury Plus Money Market 0.30%
</TABLE>
For the period indicated below, the dollar amounts of shareholder servicing
fees paid for each class by the Funds to Wells Fargo Bank or its affiliates were
as follows:
<TABLE>
<CAPTION>
Year-Ended
Fund 3/31/98
---- -----------
<S> <C>
California Tax-Free Money Market
Class A $ 4,865,940
Money Market
Class A $16,168,012
Government Money Market
Class A $ 170,050
National Tax-Free Money Market $ 0
Treasury Plus Money Market
Class A $ 466,221
100% Treasury Money Market
Class A N/A
</TABLE>
For the periods indicated below, the dollar amounts of shareholder
servicing fees paid by the Funds to Wells Fargo Bank or its affiliates were as
follows:
33
<PAGE>
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended
Fund 3/31/97 9/30/96
---- ------- -------
<S> <C> <C>
California Tax-Free Money Market $1,914,675 $ 344,032
Money Market $6,287,325 $7,594,481
Government Money Market $ 73,835 $ 155,369
National Tax-Free Money Market $ 0 $ 0
Treasury Plus Money Market $ 68,907 $ 153,899
100% Treasury Plus Money Market N/A N/A
</TABLE>
Government Money Market and Treasury Plus Money Market 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
Government Money Market and Treasury Plus Money Market Funds, except that for
the same period, and under similar service agreements with certain institutions,
including affiliates of FICM, payments were made to various institutions for the
Treasury Plus Money Market 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.
General. The Servicing Plan will continue in effect from year to year
-------
if such continuance is approved by a majority vote of the Directors of the
Company, including a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form
of Servicing Agreement related to the Servicing Plan also must be approved by
such vote of the Directors and 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 Plan or related
Servicing Agreements may be made except by a majority of both the Directors of
the Company and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes 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 receives a net
asset-based fee charge at the annual rate of 0.0167%, payable monthly, plus
specified transaction charges. Wells Fargo Bank also provides portfolio
accounting services under the Custody Agreement, and receives fees for such
services 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.
34
<PAGE>
For the year ended March 31, 1998, the Funds paid the following amount for
custody or portfolio accounting services to Wells Fargo Bank.
<TABLE>
<CAPTION>
Custody Fees
Fund Paid 3/31/98
---- ------------
<S> <C>
California Tax-Free Money Market $ 285,406
Government Money Market $ 11,359
Money Market $1,049,145
National Tax-Free Money Market $ 6,189
Treasury Plus Money Market $ 301,633
100% Treasury Money Market N/A
</TABLE>
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 attributable to Class A shares.
For the year ended March 31, 1998, the Funds paid the following amounts for
transfer and dividend disbursing agency services to Wells Fargo Bank:
<TABLE>
<CAPTION>
Transfer Agency
Fund Fees Paid 3/31/98
---- -----------------
<S> <C>
California Tax-Free Money Market $1,621,980
Government Money Market $ 68,020
Money Market $6,246,988
National Tax-Free Money Market $ 19,943
Treasury Plus Money Market $1,014,143
100% Treasury Money Market N/A
</TABLE>
Underwriting Commissions. The Funds do not assess any front-end sales
------------------------
loads or contingent deferred sales charges in connection with the purchase and
redemption of shares, and therefore pay no underwriting commissions to the
Distributor.
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.
35
<PAGE>
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.
Performance shown or advertised for the Class A shares of the Government
Money Market Fund for periods prior to September 6, 1996, reflects performance
of the Pacifica Government Money Market Fund, a predecessor portfolio with the
same investment objective and policies as the Government Money Market Fund.
Performance shown or advertised for the Class A shares of the Treasury Plus
Money Market Fund for periods prior to September 6, 1996, reflects performance
of the Service Class shares of the Pacifica Treasury Money Market Fund, a
predecessor portfolio with the same investment objective and policies and the
Treasury Plus Money Market Fund.
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 March 31, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three One
Fund Inception Year Year Year
---- --------- ----- ---- ----
<S> <C> <C> <C> <C>
California Tax-Free Money Market 2.64% 2.65% 2.92% 2.91%
Government Money Market 5.33% 4.37% 4.93% 4.93%
Money Market 4.22% 4.42% 5.00% 5.07%
National Tax-Free Money Market 2.91% N/A N/A 2.93%
Treasury Plus Money Market 5.47% 4.42% 5.06% 5.06%
100% Treasury Money Market N/A N/A N/A N/A
</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
36
<PAGE>
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 March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three
Fund Inception Year Year
---- --------- ---- ----
<S> <C> <C> <C>
California Tax-Free Money Market 17.72% 13.96% 9.01%
Government Money Market 67.61% 23.82% 15.55%
Money Market 26.86% 24.16% 15.76%
National Tax-Free Money Market 5.91% N/A N/A
Treasury Plus Money Market 94.61% 24.16% 16.04%
100% Treasury Money Market N/A N/A N/A
</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
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
37
<PAGE>
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 March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Seven-Day Thirty-Day
Seven-Day Effective Tax-Equivalent Thirty-Day Tax-Equivalent
Fund Yield Yield Yield/1/ Yield Yield/1/
---- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
California Tax-Free Money
Market 2.78% 2.82% 5.07% 2.50% 4.56%
Government Money Market
4.87% 4.99% N/A 4.85% N/A
Money Market 4.93% 5.09% N/A 4.93% N/A
National Tax-Free Money
Market 2.73% 2.77% 3.79% 2.57% 3.57%
Treasury Plus Money Market
4.93% 5.06% N/A 4.90% N/A
100% Treasury Plus Money N/A N/A N/A N/A N/A
Market
</TABLE>
- --------------------
1 Based on a combined state and federal income tax rate of 45.22%, except for
the National Tax-Free Money Market Fund which is based on a federal 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 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
38
<PAGE>
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 an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which
39
<PAGE>
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 and the total amount of assets and mutual fund
assets managed by Wells Fargo Bank. As of August 1, 1998, Wells Fargo Bank and
its affiliates provided investment advisory services for approximately $63
billion of assets of individual, trusts, estates and institutions and $32
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
40
<PAGE>
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 A shares of the Government Money
Market, 100% Treasury Money Market and Money Market Funds is determined as of
12:00 noon (Pacific time) on each day such Funds are open for business. Net
asset value per share for the Class A shares of the California Tax-Free Money
Market and National Tax-Free Money Market Funds is determined as of 9:00 a.m.
(Pacific time) on each day such Funds are 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. Net asset
value per share of the Treasury Plus Money Market Fund is determined as of 2:00
p.m. (Pacific time) on each day Wells Fargo Bank is open for business.
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
41
<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 Rule 2a-7, 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 of the Funds may be purchased on any day the Funds are open for
business (a "Business Day"). The Funds are open on any day Wells Fargo Bank is
open. Wells Fargo Bank 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.
42
<PAGE>
Purchase orders for a Fund received before such Fund's NAV calculation time
generally are processed at such time on that Business Day. Purchase Orders
received after a Fund's NAV calculation time generally are processed at such
Fund's NAV calculation time on the next Business Day. Selling Agents may
establish earlier cut-off times for processing your order. Requests received by
a Selling Agent after the applicable cut-off time will be processed on the next
Business Day. On any day the trading markets for both U.S. government
securities and money market instruments close early, the Funds will close early.
On these days, the net asset value calculation time and the dividend, purchase
and redemption cut-off times for the Funds may be earlier than 12:00 Noon.
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
43
<PAGE>
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 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
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Funds did not pay any brokerage commissions on
---------------------
portfolio transactions for the last three fiscal years ended March 31, 1998.
Securities of Regular Broker/Dealers. As of March 31, 1998, 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>
California Tax-Free Money None None
Market
Money Market Goldman Sachs & Co. $130,761,978
J.P. Morgan Securities $274,907,113
Merrill Lynch $199,098,292
Morgan Stanley $304,047,750
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
- ---- -------------- ------
<S> <C> <C>
Government Goldman Sachs & Co. $ 9,984,000
Money Market HSBC Securities $ 10,426,000
J.P. Morgan Securities $ 493,000
National Tax-Free Money None None
Market
Treasury Money Goldman Sachs & Co. $ 64,665,000
Market HSBC Securities $310,024,000
J.P. Morgan Securities $215,434,000
Morgan Stanley $389,735,000
</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 Stephens, the Company bears all costs of
its operations, including the compensation of its Directors who are not
affiliated with Stephens or Wells Fargo Bank or any of their affiliates;
advisory, shareholder servicing and administration fees; payments pursuant to
any Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming shares; expenses of preparing and printing prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the net asset value per share of a
Fund; expenses of shareholders' meetings; expenses relating to the issuance,
registration and
45
<PAGE>
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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 each Fund (a) 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) 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared in October, November or December of one taxable year and paid by
January 31 of the following taxable year
46
<PAGE>
will be treated as paid by December 31 of the first 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 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 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
47
<PAGE>
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 a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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 have 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 20%; 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
48
<PAGE>
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 tax payment
on the shareholder's Federal income tax return. An investor must provide a valid
TIN upon opening or reopening an account. Failure to furnish a valid TIN to the
Company also could subject the investor to penalties imposed by the IRS.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Funds 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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 that 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 for California Tax-Free Money Market Fund and
- ------------------------------------------------------------------------
National Tax-Free Money Market Fund
- -----------------------------------
General
The California Tax-Free Money Market Fund and National Tax-Free Money
Market Fund intend that at least 50% of the value of its total assets at the
close of each quarter of its taxable years will consist of obligations the
interest on which is exempt from Federal income tax, so that they will qualify
under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by the Funds with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. In general, exempt-interest dividends will be
exempt from Federal income taxation in the hands of the Funds' shareholders.
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,
49
<PAGE>
respectively. The exemption of interest income derived from investments in tax-
exempt obligations for Federal income tax purposes may not result in a similar
exemption under the laws of a particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, the Funds will
notify its respective 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. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a
corporate shareholder of such Funds, exempt-interest dividends paid by a Fund is
included in the corporate shareholder's "adjusted current earnings" as part of
its AMT calculation, and may also affect its Federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT at
a maximum rate of 28% and corporations at a maximum rate of 20%. Shareholders
with questions or concerns about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends, including distributions
of interest in municipal securities issued by other issuers and all long-term
and short-term capital gains will be subject to state income tax unless
specifically exempted by statute.
Shares of the California Tax-Free Money Market Fund or National Tax-Free
Money Market 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 (including Education IRAs, Spousal IRAs and Roth IRAs) since
such plans and accounts are generally tax-exempt and, therefore, would not
benefit from the exempt status of dividends from the Funds.
California Tax-Free Money Market Fund
50
<PAGE>
Individuals, trusts and estates resident in California will not be subject
to California personal income tax on dividends from the California Tax-Free
Money Market 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 Money Market Fund, including distributions
of interest on municipal obligations issued by other issuers and all capital
gains.
Except as noted above with respect to California personal income taxation
of individuals, trusts and estates resident in California, dividends and
distributions from the California Tax-Free Money Market 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 Money Market Fund should consult
their own tax advisors about other state and local tax consequences of their
investments in the Fund, including 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 Money Market Fund and encourages such investors to consult with their
own tax advisors.
National Tax-Free Money Market 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 Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are six 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.
51
<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 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 Investor Services
at 1-800-222-8222 if you would like additional information about other funds or
classes of shares offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
a 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.
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
52
<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 June 30, 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 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 a Fund as a whole.
5% OWNERSHIP AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- ----------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-FREE Wells Fargo Bank Class A 72.94% 72.94%
MONEY MARKET P.O. Box 7066 Beneficially Owned
San Francisco, CA 94120
Virg. & Co. Class A 10.90% 10.90%
Attn: MF Dept. A88-4
POB 9800
Calabasas, CA 91372-0800
Dean Witter Reynolds Class A 5.19% 5.19%
FBO Wells Fargo Securities Inc.
5 World Trade Center
6th Floor
New York, NY 10048
MONEY MARKET Wells Fargo Bank Class A 93.38% 80.46%
P.O. Box 7066 Beneficially Owned
San Francisco, CA 94120
GOVERNMENT Wells Fargo Bank (Trustee) Class A 38.46% 38.44%
MONEY MARKET Choicemaster Record Holder
Attn: Mutual Funds A88-4
P.O. Box 9800
Calabasas, CA 91372
First Interstate Bank of California Class A 42.63% 42.62%
Attn: Fund Accounting ACM Desk Record Holder
26610 W. Agoura Road
Calabasas, CA 91302
Dean Witter Reynolds Class A 5.19% 5.19%
FBO Wells Fargo Securities Inc.
5 World Trade Center
6th Floor
New York, NY 10048
NATIONAL TAX- Wells Fargo Bank Class A 83.01% 83.01%
FREE MONEY P.O. Box 7066 Beneficially Owned
MARKET San Francisco, CA 94120
Dean Witter Reynolds Class A 6.22% N/A
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center
6th Floor
New York, NY 10048
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
100% TREASURY MONEY Stephens Inc. Class A 100% 50%
MARKET 111 Center Street Record Holder
Little Rock, AR 72201
</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 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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds' Prospectus.
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 portfolios of investments, audited financial statements and
independent auditors' report for the Funds, with the exception of the 100%
Treasury Money Market Fund, as of and for the year ended March 31, 1998 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on June 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
54
<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: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 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
OVERLAND EXPRESS SWEEP FUND (the "Fund").
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated August 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........................................... 16
Determination of Net Asset Value................................... 20
Additional Purchase and Redemption Information..................... 22
Portfolio Transactions............................................. 23
Fund Expenses...................................................... 24
Federal Income Taxes............................................... 25
Capital Stock...................................................... 29
Other.............................................................. 30
Counsel............................................................ 30
Independent Auditors............................................... 31
Financial Information.............................................. 31
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 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;
1
<PAGE>
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of 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.
2
<PAGE>
(4) The Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of the Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Fund will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
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.
3
<PAGE>
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 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 Federal Deposit Insurance
Corporation ("FDIC"); (c) 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 Ratings Group ("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
4
<PAGE>
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 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 or S&P may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the 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.
5
<PAGE>
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.
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:
. 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 instruments that bear
6
<PAGE>
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.
<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 Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
7
<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; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Wells Fargo Fund Complex
- ------------------------ ---------------- ------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
8
<PAGE>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated below 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 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 0.45% 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>
Three-Month
Period Ended
3/31/98
----------
Fund Fees Paid Fees Waived
- ---- ---------- ------------
<S> <C> <C>
Overland Express Sweep $2,679,378 $104,602
</TABLE>
9
<PAGE>
For the year ended December 31, 1997, the Fund paid to Wells Fargo Bank
$5,540,534 in advisory fees and Wells Fargo Bank did not waive any advisory
fees. Prior to December 12, 1997, this amount reflects fees paid by the
Overland predecessor portfolio.
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 periods indicated below, the Master Portfolio paid to Wells Fargo Bank
the following advisory fees and Wells Fargo Bank waived the indicated amounts:
Year Ended Year Ended
12/31/96 12/31/95
-------- --------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
$3,310,083 $0 $1,902,572 $255,082
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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Funds' average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from the Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by the
Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or
directly by the Fund. If the sub-advisory fee is paid directly by the Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under the respective Administration and Co-Administration
Agreements among
10
<PAGE>
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 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 received 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.
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.
For the period indicated below, the Fund paid to Wells Fargo Bank and
Stephens the dollar amounts in administration and co-administration fees
indicated below.
<TABLE>
<CAPTION>
<S> <C> <C>
Three-Month
Period Ended
3/31/98
--------
Total Wells Fargo Stephens
----- ----------- --------
$409,092 $274,092 $135,000
</TABLE>
For the period indicated below, the Fund paid to Wells Fargo Bank and
Stephens the dollar amounts in administration and co-administration fees
indicated below. Prior to December 12, 1997, these amounts reflect fees paid by
the Overland predecessor portfolio.
Year Ended
12/31/97
--------
Total Wells Fargo Stephens
----- ----------- --------
$1,211,007 $242,201 $968,806
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
11
<PAGE>
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 Overland predecessor portfolio paid
the following dollar amounts to Stephens for administration fees:
Year Ended Year Ended
12/31/96 12/31/95
-------- --------
$317,668 $215,624
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Fund. The Fund has
adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for its shares. The 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 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 fiscal year ended December 31, 1997, the Fund's Distributor
received the fees indicated below for distribution-related services, as set
forth below, under the Fund's Plan.
12
<PAGE>
Printing & Marketing Compensation
Total Mailing Prospectus Brochures to Underwriters
----- ------------------ --------- ---------------
$11,332,851 N/A N/A $11,326,189
As of January 1, 1998, the Fund changed its fiscal year end from December
31, 1998 to March 31, 1998. For the three month period ended March 31, 1998,
the Fund's Distributor received the fees indicated below for distribution-
related services, as set forth below, under the Fund's Plan.
<TABLE>
<CAPTION>
Printing & Marketing Compensation
Total Mailing Prospectus Brochures to Underwriters
----- ------------------ --------- ---------------
<S> <C> <C> <C>
$1,855,987 $216 $27,747 $1,828,020
</TABLE>
For the year ended December 31, 1997, and the period ended March 31, 1998,
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
13
<PAGE>
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 related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank, on behalf of its 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 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 March 31, 1998, the Fund paid to Wells Fargo Bank or its
affiliates $1,855,987 in shareholder servicing fees.
For the year ended December 31, 1997, the Fund paid to Wells Fargo Bank or
its affiliates $6,951,112 in shareholder servicing fees. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor portfolio.
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,
14
<PAGE>
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 the Consolidation, Wells Fargo Bank served as Custodian to the
predecessor portfolio.
For the year ended December 31, 1997, the predecessor portfolio did not pay
any custody fees to Wells Fargo Bank.
For the three-month period ended March 31, 1998, the Fund paid the
following dollar amounts in custody fees, after waivers, to Wells Fargo
Bank:
<TABLE>
<CAPTION>
Fund Custody Fees
---- ------------
<S> <C>
Overland Express Sweep $104,821
</TABLE>
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, 1997, the Fund paid $510,100 in
compensation for transfer and dividend disbursing agency services to Wells Fargo
Bank. Prior to December 12, 1997, this amount reflects fees paid by the
Overland predecessor portfolio.
For the three-month period ended March 31, 1998, the Fund 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>
Overland Express Sweep $618,662
</TABLE>
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.
15
<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 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 12, 1997, reflects the performance of the Overland predecessor
portfolio.
TOTAL RETURN: The Fund may advertise certain total return information. As
------------
and to the extent required by the SEC, an average annual compound rate of return
("T") is computed by using the redeemable value at the end of a specified period
("ERV") of a hypothetical initial investment ("P") over a period of years ("n")
according to the following formula: P(1+T)n=ERV.
Average Annual Total Return for the Applicable Period Ended March 31,
1998
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three One
Inception Year Year Year
--------- ---- ---- ----
<S> <C> <C> <C> <C>
Overland Express Sweep 3.58% 3.85% 4.49% 4.52%
</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,
16
<PAGE>
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 March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three
Inception Year Year
--------- ---- ----
<S> <C> <C> <C>
Overland Express Sweep 25.68% 20.82% 14.08%
</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 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
17
<PAGE>
Yield for the Applicable Period Ended March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective
Yield Yield
----- -----
<S> <C> <C>
Overland Express Sweep 4.46% 4.56%
</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. 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
18
<PAGE>
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
Ratings 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."
19
<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. 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 August 1,
1998, Wells Fargo Bank and its affiliates provided investment Advisory services
for approximately $63 billion of assets of individual, trusts, estates and
institutions and $32 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.
(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
20
<PAGE>
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 remaining until the next readjustment of
21
<PAGE>
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 of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day Wells Fargo Bank is open for
trading (a "Business Day"). Currently, Wells Fargo Bank 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, Wells Fargo Bank typically is
closed on the weekday immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Fund will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make
payment for redemption in securities or other property if it appears appropriate
to do so in light of the Company's responsibilities under the 1940 Act. In
addition, the Company may redeem shares involuntarily to reimburse the Fund for
any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.
22
<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 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 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 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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. For the three years ended March 31, 1998, the Fund
---------------------
did not pay any brokerage commissions.
23
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1998, 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. $254,835,222
HSBC Securities $ 85,000,000
J.P. Morgan Securities $ 73,097,000
Merrill Lynch $ 79,771,833
Morgan Stanley $ 26,961,000
</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.
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 net asset value per share of the Fund;
expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services and any
extraordinary expenses. Expenses attributable to the Fund are charged against
Fund assets. General expenses of the Company are allocated among all
24
<PAGE>
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.
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 Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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 also must distribute or be deemed to distribute to its
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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
25
<PAGE>
first 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 generally will 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a
26
<PAGE>
taxable capital gain or loss, depending on the amount received for the shares
(or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if the IRS
27
<PAGE>
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 tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Company could also subject the investor to penalties imposed by
the IRS.
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of capital gains are generally not subject to
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, 1999, 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.
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.
28
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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 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
Investor 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.
29
<PAGE>
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.
Set forth below, as of June 30, 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 Fund.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
Class; Type Percentage
Fund Name and Address of Ownership of Fund
- ---- ---------------- ------------ -------
OVERLAND WFB-Wholesale Sweep Single Class 100.00%
EXPRESS SWEEP 3440 Walnut Avenue, Building B Record Holder
FUND Attn: Mimi Johnson, MAC 0247-018
Fremont, CA 94538-2210
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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
30
<PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report as of and for the three-month period ended March 31, 1998, are
hereby incorporated by reference to the Company's Annual Report as filed with
the SEC on June 10, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
31
<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 August 1, 1998
PRIME MONEY MARKET 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 a fund in the Stagecoach Family of Funds -- the
PRIME MONEY MARKET 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 August 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>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................. 1
Investment Restrictions................................................. 1
Additional Permitted Investment Activities.............................. 3
Risk Factors............................................................ 11
Management.............................................................. 12
Performance Calculations................................................ 22
Determination of Net Asset Value........................................ 27
Additional Purchase and Redemption Information.......................... 28
Portfolio Transactions.................................................. 29
Fund Expenses........................................................... 30
Federal Income Taxes.................................................... 31
Capital Stock........................................................... 34
Other................................................................... 37
Counsel................................................................. 37
Independent Auditors.................................................... 37
Financial Information................................................... 38
Appendix................................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Prime Money Market 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 (the "predecessor portfolio") was reorganized as the
Company's Prime Money Market Mutual Fund. The word "Mutual" was dropped from the
name of each of the Company's Money Market Funds as of August 1, 1998.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
The Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of the
Fund.
The Fund may not:
(1) purchase 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;
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 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>
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 ("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
3
<PAGE>
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 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
4
<PAGE>
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.
Foreign Obligations
-------------------
The Prime Money Market 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
5
<PAGE>
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.
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
6
<PAGE>
("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.
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
7
<PAGE>
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 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.
8
<PAGE>
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 its
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 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
9
<PAGE>
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 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
10
<PAGE>
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 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 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:
. capped floaters (on which interest is not paid when market rates
move above a certain level);
. leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
11
<PAGE>
. 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.
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.
12
<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.
Peter G. Gordon, 54 Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Director Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens, Inc., Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
13
<PAGE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- --------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
14
<PAGE>
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 the fund complexes 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 periods 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
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Prime Money Market $1,174,300 $3,028,364 $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 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 Fund.
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:
15
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
9/30/96
-------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Prime Money Market $1,845,269 $1,553,968
</TABLE>
For the period indicated below, the advisory fees paid to the former
adviser by the predecessor portfolio of the Fund were as shown below. This
amount reflects voluntary fee waivers and expense reimbursements by the
advisor.
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/95
---- -------
<S> <C>
Prime Money Market $ 693,315
</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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to the Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Fund's assets. WCM furnishes to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Fund. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from the Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by the
Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or directly
by the Fund. If the sub-advisory fee is paid directly by the Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
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
16
<PAGE>
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 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
Year-Ended Period Ended
3/31/98 3/31/97
---------- ------------
Wells Wells
Fund Total Fargo Stephens Total Fargo Stephens
---- ----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market $1,047,654 $701,928 $345,726 $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.
17
<PAGE>
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>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Prime Money Market $1,230,872
</TABLE>
During the fiscal year ended September 30, 1995, the administration fees
paid to Dreyfus by the predecessor portfolio of the Fund were as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/95
---- -------
<S> <C>
Prime Money Market $577,763
</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.
18
<PAGE>
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 year-ended March 31, 1998, 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:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Prime Money Market --
Class A $40,529 $993 $39,536 N/A
</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 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
19
<PAGE>
that the Plan is reasonably likely to benefit the Fund and its shareholders
because the Plan authorizes the relationships with selling agents, including
Wells Fargo Bank, that have previously developed distribution channels and
relationships with the retail customers that the Fund is designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
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
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- ------- -------
<S> <C> <C>
Prime Money Market $996,870 $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 $ 801,388
</TABLE>
20
<PAGE>
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 ("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 year-ended March 31, 1998, the Fund paid the following custody
fees, after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Year Ended
Fund 3/31/98
---- -------
<S> <C>
Prime Money Market $ 280,730
</TABLE>
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 of the Class A shares.
For the year-ended March 31, 1998, the Fund paid the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers, to Wells
Fargo Bank:
Year-Ended
3/31/98
-------
$853,431
21
<PAGE>
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") 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.
22
<PAGE>
Average Annual Total Return for the Applicable Period Ended March 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund One Year Three Year Five Year Ten Year
---- -------- ---------- --------- --------
<S> <C> <C> <C> <C>
Prime Money Market Class A 5.24% 5.25% 4.57% 5.46%
</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 March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Three Year Five Year Ten Year
---- ---------- --------- --------
<S> <C> <C> <C>
Prime Money Market - Class A 16.60% 25.04% 70.18%
</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. "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
23
<PAGE>
Yield for the Applicable Period Ended March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Prime Money Market - Class A 5.14% 5.27% 5.06%
</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 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;
24
<PAGE>
(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 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
25
<PAGE>
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 August 1, 1998, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $63 billion of assets of
individual, trusts, estates and institutions and $32 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 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.
26
<PAGE>
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 (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 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.
27
<PAGE>
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 on any day Wells Fargo Bank is open. Wells
Fargo Bank 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 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 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.
28
<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 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 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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the three years ended March 31, 1998.
29
<PAGE>
Securities of Regular Broker/Dealers. As of March 31, 1998, 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 Goldman Sachs & Co. $270,904,000
J.P. Morgan Securities $140,088,599
Merrill Lynch $ 74,117,500
Morgan Stanley $164,688,217
</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; 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.
30
<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 Fund. This section of the SAI includes
additional information concerning Federal 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 Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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 also must distribute or be deemed to distribute to its
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions declared
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. 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
31
<PAGE>
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 generally will 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
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
32
<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 a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, 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-month 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could
subject the investor to penalties imposed by the IRS.
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. fiduciaries have authority to control
substantial decisions of that trust), foreign estate (i.e., the income of
33
<PAGE>
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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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
34
<PAGE>
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
Investor 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 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 June 30, 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
35
<PAGE>
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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
PRIME MONEY Virg & Co. Class A 28.31% 6.03%
MARKET FUND Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hare & Co. Class A 44.30% 9.43%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
Dean Witter Reynolds Class A 24.38% 5.19%
FBO Wells Fargo Record Holder
Securities Inc.
5 World Trade Center
6th Floor
New York, NY 10048
Wells Fargo Bank Institutional Class 6.00% N/A
Attn: Investment Sweep T-15 Record Holder
1300 SW Fifth Avenue
Portland, OR 97201
Hare & Co. Institutional Class 13.55% 12.70%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
Virg. & Co. Institutional Class 42.04% 12.70%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 8900
Calabasas, CA 91372
PRIME MONEY Virg. & Co. Service Class 10.63% N/A
MARKET FUND 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 36.64% 8.94%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005
Wired Ventures Inc. Administrative Class 9.87% N/A
Attn: Spero Matthews Record Holder
520 3rd Street
San Francisco, CA 94107
</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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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
37
<PAGE>
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the year ended March 31, 1998 are hereby
incorporated by reference to the Company's Annual Reports as filed with the SEC
on June 9, 1998.
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 August 1, 1998
PRIME MONEY MARKET FUND
TREASURY PLUS MONEY MARKET 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 -- the
PRIME MONEY MARKET and TREASURY PLUS MONEY MARKET FUNDS (each a "Fund" and
collectively, the "Funds") . The word "Mutual" was removed from the name of
each of the Company's money market 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 August 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 OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................ 1
Investment Restrictions................................................ 1
Additional Permitted Investment Activities............................. 3
Risk Factors........................................................... 11
Management............................................................. 13
Performance Calculations............................................... 20
Determination of Net Asset Value....................................... 25
Additional Purchase and Redemption Information......................... 27
Portfolio Transactions................................................. 27
Fund Expenses.......................................................... 29
Federal Income Taxes................................................... 29
Capital Stock.......................................................... 33
Other.................................................................. 37
Counsel................................................................ 37
Independent Auditors................................................... 37
Financial Information.................................................. 38
Appendix............................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Prime Money Market 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 Fund. The Administrative Class shares commenced operations on
December 15, 1997. Performance shown or advertised for the Administrative Class
shares of the Funds for periods prior to December 15, 1997, the commencement of
operations for such shares, reflects the performance of the Service Class shares
of the respective Fund.
The Treasury Plus Money Market 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 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 Fund. The word "Plus" was added to the Fund's name on August 1,
1998.
The Administrative Class shares commenced operations on December 15, 1997.
Performance shown or advertised for the Administrative Class shares of the Funds
for periods prior to December 15, 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 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
1
<PAGE>
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 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
<PAGE>
(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. 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 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 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
3
<PAGE>
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Prime Money Market 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
4
<PAGE>
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
-------------------
The Prime Money Market 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.
5
<PAGE>
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 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 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.
6
<PAGE>
Mortgage-Backed Securities
--------------------------
The Prime Money Market 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 Prime Money Market 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.
7
<PAGE>
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 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
8
<PAGE>
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 Fund (but not the Treasury Plus Money Market 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.
9
<PAGE>
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 Plus Money
Market 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 Plus Money Market 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 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
10
<PAGE>
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 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 Plus Money Market 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:
11
<PAGE>
. capped floaters (on which interest is not paid when market rates
move above a certain level);
. leveraged floaters (whose interest rate reset provisions are based
on a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are tied
to more than one index so that a change in the relationship between
these indices may result in the value of the instrument falling
below face value); and
. inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Funds may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Funds may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Plus Money Market 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.
12
<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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------- ---------------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $34,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
14
<PAGE>
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 periods 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
Year-Ended Period Ended
3/31/98 3/3197
----------- -------------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Prime Money Market $1,174,300 $3,028,364 $1,311,073 $568,969
Treasury Plus Money Market $1,216,164 $3,368,585 $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 and Treasury Plus Money Market
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
15
<PAGE>
Bank became the advisor to the Company's Prime Money Market Mutual and Treasury
Plus Money Market 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 $1,845,269 $1,553,968
Treasury Plus Money Market $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 Plus Money Market 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>
Year Ended
Fund 9/30/95
---- ----------
<S> <C>
Prime Money Market $ 693,315
Treasury Plus Money Market $1,160,424
</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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of each
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of
16
<PAGE>
$120,000 from each Fund. This minimum annual fee payable to WCM does not
increase the advisory fee paid by the Funds to Wells Fargo Bank. These fees may
be paid by Wells Fargo Bank or directly by each Fund. If the sub-advisory fee is
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees will be reduced accordingly.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of each Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Funds' operations, including coordination of the services performed by
each Fund's investment advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy statements and shareholder
reports for each Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's officers and Board of Directors. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the Funds'
business together with ordinary clerical and bookkeeping services. Stephens
pays the compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee 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 the Fund's average daily net assets.
For the periods 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
Year-Ended Period Ended
3/31/98 3/31/97
----------- ------------
Wells Wells
Fund Total Fargo Stephens Total Fargo Stephens
---- ----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market $1,047,654 $701,928 $345,726 $400,123 $80,025 $320,098
Treasury Plus Money Market $1,133,896 $759,710 $374,186 $483,198 $96,640 $386,558
</TABLE>
17
<PAGE>
The Pacifica Prime Money Market and Treasury Money Market Funds were
reorganized as the Company's Prime Money Market and Treasury Plus Money Market
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 and Treasury Plus
Money Market 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
begun October 1, 1996 and ended 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.
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- ----------
<S> <C>
Prime Money Market $1,230,872
Treasury Plus Money Market $1,745,759
</TABLE>
During the fiscal year ended September 30, 1995, the administration fees
paid to Dreyfus by the predecessor portfolios of the Prime Money Market and
Treasury Plus Money Market Funds were as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/95
---- ----------
<S> <C>
Prime Money Market $577,763
Treasury Plus Money Market $921,886
</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
Administrative Class shares, with financial institutions, including Wells Fargo
Bank. Under the agreement, Shareholder
18
<PAGE>
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").
For the period begun December 15, 1997 and ended March 31, 1998, the
following amounts of shareholder servicing fees were paid by the Funds'
Administrative Class shares:
<TABLE>
<CAPTION>
Shareholder
Fund Servicing Fees
---- --------------
<S> <C>
Prime Money Market $320,205
Treasury Plus Money Market $ 82,533
</TABLE>
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
19
<PAGE>
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 year-ended March 31, 1998, 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 $280,730
Treasury Plus Money Market $301,633
</TABLE>
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 year-ended March 31, 1998, 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 $ 853,431
Treasury Plus Money Market $1,014,143
</TABLE>
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
20
<PAGE>
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 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.
Performance shown or advertised for the Administrative Class shares of the
Treasury Plus Money Market 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 March 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Administrative Ten Five Three One
Class Year Year Year Year
-------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Prime Money Market 5.46% 4.68% 5.32% 5.18%
Treasury Money Market 5.25% 4.54% 5.15% 5.01%
</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.
Cumulative Total Return for the Applicable Period Ended March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Administrative Ten Five Three
Class Year Year Year
-------------- ------ ------ ------
<S> <C> <C> <C>
Prime Money Market 70.18% 25.78% 16.82%
Treasury Money Market 67.00% 89.65% 24.87%
</TABLE>
21
<PAGE>
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.
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
5.39% for thirty-day yield), with the resulting yield figure carried to at
5.18%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 March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Prime Money Market 5.39% 5.54% 5.31%
Treasury Plus Money Market 5.18% 5.32% 5.15%
</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
22
<PAGE>
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 include in advertising and other types of literature information and
other data from reports and
23
<PAGE>
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 August 1, 1998, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $63 billion of assets of individual, trusts,
estates and institutions and $32 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
24
<PAGE>
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 of the Prime Money Market Mutual Fund is
determined as of 12:00 noon (Pacific time) on each day the Fund is open for
business. Net asset value per share of the Treasury Plus Money Market Fund is
determined as of 2:00 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
25
<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.
26
<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 on any day Wells Fargo Bank is open. Wells Fargo
Bank 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.
Purchase orders for a Fund received before such Fund's NAV calculation time
generally are processed at such time on that Business Day. Purchase orders
received after a Fund's NAV calculation time generally are processed at such
Fund's NAV calculation time on the next Business Day. Selling Agents may
establish earlier cut-off times for processing your order. Requests received by
a Selling Agent after the applicable cut-off time will be processed on the next
business 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
27
<PAGE>
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Funds did not pay any brokerage commissions on
---------------------
portfolio transactions for the past three years-ended March 31, 1998.
Securities of Regular Broker/Dealers. As of March 31, 1998, 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 Goldman Sachs & Co. $270,904,000
J.P. Morgan $140,088,599
Merrill Lynch $ 74,117,500
Morgan Stanley $164,688,217
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Treasury Plus Money Market Goldman Sachs & Co. $ 64,665,000
HSBC Securities $310,024,000
J.P. Morgan Securities $215,434,000
Morgan Stanley $389,735,000
</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 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 Prospectuses of each Fund
describe generally the tax
29
<PAGE>
treatment of distributions by the Funds. This section of the SAI includes
additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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.
30
<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 generally will 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 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
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
31
<PAGE>
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month 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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is
32
<PAGE>
"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. persons will apply. Distributions of net long-term capital
gains are generally not subject to 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, 1999, 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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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,
33
<PAGE>
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
Investor 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.
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 June 30, 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.
34
<PAGE>
5% OWNERSHIP AS OF JUNE 30, 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 FUND Wired Ventures Inc. Administrative Class 9.87% N/A
Attn: Spero Matthews Record Holder
520 3rd Street
San Francisco, CA 94107
Virg & Co. Class A 28.31% 6.03%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 44.30% 9.43%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 24.38% 5.19%
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
Wells Fargo Bank Institutional Class 6.00% N/A
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg & Co. Institutional Class 42.04% 12.70%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Institutional Class 13.55% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Virg & Co. Service Class 10.63% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Service Class 36.64% 8.94%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
TREASURY PLUS MONEY Wells Fargo Bank Agent Administrative Class 19.96% 1.37%
MARKET FUND FBO Orlandi #143242 Beneficially Owned
Mutual Funds #0187-112 AU #6971
201 Third Street 11th Fl
San Francisco, CA 94163
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Wells Fargo Bank Agent for Administrative Class 5.38% N/A
Interlink Computer Science 146952 Beneficially Owned
c/o SSP MAC 0187-112
201 Third Street 11th Fl
San Francisco, CA 94163
EKOS Corporation Administrative Class 6.57% N/A
22122 20th Avenue, S.E. Beneficially Owned
Suite 148
Bothell, WA 98021
Wells Fargo Bank Institutional Class 35.57% 8.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg. & Co. Institutional Class 28.57% 6.65%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Castle Tower Holding Corporation Institutional Class 8.93% N/A
510 Bering Drive, Suite 310 Record Holder
Houston, TX 77057
Hare & Co. Institutional Class 8.49% 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 29.50% 5.66%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
WFB-Wholesale Sweep Class A 45.09% 8.65%
155 Fifth St. MAC 0106-066 Record Holder
San Francisco, CA 94103
Hare & Co. Class A 5.28% N/A
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 15.09% N/A
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
Hare & Co. Class E 100.00% 35.93%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
</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 50.98% 7.52%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Wells Fargo Bank, TTEE Service Class 9.08% N/A
FBO Choicemaster Record Holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372-080
Virg. & Co. Service Class 20.05% N/A
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.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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
37
<PAGE>
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 portfolios of investments, audited financial statements and independent
auditors' reports for the Funds for the year ended March 31, 1998, are hereby
incorporated by reference to the Company's Annual Reports as filed with the SEC
on June 9th, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
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 August 1, 1998
PRIME MONEY MARKET FUND
TREASURY PLUS MONEY MARKET FUND
100% TREASURY MONEY MARKET 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 three funds in the Stagecoach Family of Funds (each
a "Fund" and collectively, the "Funds") -- the PRIME MONEY MARKET, TREASURY PLUS
MONEY MARKET and 100% TREASURY MONEY MARKET 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 August 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, Inc., 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............................................................. 13
Performance Calculations............................................... 21
Determination of Net Asset Value....................................... 26
Additional Purchase and Redemption Information......................... 28
Portfolio Transactions................................................. 29
Fund Expenses.......................................................... 30
Federal Income Taxes................................................... 31
Capital Stock.......................................................... 35
Other.................................................................. 39
Counsel................................................................ 39
Independent Auditors................................................... 39
Financial Information.................................................. 39
Appendix............................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Prime Money Market 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 Fund. The word "Mutual" was dropped from the name of each of the
Company's Money Market Funds as of August 1, 1998.
The Treasury Plus Money Market 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 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 Fund. The word "Plus" was added to the Fund's name as of August 1,
1998.
The 100% Treasury Money Market Fund commenced operations on August 1,
1998.
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 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. The Funds will not purchase securities while their
borrowings (including reverse repurchase agreements) in excess of 5% of their
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 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 their portfolio securities in excess of one-third of the value of
their 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
2
<PAGE>
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 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 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
3
<PAGE>
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.
Commercial Paper
----------------
The Prime Money Market 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, except the 100% Treasury Money Market Fund, 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
4
<PAGE>
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
-------------------
The Prime Money Market 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.
5
<PAGE>
Illiquid Securities
-------------------
The Funds, except the 100% Treasury Money Market 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 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 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 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.
6
<PAGE>
Mortgage-Backed Securities
--------------------------
The Prime Money Market 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 Prime Money Market 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.
7
<PAGE>
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 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, except the 100% Treasury Money Market Fund, may invest in shares
of other open-end management investment companies, up to the limits prescribed
in Section 12(d) of the 1940 Act. Under the 1940 Act, a Fund's investment in
such securities currently is limited to, subject to certain exceptions, (i) 3%
of the total voting stock of any one investment company, (ii) 5% of such Fund's
net assets with respect to any one investment company and (iii) 10% of such
Fund's net assets in aggregate. Other investment companies in which the 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, except the 100% Treasury Money Market 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.
8
<PAGE>
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 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.
9
<PAGE>
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 Plus Money
Market Fund and 100% Treasury Money Market 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 Plus Money Market Fund and 100% Treasury Money Market Fund may
invest only in obligations issued or guaranteed by the U.S. Treasury such as
bills, notes, bonds and certificates of indebtedness ("U.S. Treasury
obligations"). The Treasury Plus Money Market Fund may invest in notes and
repurchase agreements collateralized or secured by such obligations, whereas the
100% Treasury Money Market Fund may not. U.S. Treasury notes, bills and bonds
differ mainly in the length of their maturity. The U.S. Treasury obligations in
which the Funds invest 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 Plus Money Market Fund [, AND 100% TREASURY MONEY
MARKET FUND] 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 ("NRSROs")
------------------------------------------------------------------
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
10
<PAGE>
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 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 Plus Money Market Fund
and 100% Treasury Money Market 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 Prime Money Market Fund is considered to be diversified
for purposes of the 1940 Act. In
11
<PAGE>
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:
. capped floaters (on which interest is not paid when market rates
move above a certain level);
. leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest
rates move outside of a specified range);
. dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the relationship
between these indices may result in the value of the instrument
falling below face value); and
. inverse floaters (which reset in the opposite direction of their
index).
Additionally, the Funds may not invest in securities whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Funds may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Plus Money Market Fund and 100% Treasury Money Market Fund
restrict their 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
12
<PAGE>
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.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of
President and Stephens Inc.; President of
Chairman Stephens Insurance Services
Inc.; Senior Vice President
of Stephens Sports Management
Inc.; and President of
Investor Brokerage Insurance
Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting at
Wake Forest University since
1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of
Crystal Geyser Water Co. Crystal Geyser Water Company
55 Francisco Street and President of Crystal
San Francisco, CA 94133 Geyser Roxane Water Company
since 1977.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since 1971;
Valhalla, NY 10595 University Teachers College
since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
13
<PAGE>
Principal Occupations
Name, Age and Address Position During Past 5 years
- --------------------- -------- -------------------
*J. Tucker Morse, 53 Director Private Investor; Chairman of
4 Beaufain Street Home Account Network, Inc.
Charleston, SC 29401 Real Estate Developer;
Chairman of Renaissance
Properties Ltd.; President of
Morse Investment Corporation;
and Co-Managing Partner of
Main Street Ventures
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens
Officer, Inc.; Director of Stephens
Secretary and Sports Management Inc.; and
Treasurer Director of Capo Inc.
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- --------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
14
<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 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 periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
15
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
---------- ----------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Prime Money Market $1,174,300 $3,028,364 $1,311,073 $568,969
Treasury Plus Money Market $1,216,164 $3,368,585 $1,518,347 $751,971
100% Treasury Plus Money N/A N/A N/A N/A
Market
</TABLE>
Prime Money Market and Treasury Plus Money Market Fund Funds. The Pacifica
------------------------------------------------------------
Prime Money Market and Treasury Money Market Fund Funds were reorganized as the
Company's Prime Money Market and Treasury Plus Money Market Fund 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 Fund Funds. As of September 6, 1996, Wells Fargo Bank
became the advisor to the Company's Prime Money Market and Treasury Plus Money
Market Fund 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:
<TABLE>
<CAPTION>
Period Ended
9/30/96
-------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Prime Money Market $1,845,269 $1,553,968
Treasury Plus Money Market $2,442,922 $2,073,426
</TABLE>
For the period indicated below, the advisory fees paid to the former
advisor by the predecessor portfolios of the Prime Money Market and the Treasury
Plus Money Market Fund Funds were as shown below. This amount reflects
voluntary fee waivers and expense reimbursements by the advisor.
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/95
---- -------
<S> <C>
Prime Money Market $ 693,315
Treasury Plus Money Market $1,160,424
</TABLE>
16
<PAGE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of each
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from each Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by
each Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or
directly by the Funds. If the sub-advisory fee is paid directly by a Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
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 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 receive a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund. In connection with the change in fees,
the responsibility for performing various administration services was shifted to
the Co-Administrator.
17
<PAGE>
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 periods 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
Year-Ended Period Ended
3/31/98 3/31/97
---------- -------
Wells Wells
Fund Total Fargo Stephens Total Fargo Stephens
---- ----- ------ -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market $1,047,654 $701,928 $345,726 $400,123 $80,025 $320,098
Treasury Plus Money $1,133,896 $759,710 $374,186 $483,198 $96,640 $386,558
Market
100% Treasury Money N/A N/A N/A N/A N/A N/A
Market
</TABLE>
Prime Money Market and Treasury Plus Money Market Fund Funds. The Pacifica
------------------------------------------------------------
Prime Money Market and Treasury Money Market Fund Funds were reorganized as the
Company's Prime Money Market and Treasury Plus Money Market Fund 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 and Treasury Plus
Money Market Fund 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.
18
<PAGE>
Year Ended
Fund 9/30/96
---- -------
Prime Money Market $1,230,872
Treasury Plus Money Market $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
Fund and the Treasury Plus Money Market Fund were as follows:
Year Ended
Fund 9/30/95
---- -------
Prime Money Market $577,763
Treasury Plus Money Market $921,886
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 with financial
institutions, including Wells Fargo Bank, on behalf of the Service 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
0.20%, 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 Plan 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 Plan 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 by the Funds, on behalf of the Service Class shares, to
Wells Fargo Bank or its affiliates, were as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- ---------- ---------
<S> <C> <C>
Prime Money Market $1,116,755 $ 692,898
Treasury Plus Money Market $ 810,798 $1,230,129
100% Treasury Money Market N/A N/A
</TABLE>
Prime Money Market and Treasury Plus Money Market Fund Funds. 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:
Year Ended
Fund 9/30/96
---- -------
Prime Money Market $1,355,940
Treasury Plus Money Market $2,490,845
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 Funds ("Non-Interested Directors"). Any
form of servicing agreement related to the Servicing Plan also must be approved
by such vote of the Directors and the Non-Interested Directors. Servicing
Agreements may be terminated at any time, without payment of any penalty, by
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 Agreements may be made except by a majority of both the Directors of
the Company and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes 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 a net asset-based fee at the annual rate of 0.0167%, payable monthly,
plus specified transaction
20
<PAGE>
charges. Wells Fargo Bank also provides portfolio accounting services under the
Custody Agreement, and receives fees for such services 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 year-ended March 31, 1998, the Funds paid the following dollar
amounts in custody fees, after waivers, to Wells Fargo Bank:
Fund Custody Fees
---- ------------
Prime Money Market $280,730
Treasury Plus Money Market $301,633
100% Treasury Money Market N/A
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 average daily net assets for the Prime Money Market and Treasury Plus Money
Market Fund Funds, and 0.02% of the average daily net assets of the 100%
Treasury Money Market Fund for the Service Class shares of such Funds.
For the year-ended March 31, 1998, 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:
Fund Transfer Agency Fees
---- --------------------
Prime Money Market $ 853,431
Treasury Plus Money Market Fund $1,014,143
100% Treasury Money Market N/A
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.
21
<PAGE>
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 Service Class shares of the Prime
Money Market and Treasury Plus Money Market Fund 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 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 March 31, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service Ten Five Three One
Class Inception Year Year Year Year
------- --------- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Prime Money Market 7.20% 5.65% 4.73% 5.38% 5.37%
Treasury Plus Money Market Fund 5.66% 5.45% 4.58% 5.21% 5.20%
100% Treasury Money Market Fund N/A N/A N/A N/A N/A
</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.
22
<PAGE>
Cumulative Total Return for the Applicable Period Ended March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Service Ten Five Three
Class Inception Year Year Year
------- --------- ---- ---- ----
<S> <C> <C> <C> <C>
Prime Money Market 225.05% 73.21% 26.01% 17.00%
Treasury Plus Money Market Fund 99.04% 69.85% 25.10% 15.48%
100% Treasury Money Market Fund N/A N/A N/A N/A
</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
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 March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Prime Money Market 5.34% 5.49% 5.26%
Treasury Plus Money Market Fund 5.13% 5.27% 5.10%
100% Treasury Money Market Fund N/A N/A N/A
</TABLE>
23
<PAGE>
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds or a Class also may be compared to that of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant
24
<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 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 August 1, 1998, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $63 billion of assets of individual, trusts,
estates and institutions and $32 billion of mutual fund assets.
25
<PAGE>
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 and
Money Market Access Account (collectively, the "Sweep Accounts"). Such
advertisements and other literature may include, without limitation, discussions
of such terms and conditions as the minimum deposit required to open a Sweep
Account, a description of the yield earned on shares of the 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 of the Prime Money Market Fund is determined as
of 12:00 noon (Pacific time) on each day such Fund is open for business. Net
asset value per share of the 100% Treasury Money Market Fund is determined as of
9:00 a.m. (Pacific time) on each day such Fund is open for business. Net asset
value per share of the Treasury Plus Money Market Fund is determined as of 2:00
p.m. (Pacific time) on each day such 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.
26
<PAGE>
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Funds would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of the Funds' portfolio on a particular
day, a prospective investor in the Funds would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, a Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations. 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
27
<PAGE>
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 of the Funds may be purchased on any day the Funds are open for
business (a "Business Day"). The Funds are open for business on any day Wells
Fargo Bank is open for business. Wells Fargo Bank 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.
Purchase orders for a Fund received before such Fund's NAV calculation time
generally are processed at such time on that Business Day. Purchase orders
received after a Fund's NAV calculation time generally are processed at such
Fund's NAV calculation time on the next Business Day. Selling Agents may
establish earlier cut-off times for processing your order. Requests received by
a Selling Agent after the applicable cut-off time will be processed on the next
business 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
28
<PAGE>
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 SEC 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 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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
29
<PAGE>
Brokerage Commissions. The Funds did not pay any brokerage commissions on
---------------------
portfolio transactions for the three years-ended March 31, 1998.
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, 1998, 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 Goldman Sachs & Co. $270,904,000
J.P. Morgan $140,088,599
Merrill Lynch $ 74,117,500
Morgan Stanley $164,688,217
Treasury Plus Money Market Goldman Sachs & Co. $ 64,665,000
HSBC Securities $310,024,000
J.P. Morgan $215,434,000
Morgan Stanley $389,735,000
100% Treasury Money Market N/A N/A
</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 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
30
<PAGE>
and dividend disbursing agent; expenses of redeeming shares; expenses of
preparing and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the net asset value per share of 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 Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning Federal 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. 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
31
<PAGE>
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses.
The Funds also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 generally will 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 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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
32
<PAGE>
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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month 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 have 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 20%; 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.
33
<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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of capital
gains are generally not subject to 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, 1999, 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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the
34
<PAGE>
Funds may distribute cash derived from other sources in order to meet the
minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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 Investor 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.
35
<PAGE>
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 June 30, 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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
PRIME MONEY Wired Ventures Inc. Administrative Class 9.87% N/A
MARKET FUND Attn: Spero Matthews Record Holder
520 3rd Street
San Francisco, CA 94107
Virg & Co. Class A 28.31% 6.03%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Class A 44.30% 9.43%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 24.38% 5.19%
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
Wells Fargo Bank Institutional Class 6.00% N/A
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Virg & Co. Institutional Class 42.04% 12.70%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Institutional Class 13.55% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
Virg & Co. Service Class 10.63% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Hare & Co. Service Class 36.64% 8.94%
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
TREASURY MONEY MARKET Wells Fargo Bank Agent Administrative Class 19.96% N/A
FUND FBO Orlandi #143242 Beneficially Owned
Mutual Funds #0187-112 AU #6971
201 Third Street 11th Fl
San Francisco, CA 94163
Wells Fargo Bank Agent for Administrative Class 5.38% N/A
Interlink Computer Science 146952 Beneficially Owned
c/o SSP MAC 0187-112
201 Third Street 11th Fl
San Francisco, CA 94163
EKOS Corporation Administrative Class 6.57% N/A
22122 20th Avenue, S.E. Beneficially Owned
Suite 148
Bothell, WA 98021
Wells Fargo Bank Institutional Class 35.57% 8.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg. & Co. Institutional Class 28.57% 6.65%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-08000
Castle Tower Holding Corporation Institutional Class 8.93% N/A
510 Bering Drive, Suite 310 Record Holder
Houston, TX 77057
Hare & Co. Institutional Class 8.49% N/A
Bank of New York Record Holder
One Wall Street, 2nd Floor
Attn: STIF/Master Note
New York, NY 10005-2501
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
Fund Name and Address of Ownership of Class of Portfolio
- ---- ---------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Virg. & Co. Class A 29.50% 5.66%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
WFB-Wholesale Sweep Class A 45.09% 8.65%
155 Fifth St. MAC 0106-066 Record Holder
San Francisco, CA 94103
Hare & Co. Class A 5.28% N/A
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 15.09% N/A
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
Hare & Co. Class E 100.00% 35.93%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Hare & Co. Service Class 50.98% 7.52%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Wells Fargo Bank, TTEE Service Class 9.08% N/A
FBO Choicemaster Record Holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372-080
Virg. & Co. Service Class 20.05% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
100% TREASURY MONEY Stephens Inc. Service Class 100% 50%
MARKET FUND 111 Center Street Record Holder
Little Rock, AR 72201
</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).
38
<PAGE>
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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
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 portfolios of investments, audited financial statements and independent
auditors' report for the Prime Money Market Fund and the Treasury Plus Money
Market Fund as of and for the year ended March 31, 1998, are hereby incorporated
by reference to the Company's Annual Reports as filed with the SEC on June 9,
1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
39
<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 August 1, 1998
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 two funds in the Stagecoach Family of Funds -- the
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME and U.S. GOVERNMENT INCOME FUNDS
(each, a "Fund" and collectively, the "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 August 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................................. 4
Risk Factors............................................................... 15
Management................................................................. 18
Performance Calculations................................................... 26
Determination of Net Asset Value........................................... 32
Additional Purchase and Redemption Information............................. 33
Portfolio Transactions..................................................... 33
Fund Expenses.............................................................. 35
Federal Income Taxes....................................................... 35
Capital Stock.............................................................. 39
Other...................................................................... 42
Counsel.................................................................... 42
Independent Auditors....................................................... 42
Financial Information...................................................... 42
Appendix...................................................................A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
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 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;
1
<PAGE>
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) 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.
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);
2
<PAGE>
(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.
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
3
<PAGE>
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. 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, 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.
4
<PAGE>
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 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
5
<PAGE>
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.
Derivative Securities
---------------------
The Short-Intermediate U.S. Government Income Fund may invest in various
instruments that may be considered "derivatives," including structured notes,
bonds or other instruments with interest rates that are determined by reference
to changes in the value of other interest rates, indices or financial reference
to changes in the value of other interest rates, indices or financial indicators
("References") or the relative change in two or more References. The Fund may
also hold derivative instruments that have interest rates that re-set inversely
to changing current market rates and/or have embedded interest rate floors and
caps that require the issuer to pay an adjusted interest rate if market rates
fall below or rise above a specified rate. These instruments represent
relatively recent innovations in the bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
debt instruments. It is uncertain how these instruments will perform under
different economic and interest-rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss. The
embedded option features of other derivative instruments could limit the amount
of appreciation the Fund can realize on its investment, could cause the Fund to
hold a security it might otherwise sell or could force the sale of a security at
inopportune times or for prices that do not reflect current market value. The
possibility of default by the issuer or the issuer's credit provider may be
greater for these structured and derivative instruments than for other types of
instruments. In some cases, it may be difficult to determine the fair value of a
structured or derivative instrument because of a lack of reliable objective
information and an established secondary market for some instruments may not
exist. As new types of derivative securities are developed and offered to
investors, the advisor will,
6
<PAGE>
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
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
7
<PAGE>
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
-----------------------------
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
8
<PAGE>
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 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
9
<PAGE>
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 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").
10
<PAGE>
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, 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.
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<PAGE>
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
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
12
<PAGE>
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
-------------------
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 stripped 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.
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<PAGE>
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
-------------------
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
14
<PAGE>
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. 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 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
15
<PAGE>
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 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.
16
<PAGE>
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
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.
17
<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.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Richard H. Blank, Jr., 41 Officer, Vice President of Stephens Inc.; Director of
Secretary and Stephens Sports Management Inc.; and
Treasurer Director of Capo Inc.
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
----------------- ---------------------- ------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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 below and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and
19
<PAGE>
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>
Short-Intermediate U.S. Government Income 0.50%
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
Year-Ended Period Ended
3/31/98 3/31/97
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Short-Intermediate U.S. $132,389 $309,195 $134,529 $121,235
Government Income
U.S. Government Income* $469,051 $ 0 N/A N/A
</TABLE>
____________________
* These amounts are for the Fund's fiscal year ended December 31, 1997. Prior
to December 12, 1997, these amounts reflect fees paid by the Overland
predecessor portfolio.
As discussed herein under "Historical Fund Information," on December 12,
1997 the Overland U.S. Government Income Fund was consolidated with and into the
Company's U.S. Government Income 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 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 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
9/30/96 12/31/95
------- --------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Short-Int. U.S. Govt. Income $213,467 $ 0 $ 56,387 $ 60,241
U.S. Govt. Income* $167,516 $ 46,101 $840,112 $ 0
</TABLE>
____________________
* Indicates fees paid by the Overland predecessor portfolio. For 1996, this
amount is for the year ended December 31, 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.
21
<PAGE>
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $400 million of the
Funds' average daily net assets, 0.125% of the next $400 million of the Funds'
net assets, and 0.10% of net assets over $800 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from each Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by the Funds to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by each Fund.
If the sub-advisory fee is paid directly by the Funds, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
PORTFOLIO MANAGERS. 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.
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 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. Scott Smith, as co-manager, has 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
22
<PAGE>
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%,
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.
Short-Intermediate U.S. Government Income Fund. For the period indicated
----------------------------------------------
below, the Fund paid to Wells Fargo Bank and Stephens the following dollar
amounts for administration and co-administration fees:
<TABLE>
<CAPTION>
Year-Ended Six-Month
3/31/98 Period Ended
------- 3/31/97
-------
Fund Total Wells Fargo Stephens Total Wells Fargo Stephens
---- ----- ----------- -------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Short-Intermediate U.S.
Government Income $54,262 $36,356 $17,906 $19,910 $3,982 $15,928
</TABLE>
For the periods indicated below, the Short-Intermediate U.S. Government-
Income Fund paid to Stephens the dollar amounts in administration fees indicated
below. Stephens, as sole Administrator for the year ended December 31, 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.
23
<PAGE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
-------- ---------
<S> <C>
$12,808 $ 6,998
</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 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 U.S. Government Income Fund paid to
Stephens the dollar amounts in administration fees indicated below. Prior to
December 12, 1997, these amounts reflect fees paid by the Overland predecessor
portfolio.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
-------------- --------------- -------------
<S> <C> <C>
$66,992 $ 51,898 $ 37,744
</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 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 Plan 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 Plan or related Agreements that
exceed the maximum amounts payable under the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD").
24
<PAGE>
For the periods indicated below, the dollar amounts of shareholder
servicing fees paid to Wells Fargo Bank or its affiliates by the Institutional
Class of each Fund, after waivers, were as follows:
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- -------- --------
<S> <C> <C>
Short-Intermediate U.S. Government Income $142,053 $ 82,843
U.S. Government Income $ 844* N/A
</TABLE>
____________________
* The Overland predecessor portfolio did not offer Institutional Class shares.
This amount reflects fees paid for the fiscal year ended December 31,
1997.
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. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and 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 Plan or related Servicing
Agreements may be made except by a majority of both the Directors of the Company
and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes 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.
25
<PAGE>
For the indicated periods, the Funds paid the following dollar amounts in
custody fees, after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Year-End Fund Custody Fees
--------- ----- ------------
<S> <C> <C>
3/31/98 Short-Intermediate U.S. Government Income $12,148
12/31/97 U.S. Government Income* $ 0
</TABLE>
_________________
* Prior to December 12, 1997, this amount reflects fees paid by the Overland
predecessor portfolio.
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 indicated periods, the Funds paid to Wells Fargo Bank the following
dollar amounts in transfer and dividend disbursing fees, without regard to class
and after waivers:
<TABLE>
<CAPTION>
Year-End Fund Transfer Agency Fees
-------- ----- --------------------
<S> <C> <C>
3/31/98 Short-Intermediate U.S. Government Income $ 71,405
12/31/97 U.S. Government Income $126,491
</TABLE>
_______________
* This amount is for the year ended December 31, 1997. Prior to December 12,
1997, this amount reflects fees paid by the Overland predecessor portfolio.
Under the prior transfer agency agreement for the 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.
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
26
<PAGE>
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
Short-Intermediate U.S. Government Income Fund for periods prior to September 6,
1996, reflects the performance of such Fund's Class A shares (excluding sales
charges).
Performance shown or advertised for the Institutional Class shares of the
U.S. Government Income Fund for periods prior to December 12, 1997, reflects the
performance of the Class A shares (excluding sales charges) of the Overland
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.
Average Annual Total Return for the Applicable Period Ended March 31,
--------------------------------------------------------------------
1998/1/
------
<TABLE>
<CAPTION>
Institutional Five Three One
Class Inception2 Year Year Year
------ ---------- ----- ----- ----
<S> <C> <C> <C> <C>
Short-Intermediate U.S. Government Income 5.41% N/A 7.01% 8.85%
U.S. Government Income 8.52% 5.84% 7.83% 10.96%
</TABLE>
_______________
/1/ For purposes of showing performance information, the inception date of each
Fund and Class is as follows: Short-Intermediate U.S. Government Income
Fund - October 27, 1993; U.S. Government Income Fund - January 1,1992. The
actual inception date of each Class may differ from the inception date of
the corresponding Fund.
27
<PAGE>
/2/ For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the Institutional Class shares of such Fund's
predecessor portfolios. For periods 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. For periods prior to December 12, 1997, performance figures for the
Institutional Class shares of the U.S. Government Income Fund reflect the
performance of the Class A shares of the Overland predecessor
portfolio.
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 March 31,
----------------------------------------------------------------
1998/1/
------
<TABLE>
<CAPTION>
Institutional Five Three
Class Inception/2/ Year Year
--------- ----------- ------ ------
<S> <C> <C> <C>
Short-Intermediate U.S. Government Income 26.19% N/A 22.55%
U.S. Government Income 126.50% 32.84% 25.38%
</TABLE>
_______________
/1/ For purposes of showing performance information, the inception date of each
Fund and Class is as follows: Short-Intermediate U.S. Government Income
Fund -October 27, 1993; U.S. Government Income Fund - January 1,1992. The
actual inception date of each Class may differ from the inception date of
the corresponding Fund.
/2/ For periods 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. For periods
prior to December 12, 1997, performance figures for the Institutional Class
shares of the U.S. Government Income Fund reflect the performance of the
Class A shares of the Overland predecessor portfolio.
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.
28
<PAGE>
EFFECTIVE YIELD: Effective yields for the Funds are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Institutional Class Yield for the Applicable Period Ended March 31,
------------------------------------------------------------------
1998
----
<TABLE>
<CAPTION>
Thirty-Day Yield
-----------------
Fund After Waiver/1/ Before Waiver
- ----- ------------- -------------
<S> <C> <C>
Short-Intermediate U.S. Government Income 5.27% 5.09%
U.S. Government Income 5.53% 5.19%
</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 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
29
<PAGE>
yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds or a Class also may be compared to that of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a class of shares with the performance of a Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
each class of 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-
30
<PAGE>
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 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 August 1, 1998,
Wells Fargo Bank and its affiliates provided investment
31
<PAGE>
advisory services for approximately $63 billion of assets of individuals,
trusts, estates and institutions and $32 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 Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities 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. 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.
32
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds 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, 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 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
33
<PAGE>
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 Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Funds did not pay any brokerage commissions for
---------------------
the past three years.
Securities of Regular Broker/Dealers. As of March 31, 1998, 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>
Short-Intermediate U.S. Government Goldman Sachs & Co. $1,406,000
Income Fund JP Morgan Securities $ 300,000
U.S. Government Income Fund Goldman Sachs & Co. $1,045,000
Morgan Stanley $3,889,000
</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
34
<PAGE>
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
net asset value 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.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe 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
Federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each
35
<PAGE>
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 also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions declared
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. 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 generally will 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.
36
<PAGE>
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 a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, a 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month holding requirement to a period of not less
37
<PAGE>
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 have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company could also
subject the investor to penalties imposed by the IRS.
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of capital gains are generally not subject to
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, 1999, 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
38
<PAGE>
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 the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to Federal, state, local
or 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
Investor 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,
39
<PAGE>
since it affects only one Fund, is a matter to be determined separately by
Series. Approval by the shareholders of one Series is effective as to that
series whether or not sufficient votes are received from the shareholders of the
other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a class of shares of
the Fund, means the vote of the lesser of (i) 67% of the shares of the class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole, means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
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 June 30, 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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
TYPE OF PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OWNERSHIP OF CLASS OF PORTFOLIO
---- ---------------- --------- -------- ------------
<S> <C> <C> <C> <C>
SHORT-INTERMEDIATE WELLS FARGO BANK, TTEE INSTITUTIONAL CLASS 6.28% N/A
U.S. GOVERNMENT INCOME CHOICEMASTER RECORD HOLDER
FUND P.O. BOX 9800
CALABASAS, CA 91372-0800
DIM & CO. INSTITUTIONAL CLASS 25.41% 16.98%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
TYPE OF PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OWNERSHIP OF CLASS OF PORTFOLIO
---- ---------------- --------- -------- ------------
<S> <C> <C> <C> <C>
ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800
CALABASAS, CA 91372-0800
VIRG & CO INSTITUTIONAL CLASS 34.22% 22.87%
ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800
CALABASAS, CA 91372-0800
HEP & CO INSTITUTIONAL CLASS 31.71% 21.20%
ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 91302
WELLS FARGO BANK CLASS A 24.16% 6.69%
FBO RETIREMENT PLANS OMNIBUS RECORD HOLDER
P.O. BOX 63015
SAN FRANCISCO, CA 94163
VIRG & CO CLASS A 13.83% N/A
C/O WELLS FARGO BANK RECORD HOLDER
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 91372
U.S. GOVERNMENT INCOME DIM & CO. INSTITUTIONAL CLASS 24.76% N/A
FUND ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800
CALABASAS, CA 91372-0800
VIRG & CO INSTITUTIONAL CLASS 42.68% N/A
ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800
CALABASAS, CA 91372-0800
HEP & CO INSTITUTIONAL CLASS 10.42% N/A
ATTN: MF DEPT. A88-4 RECORD HOLDER
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 91302
WELLS FARGO BANK CLASS A 18.59% 15.50%
FBO RETIREMENT PLANS OMNIBUS RECORD HOLDER
P.O. BOX 63015
SAN FRANCISCO, CA 94163
VIRG & CO CLASS A 7.53% 6.28%
C/O WELLS FARGO BANK RECORD HOLDER
P.O. BOX 9800 MAC 9139-027
CALABASAS, CA 91372
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS CLASS C 33.88% N/A
ATTN: MUTUAL FUND ADMINISTRATION RECORD HOLDER
4800 DEER LAKE DRIVE EAST, 3RD FLOOR
JACKSONVILLE, FL 32246
SISTERS OF ST. FRANCIS CLASS C 10.56% N/A
ATTN: SISTER MARIJANE HRESKO, OSF RECORD HOLDER
609 SOUTH CONVENT ROAD
ASTON, PA 19014
</TABLE>
41
<PAGE>
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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the U.S. Government Income Fund as of and for the year
ended December 31, 1997, are hereby incorporated by reference to the Annual
Reports as filed with the SEC on March 3, 1998.
The portfolio of investments, audited financial statements and independent
auditors report for the Short-Intermediate U.S. Government Income Fund as of and
for the year ended March 31, 1998 are hereby incorporated by reference to the
Company's Annual Reports as filed with the SEC on June 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-260-5969.
42
<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 August 1, 1998
TREASURY PLUS MONEY MARKET FUND
Class E Shares
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 PLUS MONEY MARKET FUND (the "Fund"). The word "Mutual" was removed
from the name of each of the company's money market funds. 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 August 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, Inc., 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....................................................... 17
Determination of Net Asset Value............................................... 21
Additional Purchase and Redemption Information................................. 23
Portfolio Transactions......................................................... 23
Fund Expenses.................................................................. 25
Federal Income Taxes........................................................... 26
Capital Stock.................................................................. 29
Other.......................................................................... 32
Counsel........................................................................ 33
Independent Auditors........................................................... 33
Financial Information.......................................................... 33
Appendix....................................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Treasury Plus Money Market Fund commenced operations on October 1,
1985, as the Short-Term Government Fund of the Pacific 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 word "Plus" was added to the Fund's name on August 1,
1998. 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 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 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
3
<PAGE>
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 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 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.
4
<PAGE>
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 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.
5
<PAGE>
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
Government National Mortgage Association ("GNMA") certificates) or (ii) may be
backed solely by the issuing or guaranteeing agency or instrumentality itself
(as with Federal National Mortgage Association ("FNMA") notes). In the latter
case investors must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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.
Nationally Recognized Statistical Ratings Organizations ("NRSROs")
------------------------------------------------------------------
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 the Fund, an issue of debt
securities may cease to be rated or its rating
6
<PAGE>
may be reduced below the minimum rating required for purchase by the Fund. The
advisor will consider such an event in determining whether the Fund involved
should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to industrial 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 rated securities by Wells Fargo Bank, as the
Fund's investment advisor, 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 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:
7
<PAGE>
. 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.
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.
8
<PAGE>
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Wells Fargo Fund Complex
----------------- --------------- ----------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
10
<PAGE>
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 periods indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Year Ended 3/31/98 Six-Month Period Ended 3/31/97
------------------ ------------------------------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C>
$1,216,164 $3,368,585 $1,518,347 $751,971
</TABLE>
The Pacifica Treasury Plus 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
advisor to the Pacifica Treasury Plus Money Market Fund. As of September 6,
1996, Wells Fargo Bank has been the advisor to the Company's Treasury Plus Money
Market Fund.
11
<PAGE>
For the fiscal year ended September 30, 1996, the Fund paid advisory fees
of $2,442,922 of which $2,073,426 were waived. These amounts include advisory
fees paid by the predecessor portfolio to FICM/WFIM for the period begun April
1, 1996 and ended September 5, 1996.
For the period indicated below, the advisory fees paid to the former
advisor by the predecessor portfolio of the Fund were as shown below. This
amount reflects voluntary fee waivers and expense reimbursements by the
advisor.
Year Ended
9/30/95
----------
$1,160,424
General. The Fund's Advisory and Sub-Advisory Contracts 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.
INVESTMENT SUB-ADVISOR. As of May 1, 1998, Wells Capital Management
----------------------
("WCM") serves as sub-advisor to the Fund. As sub-advisor, WCM makes
recommendations regarding the investment and reinvestment of the Fund's assets,
furnishes to Wells Fargo Bank periodic reports on the investment activity and
performance of the Fund, and furnishes such additional reports and information
as Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request. As compensation for sub-advisory services, WCM is entitled
to receive a monthly fee equal to an annual rate of 0.05% of the first $960
million of the Fund's average daily net assets and 0.04% of net assets over $960
million. WCM receives a minimum annual sub-advisory fee of $120,000 from each
Fund. This minimum annual fee payable to WCM does not increase the advisory fee
paid by the Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo
Bank or directly by the Fund. If the sub-advisory fee is paid directly by the
Fund, the compensation paid to Wells Fargo Bank for advisory fees will be
reduced accordingly.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
------------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under the respective Administration and Co-Administration
Agreements among Wells Fargo Bank, Stephens and the Company, Wells Fargo Bank
and Stephens shall provide as administration services, among other things: (i)
general supervision of the Fund's operations, including coordination of the
services performed by the Fund's investment advisor, transfer agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the U.S. Securities and Exchange
Commission ("SEC") and state securities commissions; and preparation of proxy
statements and shareholder reports for the Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank and
12
<PAGE>
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 periods indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration
fees:
<TABLE>
Year-Ended Six-Month Period
3/31/98 Ended 3/31/97
---------- ---------------
Total Wells Fargo Stephens Total Wells Fargo Stephens
- -------------- --------------- --------------- --------------- --------------- ---------------
<C> <S> <C> <C> <C> <C>
$1,133,896 $759,710 $374,186 $483,198 $96,640 $386,558
</TABLE>
Prior to September 6, 1996, the Administrator, Furman Selz LLC ("Furman
Selz"), of the Pacifica predecessor portfolio to the Fund 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 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.
For the periods begun September 6, 1996 and ended September 30, 1996 and
begun October 1, 1996 and ended 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 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,
administration fees paid to Dreyfus by the predecessor portfolio of the Fund
were as listed below.
13
<PAGE>
<TABLE>
Year Ended Year Ended
9/30/96 9/30/95
------- -------
<S> <C>
$1,745,759 $921,886
</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 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 year ended March 31, 1998, the Fund's distributor received the
following fees for distribution-related services, as 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>
881,529 N/A N/A 881,529
</TABLE>
For the year ended March 31, 1998, Wells Fargo Securities Inc. ("WFSI"), an
affiliated broker-dealer of the Company, and its registered representatives
received no compensation under the Fund's Plan.
14
<PAGE>
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 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, with financial
institutions, including Wells Fargo Bank, on behalf of Class E shares. 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.
15
<PAGE>
For the year ended March 31, 1998, the Fund paid $2,037,737 in shareholder
servicing fees on behalf of its Class E shares 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.
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 year ended March 31, 1998 the Fund paid $301,633 in custody fees,
after waivers, 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 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 year ended March 31, 1998, the Fund paid $1,014,143 after waivers
and without regard to class 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.
16
<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 for the Fund or Class E shares may be useful in
reviewing the performance of the Fund or Class E shares of the Fund 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.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
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. 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 March 31, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception One Year Three Year Five Year Ten Year
---- ---------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Treasury Money Market
Class E 5.42% 4.99% 4.88% 4.30% 5.20%
</TABLE>
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
-----------------------
the Fund may also 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.
17
<PAGE>
Cumulative Total Return for the Applicable Period Ended March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception Three Year Five Year Ten Year
---- --------- ---------- --------- --------
<S> <C> <C> <C> <C>
Treasury Money Market
Class E 93.48% 15.37% 23.43% 68.03%
</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
Yield for the Applicable Period Ended March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Treasury Money Market
Class E 4.93% 5.05% 4.90%
</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
18
<PAGE>
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 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.
19
<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 an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the 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 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 August 31, 1998, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $63 billion of assets of individual, trusts,
estates and institutions and $32 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,
20
<PAGE>
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 2:00 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
21
<PAGE>
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 the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be
22
<PAGE>
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 of the Fund may be purchased on any day the Fund is open for
business (a "Business Day"). The Fund is open on any day Wells Fargo Bank is
open. Wells Fargo Bank 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.
Purchase orders for the Fund received before 2:00 p.m. (Pacific time)
generally are processed at such time on that Business Day. Purchase orders
received after 2:00 p.m. (Pacific time) generally are processed at such time on
the next Business Day. Selling Agents may establish earlier cut-off times for
processing your order. Requests received by a Selling Agent after the cut-off
time will be processed on the next business 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 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
23
<PAGE>
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 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 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.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the past three years-ended March 31, 1998.
Securities of Regular Broker/Dealers. As of March 31, 1998, the Fund owned
------------------------------------
securities of its "regular brokers or dealers" or their parents, as defined in
the Act as follows:
24
<PAGE>
<TABLE>
<CAPTION>
Fund Broker/Dealers Amount
---- -------------- ------
<S> <C> <C>
Treasury Plus Money Market Goldman Sachs & Co. $ 64,665,000
HSBC Securities $310,024,000
J.P. Morgan Securities $215,434,000
Morgan Stanley $389,735,000
</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.
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 net asset value per share of the
Fund; expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services, 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.
25
<PAGE>
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of the Fund
describe generally the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning Federal 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 Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. 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 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 gains) 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. Furthermore, distributions declared 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. 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
26
<PAGE>
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 generally will 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 term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
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
27
<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 a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, 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-month holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company also could
subject the investor to penalties imposed by the IRS.
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
28
<PAGE>
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.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (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. persons will apply. Distributions of net long-
term capital gains are generally not subject to 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, 1999, 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. Fund shares are available for a variety of tax-
------------------
deferred retirement and other plans, including Individual Retirement Accounts
("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings Incentive Match
Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education IRAs, which
permit investors to defer some of their income from taxes. Investors should
contact their selling agents for details concerning retirement plans.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the federal 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
or 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
29
<PAGE>
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
Investor 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 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 June 30, 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
30
<PAGE>
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.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ---- ---------------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
TREASURY PLUS MONEY Wells Fargo Bank Agent Administrative Class 19.96% 1.37%
MARKET FUND FBO Orlandi #143242 Beneficially Owned
Mutual Funds #0187-112 AU #6971
201 Third Street 11th Fl
San Francisco, CA 94163
Wells Fargo Bank Agent for Administrative Class 5.38% N/A
Interlink Computer Science 146952 Beneficially Owned
c/o SSP MAC 0187-112
201 Third Street 11th Fl
San Francisco, CA 94163
EKOS Corporation Administrative Class 6.57% N/A
22122 20th Avenue, S.E. Beneficially Owned
Suite 148
Bothell, WA 98021
Wells Fargo Bank Institutional Class 35.57% 8.28%
Attn: Investment Sweep T-15 Record Holder
1300 S.W. Fifth Avenue
Portland, OR 97201-5688
Virg. & Co. Institutional Class 28.57% 6.65%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
Castle Tower Holding Corporation Institutional Class 8.93% N/A
510 Bering Drive, Suite 310 Record Holder
Houston, TX 77057
Hare & Co. Institutional Class 8.49% 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 29.50% 5.66%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372-0800
WFB-Wholesale Sweep Class A 45.09% 8.65%
155 Fifth St. MAC 0106-066 Record Holder
San Francisco, CA 94103
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF PORTFOLIO
- ---- ---------------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
TREASURY PLUS MONEY Hare & Co. Class A 5.28% N/A
MARKET FUND Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Dean Witter Reynolds Class A 15.09% N/A
FBO Wells Fargo Securities Inc. Record Holder
5 World Trade Center, 6th Floor
New York, NY 10048
Hare & Co. Class E 100.00% 35.93%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Hare & Co. Service Class 50.98% 7.52%
Bank of New York Record Holder
One Wall Street, 2nd Fl.
Attn: STIF/Master Note
New York, NY 10005-2501
Wells Fargo Bank, TTEE Service Class 9.08% N/A
FBO Choicemaster Record Holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372-080
Virg. & Co. Service Class 20.05% N/A
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 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.
32
<PAGE>
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Fund's
Prospectus.
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 portfolios of investments, audited financial statements and independent
auditors' reports for the Fund for the year ended March 31, 1998, are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on June 9th, 1998.
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.
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
34
<PAGE>
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
35
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 1, 1998
MONEY MARKET FUND
CLASS S SHARES
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
FUND (the "Fund"). The word "Mutual" was removed from the name of each of the
Company's money market funds. 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 August 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, Inc., 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..................................... 8
Management....................................... 10
Performance Calculations......................... 17
Determination of Net Asset Value................. 22
Additional Purchase and Redemption Information... 24
Portfolio Transactions........................... 24
Fund Expenses.................................... 26
Federal Income Taxes............................. 26
Capital Stock.................................... 30
Other............................................ 32
Counsel.......................................... 32
Independent Auditors............................. 32
Financial Information............................ 32
Appendix......................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Money Market 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 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 Fund 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 ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The 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
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 Securities Act
of 1933 (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
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors
6
<PAGE>
and that are not affiliated with the investment advisor. The Fund may
participate in pooled repurchase agreement transactions with other funds advised
by Wells Fargo Bank.
Unrated and Downgraded Investments
----------------------------------
The 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 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 Government National
Mortgage Association ("GNMA") certificates) or (ii) may be backed solely by the
issuing or guaranteeing agency or instrumentality itself (as with Federal
National Mortgage Association ("FNMA") notes). In the latter case investors
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
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 ("NRSROs")
------------------------------------------------------------------
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 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 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, if unrated, determined to be of comparable
quality to such rated securities by Wells Fargo Bank,
8
<PAGE>
as the Fund's investment advisor, 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 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:
. 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 "Organization and Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -----------------------------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -----------------------------------------------
<S> <C> <C>
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
Compensation Table
Year Ended March 31, 1998
-------------------------
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
- ----------------- ----------------------- -------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
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
11
<PAGE>
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 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 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 0.40% 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>
Year Ended
3/31/98
-----------
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
$13,524,289 $11,407,557
</TABLE>
For the periods indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
12
<PAGE>
<TABLE>
Six-Month Nine-Month
Period Ended Period Ended Year Ended
3/31/97 9/30/96 12/31/95
-------------- ---------------- --------------
Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
$8,856,102 $979,244 $12,729,506 $0 $11,593,678 $0
</TABLE>
General. The Fund's Advisory and Sub-Advisory Contracts 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.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as Investment Sub-Advisor to the Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Fund's assets. WCM furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Fund. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.05% of the first $960 million of the
Fund's average daily net assets and 0.04% of net assets over $960 million. WCM
receives a minimum annual sub-advisory fee of $120,000 from the Fund. This
minimum annual fee payable to WCM does not increase the advisory fee paid by the
Fund to Wells Fargo Bank. These fees may be paid by Wells Fargo Bank or
directly by the Fund. If the sub-advisory fee is paid directly by the Fund, the
compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under the respective Administration and Co-Administration
Agreements among Wells Fargo Bank, Stephens and the Company, Wells Fargo Bank
and Stephens shall provide as administration services, among other things: (i)
general supervision of the Fund's operations, including coordination of the
services performed by the Fund's investment advisor, transfer agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the U.S. Securities and Exchange
Commission ("SEC") and state securities commissions; and preparation of proxy
statements and shareholder reports for the Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the Fund's
13
<PAGE>
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.
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>
Year Ended 3/31/98
------------------
Total Wells Fargo Stephens
----- ----------- -------
<S> <C> <C>
$3,861,514 $2,587,214 $1,274,300
</TABLE>
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 six-month period ended March 31,1997, 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 year
ended December 31, 1995, the Fund paid to Stephens the following dollar amounts
of administration fees:
<TABLE>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
------- ----------
<S> <C>
$872,577 $ 954,713
</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
14
<PAGE>
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.
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 year ended March 31, 1998, the Fund's distributor received the
following fees for distribution-related services, as set forth below, under the
Fund's Plan for Class S shares:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Total Prospectus Brochures to Underwriters
----- ---------- --------- ---------------
<S> <C> <C> <C>
$6,414,524 N/A N/A $6,414,524
</TABLE>
For the periods indicated above, Wells Fargo Securities Inc. ("WFSI"), an
affiliated broker-dealer of the Company, 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
15
<PAGE>
material amendment to the Plan may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Fund's
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 with financial
institutions, including Wells Fargo Bank, on behalf of Class S shares. 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 year ended March 31, 1998, the Fund paid to Wells Fargo Bank
$2,138,175 in shareholder servicing fees on behalf of its Class S shares.
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
16
<PAGE>
Directors, including a majority of the Non-Interested Directors. No material
amendment to the Servicing Plan or related Servicing Agreement may be made
except by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
CUSTODIAN. Wells Fargo Bank acts as Custodian for the Fund. The
---------
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund, receives and delivers all assets for the Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of the Fund, and pays all expenses of
the Fund. For its services as Custodian, Wells Fargo Bank 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 year ended March 31, 1998, the Fund paid $1,049,145 in 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 year ended March 31, 1998, the Fund paid $6,246,988 in transfer and
dividend disbursing agency fees 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
the Fund's Class S shares. Therefore, no underwriting commissions are paid to
Stephens as 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
17
<PAGE>
the market conditions and the level of the Fund's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Fund or Class S shares may be useful in
reviewing the performance of the Fund or Class S shares of the Fund 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.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year. The inception date
of the Class S shares of the Fund was May 25, 1995.
AVERAGE ANNUAL TOTAL RETURN: The Fund may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended March 31, 1998
--------------------------------------------------------------------------
Fund Inception Five Year Three Year One Year
---- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
Money Market - Class S 3.47% 3.66% 4.19% 4.37%
</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 March 31, 1998
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception Five Year Three Year
---- --------- --------- ----------
<S> <C> <C> <C>
Money Market - Class S 21.69% 19.69% 13.10%
</TABLE>
18
<PAGE>
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 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 March 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
Seven- Seven-Day
Day Effective Thirty-Day
Fund Yield Yield Yield
---- ----- ----- -----
<S> <C> <C> <C>
Money Market - Class S 4.26% 4.35% 4.26%
</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
19
<PAGE>
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 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
20
<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 the Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach 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 advisor. 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 advisor or sub-advisor and the
total amount of assets and mutual fund assets managed by Wells Fargo Bank. As
of August 1, 1998, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $63 billion of assets of individual, trusts,
estates and institutions and $32 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
21
<PAGE>
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 the Class S shares of the Money Market Fund
is determined as of 12:00 noon (Pacific time) on each day Wells Fargo Bank 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
22
<PAGE>
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 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.
23
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day Wells Fargo Bank is open for
business (a "Business Day"). Wells Fargo Bank 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 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 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
24
<PAGE>
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 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 Funds.
For the fiscal year ended March 31, 1998, the Company paid $6,871,000 in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Fund did not pay any brokerage commissions on
---------------------
portfolio transactions for the year ended March 31, 1998.
Securities of Regular Broker/Dealers. As of March 31, 1998, 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 Fund Goldman Sachs & Co. $130,761,978
Merrill Lynch $199,098,292
J.P. Morgan Securities $274,907,113
Morgan Stanley $304,047,750
</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
25
<PAGE>
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 net asset value per share of the
Fund; expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services, 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.
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 Federal income
tax purposes. Thus, the provisions of the Code applicable to regulated
investment companies generally will be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. As a regulated
investment company, the
26
<PAGE>
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 also must distribute or be deemed to distribute to its
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains) 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. Furthermore, distributions
declared 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. 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 generally will 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
27
<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 the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains 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.
Other Distributions. 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 a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a 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-month holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund
28
<PAGE>
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have 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 20%; 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, if the shareholder fails to certify that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or if 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 tax payment on the shareholder's
Federal income tax return. An investor must provide a valid TIN upon opening or
reopening an account. Failure to furnish a valid TIN to the Company also could
subject the investor to penalties imposed by the IRS.
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. withholding tax
(at a rate of 30% or a lower treaty rate, if applicable). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (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.
persons will apply. Distributions of capital gains are generally not subject to
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, 1999, 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
29
<PAGE>
to U.S. income tax withholding. Prospective investors are urged to consult
their own tax advisors regarding the New Regulations.
Tax-Deferred Plans. The shares of the Fund are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes.
Investors should contact their selling agents for details concerning retirement
plans.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal 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
or 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 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 Investor 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
30
<PAGE>
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 available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of June 30, 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 Class S shares 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% of more of a class, but less than 5% of the Fund as a
whole.
5% OWNERSHIP AS OF JUNE 30, 1998
--------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
MONEY MARKET Wells Fargo Bank Class S 100.00% 12.89%
FBO Money Market Checking Omnibus Record Holder
Acct.
P.O. Box 7066
San Francisco, CA 94120
</TABLE>
31
<PAGE>
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.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds'
Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the year ended March 31, 1998 are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on June 9, 1998.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-
8222.
32
<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.
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 Fund, Asset Allocation Fund,
Balanced Fund, California Tax-Free Income Fund, California Tax-Free
Money Market Fund, Diversified Equity Income Fund, Equity Index Fund,
Equity Value Fund, Government Money Market Fund, Growth Fund, Index
Allocation Fund, International Equity Fund, Money Market Mutual Fund,
National Tax-Free Fund, National Tax-Free Money Market Fund, Oregon
Tax-Free Fund, Prime Money Market Fund, Short-Intermediate U.S.
Government Income Fund, Small Cap Fund, Treasury Plus Money Market
Fund and U.S. Government Allocation Fund, the portfolio of
investments, audited financial statements and independent auditors'
report for the year ended March 31, 1998, 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 9, 1998.
With respect to the California Tax-Free Money Market Trust, Money
Market Trust, National Tax-Free Money Market Trust, Overland Express
Sweep Fund, Prime Money Market Fund - Service Class, Treasury Plus
Money Market Fund- Class E and Treasury Plus Money Market Fund -
Service Class, the portfolio of investments, audited financial
statements and independent auditors' report for the year ended March
31, 1998, are incorporated in the respective statements of additional
information for such Fund by reference to the Company's Annual
Reports, as filed with the SEC on June 10, 1998.
With respect 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, 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 March 3, 1998.
C-1
<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, incorporated by reference to Post-
Effective Amendment No. 43 to the Registration Statement
filed March 30, 1998.
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-2
<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-3
<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) - 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 July 31, 1998.
5(v) - 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 July 31, 1998.
5(v)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Equity Index Fund, filed July 31, 1998.
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.
5(x) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the 100% Treasury Money Market Fund, filed July 31,
1998.
5(x)(i) - Form of Sub-Advisory Contract with Wells Capital Management
on behalf of various Funds, filed July 31, 1998.
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-4
<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.
8(o) - Form of Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the 100% Treasury Money Market Fund, filed July 31,
1998.
9(a)(i) - Administration Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, incorporated by reference to Post-
Effective Amendment No. 48 to the Registration Statement,
filed July 31, 1998.
C-5
<PAGE>
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. 48 to the
Registration Statement, filed July 31, 1998.
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
C-6
<PAGE>
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the U.S. Government
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xiii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Aggressive Growth
Fund, incorporated by reference to Post-Effective Amendment
No. 20 to the Registration Statement, filed February 28,
1996.
9(c)(xiv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Asset
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the California
Tax-Free Bond Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xvi) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Diversified
Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xvii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Ginnie Mae
Fund, incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1, 1995.
9(c)(xviii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Growth and
Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xix) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xx) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class A Shares of the Aggressive Growth
Fund, incorporated by reference to Post-Effective Amendment
No. 20 to the Registration Statement, filed February 28,
1996.
9(c)(xxi) - Form of Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Funds, incorporated by reference
to Post-Effective Amendment No. 48, filed July 31, 1998.
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.
C-7
<PAGE>
9(d)(ii) - Servicing Plan on behalf of the Class B Shares of the Asset
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(d)(iii) - Servicing Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(iv) - Servicing Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(v) - Servicing Plan on behalf of the Class B Shares of the Ginnie
Mae Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(d)(vi) - Servicing Plan on behalf of the Class B Shares of the Growth
and Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(d)(vii) - Servicing Plan on behalf of the Class B Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(viii) - Servicing Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
9(d)(ix) - Servicing Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
9(d)(x) - Servicing Plan 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
C-8
<PAGE>
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.
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(e)(x) - Servicing Plan as consolidated to include all classes of the
Funds, incorporated by reference to Post-Effective Amendment
No. 48 to the registration statement, filed July 31,
1998.
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 - Consent of Independent Auditors, 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.
C-9
<PAGE>
14 - Not Applicable
15(a)(i) - Distribution Plan on behalf of the California Tax-Free Money
Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
15(a)(ii) - Distribution Plan on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
15(a)(iii) - Distribution Plan on behalf of the Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement, filed May 1, 1992.
15(a)(iv) - Distribution Plan on behalf of the California Tax-Free Income
Fund, incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement, filed September 10,
1992.
15(a)(v) - Distribution Plan on behalf of the Short-Intermediate U.S.
Government Income Fund, incorporated by reference to Post-
Effective Amendment No. 8 to the Registration Statement,
filed February 10, 1994.
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.
C-10
<PAGE>
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.
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
C-11
<PAGE>
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.
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 August 5,1997.
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, incorporated by reference to
Post-Effective Amendment No. 41, filed January 30, 1998.
27 - Financial Data Schedules for the Overland predecessor
portfolios for the period ended December 31, 1996,
incorporated by reference to the Form N-SAR filed February 9,
1997; Financial Data Schedules for the fiscal period ended
March 31, 1997, incorporated by reference to the Form N-SAR,
filed May 29, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
As of July 1, 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 June 30, 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/1/ Class B Class C Institutional
---------- ------- ------- Class
-----
<S> <C> <C> <C> <C>
Arizona Tax-Free Fund 176 35 N/A 6
Asset Allocation Fund 12,857 13,245 54 N/A
Balanced Fund 1,595 645 N/A 191
California Tax-Free Bond Fund 10,403 1,866 108 48
</TABLE>
C-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
California Tax-Free Income Fund 2,836 N/A N/A 7
California Tax-Free Money Market Mutual Fund 7,501 N/A N/A N/A
California Tax-Free Money Market Trust 8 N/A N/A N/A
Corporate Bond Fund 61 74 13 N/A
Diversified Equity Income Fund 12,022 3,917 N/A N/A
Equity Index Fund 2,523 930 N/A N/A
Equity Value Fund 2,598 6,217 34 174
Government Money Market Mutual Fund 127 N/A N/A N/A
Growth Fund 12,897 3,959 N/A 37
Index Allocation Fund 1,431 298 1,200 N/A
International Equity Fund 1,143 2,855 18 N/A
Intermediate Bond Fund 153 294 N/A 9
Money Market Mutual Fund 5,485 2/2/ N/A N/A
Money Market Trust 5 N/A N/A N/A
National Tax-Free Fund 881 45 6
National Tax-Free Money Market Mutual Fund 47 N/A N/A 13
National Tax-Free Money Market Trust 2 N/A N/A N/A
Oregon Tax-Free Fund 603 112 N/A 10
Overland Express Sweep Fund 4 N/A N/A N/A
Prime Money Market Mutual Fund 327 659/3/ 327/5/ 104
Short-Intermediate U.S. Government Income Fund 829 313 N/A 77
Short-Term Government-Corporate Income Fund 18 N/A N/A N/A
Short-Term Municipal Income Fund 13 N/A N/A N/A
Small Cap Fund 855 2,147 131 15
Strategic Growth Fund 13,248 3,097 1,369 N/A
Treasury Money Market Mutual Fund 200 156/3/ 2/4/ 221
135/5/
U.S. Government Allocation Fund 1,229 538 N/A N/A
</TABLE>
C-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. Government Income Fund 10,240 901 88 104
Variable Rate Government Fund 665 N/A 57 N/A
</TABLE>
/1/ For purposes of this chart, shares of single class Funds are included under
the designation "Class A".
/2/ Designates the number of Class S recordholders.
/3/ Designates the number of Service Class recordholders.
/4/ Designates the number of Class E recordholders.
/5/ Designates the number 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 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.
----------------------------------------------------
C-14
<PAGE>
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.
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, McGee,
Director 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, Chief
Director Executive Officer,
Chief Operating Officer and President of
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
C-15
<PAGE>
Edward Carson Chairman of the Board and Chief Executive Officer of
Director First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road Suite 400
Phoenix, AZ 85016
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
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
C-16
<PAGE>
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
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
C-17
<PAGE>
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
Director of the California Chamber of Commerce
1201 K Street
12th Floor
Sacremento, CA 95814
Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street Rm. 3700
San Francisco, CA 94108
Carl E. Reichardt Director of Columbia/HCA Healthcare Corporation
Director One Park Plaza
Nashville, TN 37203
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Retired Chairman of the Board of Directors
and Chief Executive Officer of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
C-18
<PAGE>
Donald B. Rice President and Chief Executive Officer of Teledyne,
Director 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
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular
Director One
651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Retired Chairman of the Board and Chief Executive
Director Officer of
Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817
C-19
<PAGE>
Director of Edison International
and Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate
633 West Fifth Street
Los Angeles, CA 90071
Chang-Lin Tien Chancellor of the University of California at
Director Berkeley
Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025
John A. Young President, Chief Executive Officer and 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
C-20
<PAGE>
Prior to May 1, 1996, Barclays Global Fund Advisors ("BGFA"), a wholly-
owned subsidiary of Barclays Global Investors, N.A. ("BGI", formerly, Wells
Fargo Institutional Trust Company), served as sub-advisor to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and to certain other open-end management investment companies. From May 1, 1996
to December 15, 1997 BGFA served as sub-advisor to the corresponding Asset
Allocation, U.S. Government Allocation and Corporate Stock Master Portfolios of
Master Investment Trust, in which such funds invested substantially all of their
assets. These Funds currently invest directly in a portfolio of securities and
no longer invest in the Master Portfolios. BGFA currently serves as sub-advisor
to these Funds.
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-advisor to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. To the
knowledge of the Registrant, except as set forth below, none of 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
BGFA Least the Last Two Fiscal Years
- ---- -------------------------------
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of
Director BGI
45 Fremont, San Francisco, CA 94105
Patricia Dunn Director of BGFA and C-Chairman and Director of
Director BGI
45 Fremont, 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, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May
Chief Financial Officer 1997
45 Fremont, 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, "Organization and Management of the Fund(s)"
in the Prospectuses for the Funds as well as "Management" in the Statements 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
C-21
<PAGE>
made to WFNIA's Form ADV and Schedules A and D filed under the Investment
Advisors Act of 1940, File No. 801-36479, incorporated herein by reference.
Item 29. Principal Underwriters.
----------------------
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment advisor for any other registered investment companies, but
does act as principal underwriter for Life & Annuity Trust, MasterWorks Funds,
Inc. Stagecoach Trust, Nations Fund, Inc., Nations Fund Trust, Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and Nations Institutional
Reserves, and is the exclusive placement agent for Managed Series Investment
Trust and Master Investment Portfolio, all of which are registered open-end
management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisors Act of 1940 (file No. 501-15510).
(c) 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 "Organization and
Management of the Fund(s)" in the Prospectuses for the Funds as well as
"Management" in the Statements of
C-22
<PAGE>
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) 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-23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Little Rock, State of
Arkansas on the 31st day of July, 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
--------------------------
(R. Grey Feltus) President
(Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 7/31/98
--------------------------
(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
July 31, 1998
<PAGE>
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99.B5(u) Advisory Contract
EX-99.B5(v) Advisory Contract
EX-99.B5(v)(i) Advisory Contract
EX-99.B5(x) Form of Advisory Contract
EX-99.B5(x)(i) Form of Sub-Advisory Contract
EX-99.B8(o) Custody Agreement
EX-99.B9(a)(i) Administration Agreement
EX-99.B9(a)(ii) Co-Administration Agreement
EX-99.B9(c)(xxi) Form of Shareholder Servicing Agreement with Wells Fargo
Bank, N.A.
EX-99.B9(e)(x) Servicing Plan and Form of Servicing Agreement
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Auditors
<PAGE>
ADVISORY CONTRACT
CALIFORNIA TAX-FREE MONEY MARKET TRUST
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
March 19, 1997
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company"), on
behalf of the California Tax-Free Money Market Trust (the "Fund"), and Wells
Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of a number of investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective prospectus and the currently effective statement of additional
information incorporated by reference therein relating to the Fund and the
Company (such prospectus and such statement of additional information being
collectively referred to as the "Prospectus") included in the Company's
Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Company under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the documents referred to in
the preceding sentence have been furnished to the Adviser. Any amendments to
those documents shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an Administration Agreement with
the Adviser and a Co-Administration Agreement with Stephens Inc. on behalf of
the Fund, the Company has engaged the Administrators to provide the
administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund in
accordance with the Adviser's best judgment and consistent with the investment
objective and restrictions set forth in the Company's Prospectus, the Act and
the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Company's Board of
Directors. The Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
<PAGE>
ADVISORY CONTRACT
NATIONAL TAX-FREE MONEY MARKET TRUST
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
July 1, 1997
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company"), on
behalf of the National Tax-Free Money Market Trust (the "Fund"), and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of a number of investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective prospectus and the currently effective statement of additional
information incorporated by reference therein relating to the Fund and the
Company (such prospectus and such statement of additional information being
collectively referred to as the "Prospectus") included in the Company's
Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Company under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the documents referred to in
the preceding sentence have been furnished to the Adviser. Any amendments to
those documents shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an Administration Agreement with
the Adviser and a Co-Administration Agreement with Stephens Inc. (the
"Administrators") on behalf of the Fund, the Company has engaged the
Administrators to provide the administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund in
accordance with the Adviser's best judgment and consistent with the investment
objective and restrictions set forth in the Company's Prospectus, the Act and
the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Company's Board of
Directors. The Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
<PAGE>
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its services to
the Fund hereunder, may engage a sub-adviser to provide certain sub-advisory
services pursuant to a separate sub-advisory contract. The Adviser will not
seek to amend any sub-advisory contract to materially alter the obligations of
the parties unless the Adviser gives the Company at least 60 days' prior written
notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental fees;
interest charges; taxes; fees and expenses of its independent auditors, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing any stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and calculating the net asset value per
share of the Fund; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of shares of the Fund; expenses
relating to any pricing services; organizational expenses; and any extraordinary
expenses; except that Class Expenses, such as payments related to a servicing
plan or distribution-related expenses pursuant to a Rule 12b-1 Plan, i.e., a
- -
plan of distribution of the Company adopted on behalf of a class of shares of
the Fund pursuant to Rule 12b-1 under the Act, or other such expenses as
determined in accordance with the Company's Rule 18f-3 Plan, shall be borne by
the applicable class of the Fund. Expenses attributable to one or more, but not
all, of the Company's Funds are charged against the assets of the relevant
Funds. General expenses of the Company are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Board of Directors deems equitable.
6. The Adviser shall give the Company the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company
2
<PAGE>
or its shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser under
this contract, the Company shall pay the Adviser a monthly fee on the first
business day of each month, at the annual rate of 0.25% of the average daily
value (as determined on each day that such value is determined for the Fund at
the time set forth in the Prospectus for determining net asset value per share)
of the Fund's net assets during the preceding month. If the fee payable to the
Adviser pursuant to this paragraph 7 begins to accrue before the end of any
month or if this contract terminates before the end of any month, the fee for
the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Company's Articles of Incorporation for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund shares.
8. If in any fiscal year the total expenses of the Fund incurred by, or
allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 7 and those provided for pursuant to the
Fund's Administration Agreements ("includible expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised or
lowered from time to time, the Adviser shall waive or reimburse that portion of
the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 7 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreements is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Fund's Administration Agreements
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includible expenses accrued during that fiscal year to the end of the
period and shall estimate the contemplated includible expenses for the balance
of that fiscal year. If as a result of that review and estimation it appears
likely that the includible expenses will exceed the limitations referred to in
this paragraph 8 for a fiscal year with respect to the Fund, the monthly fee set
forth in paragraph 7 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an amount equal to the Applicable Ratio times
the pro rata portion (prorated on the basis of the remaining months of the
fiscal year, including the month just ended) of the amount by which the
includible expenses for the fiscal year are expected to exceed the limitations
provided for in this paragraph 8. For purposes of computing the excess, if any,
over the most restrictive applicable expense limitation, the value of the Fund's
net assets shall be computed in the manner specified in the last sentence of
paragraph 7, and any reimbursements required to be made by the Adviser shall be
made once a year promptly after the end of the Company's fiscal year.
9. This contract shall become effective on its execution date and shall
thereafter continue in effect, provided that this contract shall continue in
effect for a period of more than two years from the date hereof only so long as
the continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of
3
<PAGE>
Directors and (b) by the vote, cast in person at a meeting called for the
purpose of a majority of the Company's directors who are not parties to this
contract or "interested persons" (as defined in the Act) of any such party. This
contract may be terminated at any time by the Company, without the payment of
any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Adviser or by the
Adviser, at any time after the second anniversary of the effective date of this
contract, on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
10. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
11. The Adviser and the Company each agree that the words "Stagecoach,"
which compromise a component of the company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use the
words "Stagecoach" as a component of its corporate name, the name of any class,
or both and for no other purpose; (ii) it will not grant to any third party the
right to use the words "Stagecoach" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to use
the words "Stagecoach," or any combination or abbreviation thereof, as all or a
portion of a corporate or business name or for any commercial purpose, other
than a grant of such right to another registered investment company not advised
by the Adviser or one of its affiliates; and (iv) in the event that the Adviser
or an affiliate thereof is no longer acting as investment adviser to any class,
the Company shall, upon request by the Adviser, promptly take such action as may
be necessary to change its corporate name to one not containing the words
"Stagecoach" and following such change, shall not use the words "Stagecoach," or
any combination thereof, as a part of its corporate name or for any other
commercial purpose, and shall use its best efforts to cause its directors,
officers, and shareholders to take any and all actions that the Adviser may
request to effect the foregoing and to reconvey to the Adviser any and all
rights to such words.
12. This contract shall be governed by and construed in accordance with
the laws of the State of California.
<PAGE>
If the foregoing correctly sets forth the agreement between the Company
and the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the
National Tax-Free Money Market Trust
By: /s/ Richard H. Blank, Jr.
-------------------------------
Name: Richard H. Blank, Jr.
-----------------------------
Title: Chief Operating Officer
----------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/ Elizabeth A. Gottfried
-------------------------------
Name: Elizabeth A. Gottfried
-----------------------------
Title: Vice President
----------------------------
By: /s/ Michael J. Hogan
-------------------------------
Name: Michael J. Hogan
-----------------------------
Title: Senior Vice President
----------------------------
5
<PAGE>
ADVISORY CONTRACT
for various portfolios of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
December 12, 1997
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company"), on
behalf of the Company's investment portfolios listed on Schedule 1 hereto, as
such Schedule may be revised from time to time (each, a "Fund" and collectively,
the "Funds"), and Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of a number of investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios.
The Company proposes to engage in the business of investing and reinvesting the
assets of each Fund in the manner and in accordance with the investment
objective and restrictions specified in the Company's currently effective
prospectus and the currently effective statement of additional information
incorporated by reference therein relating to the Funds and the Company (such
prospectus and such statement of additional information being collectively
referred to as the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Company under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the Registration Statement have been
furnished to the Adviser. Any amendments to the Registration Statement shall be
furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of each Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and the Advisor, and a co-administration agreement between
the Company and Stephens Inc. (the "Administrators") on behalf of the Funds, the
Company has engaged the Administrators to provide the administrative services
specified therein.
3. (a) The Adviser shall make investments for the account of each Fund in
accordance with the Adviser's best judgment and consistent with the investment
objective and restrictions set forth in the Company's Prospectus, the Act and
the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Company's Board of
Directors. The Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for a Fund and shall, when requested by the Company's officers
or Board of Directors, supply the reasons for making particular investments.
<PAGE>
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with the daily management of the Funds'
portfolios, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Funds and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Funds prepared by it, or prepared at its request,
other than such costs relating to proxy statements, prospectuses, shareholder
reports and other materials distributed to existing or prospective shareholders
on behalf of a Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. The Company understands that the Adviser, in rendering its services to
the Funds hereunder, may engage a sub-adviser to provide certain sub-advisory
services pursuant to a separate sub-advisory contract. The Adviser will not
seek to amend any sub-advisory contract to materially alter the obligations of
the parties unless the Adviser gives the Company at least 60 days' prior written
notice thereof.
5. Except as provided in each of the advisory contracts and administration
agreements on behalf of the Company's funds, each fund of the Company, including
the Funds, shall bear all costs of its operations, except to the extent that
such costs are identified as attributable to a specific class of a fund ("Class
Expenses"), including the fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental fees;
interest charges; taxes; fees and expenses of its independent auditors, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing any stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and calculating the net asset value per
share of the fund; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of shares of the fund; expenses
relating to any pricing services; organizational expenses; and any extraordinary
expenses; except that Class Expenses, such as payments related to a servicing
plan or distribution-related expenses pursuant to a Rule 12b-1 Plan, i.e., a
- -
plan of distribution of the Company adopted on behalf of a class of shares of
the fund pursuant to Rule 12b-1 under the Act, or other such expenses as
determined in accordance with the Company's Rule 18f-3 Plan, shall be borne by
the applicable class of the fund. Expenses attributable to one or more, but not
all, of the Company's funds are charged against the assets of the relevant
Funds. General expenses of the Company are allocated among the funds in a
manner proportionate to the net assets of each fund, on a transactional basis,
or on such other basis as the Board of Directors deems equitable.
6. The Adviser shall give the Company the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company
2
<PAGE>
or its shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser under
this contract, the Company shall pay the Adviser a monthly fee at the rates
specified on Schedule 1 hereto. If the fee payable to the Adviser pursuant to
this paragraph 7 begins to accrue before the end of any month or if this
contract terminates before the end of any month, the fee for the period from the
effective date to the end of that month or from the beginning of that month to
the termination date, respectively, shall be prorated according to the
proportion that the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating each such monthly fee, the
value of a Fund's net assets shall be computed in the manner specified in the
Prospectus and the Company's Articles of Incorporation for the computation of
the value of such Fund's net assets in connection with the determination of the
net asset value of Fund shares.
8. If in any fiscal year the total expenses of a Fund incurred by, or
allocated to, such Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 7 and those provided for pursuant to the
Fund's Administration Agreements ("includible expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised or
lowered from time to time, the Adviser shall waive or reimburse that portion of
the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 7 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Funds' Administration Agreements is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Funds' Administration Agreements
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includible expenses accrued during that fiscal year to the end of the
period and shall estimate the contemplated includible expenses for the balance
of that fiscal year. If as a result of that review and estimation it appears
likely that the includible expenses will exceed the limitations referred to in
this paragraph 8 for a fiscal year with respect to a Fund, the monthly fee set
forth in paragraph 7 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an amount equal to the Applicable Ratio times
the pro rata portion (prorated on the basis of the remaining months of the
fiscal year, including the month just ended) of the amount by which the
includible expenses for the fiscal year are expected to exceed the limitations
provided for in this paragraph 8. For purposes of computing the excess, if any,
over the most restrictive applicable expense limitation, the value of a Fund's
net assets shall be computed in the manner specified in the last sentence of
paragraph 7, and any reimbursements required to be made by the Adviser shall be
made once a year promptly after the end of the Company's fiscal year.
9. This contract shall become effective on its execution date and shall
thereafter continue in effect, provided that this contract shall continue in
effect for a period of more than two years from the date hereof only so long as
the continuance is specifically approved at least annually (a) by the vote of a
majority of the relevant Fund's outstanding voting securities (as defined in the
3
<PAGE>
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
relevant Fund's outstanding voting securities (as defined in the Act) or by a
vote of a majority of the Company's entire Board of Directors on 60 days'
written notice to the Adviser or by the Adviser, at any time after the second
anniversary of the effective date of this contract, on 60 days' written notice
to the Company. This contract shall terminate automatically in the event of its
assignment (as defined in the Act).
10. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
11. The Adviser and the Company each agree that the words "Stagecoach,"
which comprise a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the words "Stagecoach" as a component of its corporate name, the name of any
class, or both and for no other purpose; (ii) it will not grant to any third
party the right to use the words "Stagecoach" for any purpose; (iii) the Adviser
or any corporate affiliate of the Adviser may use or grant to others the right
to use the words "Stagecoach," or any combination or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
class, the Company shall, upon request by the Adviser, promptly take such action
as may be necessary to change its corporate name to one not containing the words
"Stagecoach" and following such change, shall not use the words "Stagecoach," or
any combination thereof, as a part of its corporate name or for any other
commercial purpose, and shall use its best efforts to cause its directors,
officers, and shareholders to take any and all actions that the Adviser may
request to effect the foregoing and to reconvey to the Adviser any and all
rights to such words.
12. This contract shall be governed by and construed in accordance with
the laws of the State of California without giving effect to the choice of law
provisions thereof.
4
<PAGE>
If the foregoing correctly sets forth the agreement between the Company and
the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of each of the Fund's listed on Schedule
By: /s/ Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer
-----------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/ Elizabeth A. Gottfried
---------------------------
Name: Elizabeth A. Gottfried
----------------------
Title: Vice President
--------------
By: /s/ Michael J. Hogan
--------------------
Name: Michael J. Hogan
----------------
Title: Senior Vice President
---------------------
5
<PAGE>
SCHEDULE 1
Investment advisory fees shall be paid monthly on the first business day of
each month, at the annual rates specified below of each Fund's average daily
value (as determined on each day that such value is determined for the Fund at
the time set forth in the Prospectus for determining net asset value per share)
during the preceding month.
<TABLE>
<CAPTION>
FUND ADVISORY FEE
---- ------------
<S> <C>
ASSET ALLOCATION FUND 0.50% OF THE FIRST $250 MILLION IN ASSETS
0.40% OF THE NEXT $250 MILLION IN ASSETS
0.30% OF ASSETS IN EXCESS OF $500 MILLION
EQUITY INDEX FUND 0.25%
INDEX ALLOCATION FUND 0.70% ON ASSETS UP TO $500 MILLION, AND
0.60% ON ASSETS IN EXCESS OF $500 MILLION
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND 0.30%
OVERLAND EXPRESS SWEEP FUND 0.45%
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND 0.50%
SHORT-TERM MUNICIPAL INCOME FUND 0.50%
SMALL CAP FUND 0.60%
STRATEGIC GROWTH FUND 0.50%
U.S. GOVERNMENT ALLOCATION FUND 0.50% OF THE FIRST $250 MILLION IN ASSETS
0.40% OF THE NEXT $250 MILLION IN ASSETS
0.30% OF ASSETS IN EXCESS OF $500 MILLION
VARIABLE RATE GOVERNMENT FUND 0.50%
</TABLE>
APPROVED: JULY 23, 1997
APPROVED AS AMENDED: OCTOBER 30, 1997 FOR THE EQUITY INDEX FUND
6
<PAGE>
ADVISORY CONTRACT
100% Treasury Money Market Fund
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
August 1, 1998
Wells Fargo Bank, N.A.
525 Market Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company"), on
behalf of the 100% Treasury Money Market Fund (the "Fund"), and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of a number of investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective prospectus and the currently effective statement of additional
information incorporated by reference therein relating to the Fund and the
Company (such prospectus and such statement of additional information being
collectively referred to as the "Prospectus") included in the Company's
Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Company under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the documents referred to in
the preceding sentence have been furnished to the Adviser. Any amendments to
those documents shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund in
accordance with the Adviser's best judgment and consistent with the investment
objective and restrictions set forth in the Company's Prospectus, the Act and
the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Company's Board of
Directors. The Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE>
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its services to
the Fund hereunder, may engage a sub-adviser to provide certain sub-advisory
services pursuant to a separate sub-advisory contract. The Adviser will not
seek to amend any sub-advisory contract to materially alter the obligations of
the parties unless the Adviser gives the Company at least 60 days' prior written
notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental fees;
interest charges; taxes; fees and expenses of its independent auditors, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing any stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and calculating the net asset value per
share of the Fund; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of shares of the Fund; expenses
relating to any pricing services; organizational expenses; and any extraordinary
expenses; except that Class Expenses, such as payments related to a servicing
plan or distribution-related expenses pursuant to a Rule 12b-1 Plan, i.e., a
- -
plan of distribution of the Company adopted on behalf of a class of shares of
the Fund pursuant to Rule 12b-1 under the Act, or other such expenses as
determined in accordance with the Company's Rule 18f-3 Plan, shall be borne by
the applicable class of the Fund. Expenses attributable to one or more, but not
all, of the Company's Funds are charged against the assets of the relevant
Funds. General expenses of the Company are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Board of Directors deems equitable.
6. The Adviser shall give the Company the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
7. In consideration of the services to be rendered by the Adviser under
this contract, the Company shall pay the Adviser a monthly fee on the first
business day of each month, at the annual rate of 0.25% of the average daily
value (as determined on each day that such value is determined for the Fund at
the time set forth in the Prospectus for determining net asset value per share)
of the Fund's net assets during the preceding month. If the fee payable to the
Adviser pursuant to this paragraph 7 begins to accrue before the end of any
month or if this contract terminates before the end of any month, the fee for
the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Company's Articles of Incorporation for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund shares.
2
<PAGE>
8. If in any fiscal year the total expenses of the Fund incurred by, or
allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 7 and those provided for pursuant to the
Fund's Administration Agreement ("includible expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised or
lowered from time to time, the Adviser shall waive or reimburse that portion of
the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 7 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreement is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Fund's Administration Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includible expenses accrued during that fiscal year to the end of the
period and shall estimate the contemplated includible expenses for the balance
of that fiscal year. If as a result of that review and estimation it appears
likely that the includible expenses will exceed the limitations referred to in
this paragraph 8 for a fiscal year with respect to the Fund, the monthly fee set
forth in paragraph 7 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an amount equal to the Applicable Ratio times
the pro rata portion (prorated on the basis of the remaining months of the
fiscal year, including the month just ended) of the amount by which the
includible expenses for the fiscal year are expected to exceed the limitations
provided for in this paragraph 8. For purposes of computing the excess, if any,
over the most restrictive applicable expense limitation, the value of the Fund's
net assets shall be computed in the manner specified in the last sentence of
paragraph 7, and any reimbursements required to be made by the Adviser shall be
made once a year promptly after the end of the Company's fiscal year.
9. This contract shall become effective on its execution date and shall
thereafter continue in effect, provided that this contract shall continue in
effect for a period of more than two years from the date hereof only so long as
the continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Company,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Company's entire Board of Directors on 60 days' written notice to the
Adviser or by the Adviser, at any time after the second anniversary of the
effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
11. The Adviser and the Company each agree that the words "Stagecoach,"
which comprise a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the words "Stagecoach" as a component of its corporate name, the name of any
class, or both and for no other purpose; (ii) it will not grant to any third
party the right to use the words "Stagecoach" for any purpose; (iii) the Adviser
or any corporate affiliate of the Adviser may use or grant to others the right
to use the words "Stagecoach," or any combination or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
class, the Company shall, upon request by the Adviser, promptly take such action
as may be necessary to change its corporate name to one not containing the words
"Stagecoach" and following such change,
3
<PAGE>
shall not use the words "Stagecoach," or any combination thereof, as a part of
its corporate name or for any other commercial purpose, and shall use its best
efforts to cause its directors, officers, and shareholders to take any and all
actions that the Adviser may request to effect the foregoing and to reconvey to
the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance with
the laws of the State of California without giving effect to the choice of law
provisions thereof.
If the foregoing correctly sets forth the agreement between the Company and
the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the 100% Treasury Money Market Fund
By: ____________________________
Name: _________________________
Title: ________________________
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By:_________________________
Name:_______________________
Title:______________________
By:_________________________
Name:_______________________
Title:______________________
Approved: April 30, 1998
4
<PAGE>
SUB-ADVISORY CONTRACT
WELLS FARGO BANK, N.A.
525 Market Street, 12th Floor
San Francisco, CA 94163
August 1, 1998
Wells Capital Management Incorporated
525 Market Street, 10th Floor
San Francisco, California 94163
Ladies and Gentlemen:
This will confirm the agreement by and among Wells Fargo Bank, N.A. (the
"Adviser"), Stagecoach Funds, Inc. (the "Company"), on behalf of each Fund
listed on attached Appendix I, (each, a "Fund" and collectively, the "Funds")
and Wells Capital Management Incorporated (the "Sub-Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of a number of investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios.
The Company engages in the business of investing and reinvesting the assets of
the Funds in the manner and in accordance with the investment objective and
restrictions specified in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933.
Copies of the Registration Statement have been furnished to the Adviser. Any
amendments to the Registration Statement shall be furnished to the Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the Funds' assets and to provide the advisory services specified
elsewhere in the Advisory Contract between the Company and the Adviser, subject
to the overall supervision of the Board of Directors of the Company. Pursuant to
Administration and Co-Administration Agreements between the Company, on behalf
of the Funds, and the administrators (the "Administrators"), the Company has
engaged the Administrators to provide the administrative services specified
therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Funds certain advisory services and the Sub-Adviser hereby accepts such
employment. The Adviser shall retain the authority to establish and modify, from
time to time, the investment strategies and approaches followed by the Sub-
Adviser, subject, in all respects, to the supervision and direction of the
Company's Board of Directors and subject to compliance with the investment
objective, policies and restrictions set forth in the Registration Statement.
<PAGE>
(b) Subject to the overall supervision and control of the Adviser and
the Company, the Sub-Adviser shall be responsible for investing and reinvesting
the Funds' assets in a manner consistent with the investment strategies and
approaches referenced in subparagraph (a), above. In this regard, the Sub-
Adviser, in accordance with the investment objective, policies and restrictions
set forth in the Registration Statement, shall be responsible for implementing
and monitoring the performance of the Fund and shall furnish to the Adviser
periodic reports on the investment activity and performance of the Funds. The
Sub-Adviser shall also furnish such additional reports and information as the
Adviser and the Company's Board of Directors and officers shall reasonably
request.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for the fees paid to the Sub-Adviser
for its services thereunder. The Sub-Adviser agrees that it shall have no claim
against the Company or the Fund respecting compensation under this contract. In
consideration of the services to be rendered by the Sub-Adviser under this
contract, the Adviser shall pay the Sub-Adviser monthly fees at the rates
specified on Appendix I hereto. If the fee payable to the Sub-Adviser pursuant
to this Paragraph 4 begins to accrue on a day after the first day of any month
or if this contract terminates before the end of any month, the fee for the
period from the effective date to the end of the month or from the beginning of
that month to the termination date, shall be prorated according to the
proportion that such period bears to the full month in which the effectiveness
or termination occurs. For purposes of calculating the monthly fee, the value of
a Fund's net assets shall be computed in the manner specified in the
Registration Statement and the Company's Articles of Incorporation for the
computation of the value of such Fund's net assets in connection with the
determination of the net asset value of Fund shares.
5. The Sub-Adviser shall give the Company the benefit of the Sub-
Adviser's best judgment and efforts in rendering services under this contract.
As consideration and as an inducement to the Sub-Adviser's undertaking to render
these services, the Company and the Adviser agree that the Sub-Adviser shall not
be liable under this contract for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this contract
shall be deemed to protect or purport to protect the Sub-Adviser against any
liability to the Adviser, the Company or its shareholders to which the Sub-
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of the Sub-Adviser's duties under this
contract or by reason of reckless disregard of its obligations and duties
thereunder.
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote of
a majority of a Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called specifically for the purpose of continuing this Sub-Advisory
Contract, of a majority of the
2
<PAGE>
Company's Directors who are not parties to this contract or "interested persons"
(as defined in the Act) of any such party. This contract may be terminated, upon
60 days' written notice to the Sub-Adviser, by the Company, without the payment
of any penalty, by a vote of a majority of such Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors. The Sub-Adviser may terminate this contract on 60
days' written notice to the Company. This contract shall terminate automatically
in the event of its "assignment" (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the word "Stagecoach,"
which comprise a component of the Company's name, and the words "Wells Fargo,"
which may in the future comprise a component of the Company's name, are property
rights of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" or "Wells Fargo" as a component of its
corporate name, the name of any class, or both and for no other purpose; (ii) it
will not grant to any third party the right to use the words "Stagecoach" or
"Wells Fargo" for any purpose; (iii) the Adviser or any corporate affiliate of
the Adviser may use or grant to others the right to use the words "Stagecoach"
or "Wells Fargo," or any combination or abbreviation thereof, as all or a
portion of a corporate or business name or for any commercial purpose, other
than a grant of such right to another registered investment company not advised
by the Adviser or one of its affiliates; and (iv) in the event that the Adviser
or an affiliate thereof is no longer acting as investment adviser to any class,
the Company shall, upon request by the Adviser, promptly take such action as may
be necessary to change its corporate name to one not containing the words
"Stagecoach" or "Wells Fargo" and following such change, shall not use the words
"Stagecoach" or "Wells Fargo" or any combination thereof, as a part of its
corporate name or for any other commercial purpose, and shall use its best
efforts to cause its directors, officers, and shareholders to take any and all
actions that the Adviser may request to effect the foregoing and to reconvey to
the Adviser any and all rights to such words.
9. This contract shall be governed by and construed in accordance with
the laws of the State of California.
3
<PAGE>
If the foregoing correctly sets forth the agreement by and among the
Company, the Adviser and the Sub-Adviser, please so indicate by signing and
returning to the Company the enclosed copy hereof.
Very truly yours,
WELLS FARGO BANK, N.A.
By:___________________________________
Name: Michael J. Hogan
Title: Senior Vice President
By:____________________________________
Name: Elizabeth A. Gottfried
Title: Vice President
AGREED to as of the date set forth above:
WELLS CAPITAL MANAGEMENT INCORPORATED
By:______________________________________
Name: Robert W. Bissell
Title: President and Chief Investment Officer
By:______________________________________
Name: J. Mari Casas
Title: Chief Operating Officer
ACCEPTED as of the date set forth above:
STAGECOACH FUNDS, INC.,
on behalf of each Fund listed on attached Appendix I
By:______________________________________
Richard H. Blank, Jr.
Chief Operating Officer
4
<PAGE>
APPENDIX I
Sub-advisory fees are generally subject to a minimum annual fee of $120,000
per Fund; and shall be paid monthly on the first business day of each month, at
the annual rates specified below of each Fund's average daily value (as
determined on each day that such value is determined for the Fund at the time
set forth in the Prospectus for determining net asset value per share) during
the preceding month.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
FUNDS FEE (PER FUND)
-------------------------------------------------------------------------------------------
<S> <C>
EQUITY FUNDS
Balanced 0.25% of the first $200 million in assets
Diversified Equity Income 0.20% of the next $200 million in assets
Equity Value 0.15% of all assets over $400 million
Growth
International Equity
Small Cap
Strategic Growth
-------------------------------------------------------------------------------------------
INCOME FUNDS
Corporate Bond 0.15% of the first $400 million in assets
Short-Term Government-Corporate Income 0.125% of the next $400 million in assets
Short-Intermediate U.S. Government Income 0.10% of all assets over $800 million
Strategic Income
U.S. Government Income
Variable Rate Government
TAX-FREE INCOME FUNDS
Arizona Tax-Free
California Tax-Free Bond
California Tax-Free Income
National Tax-Free
Oregon Tax-Free
Short-Term Municipal Income
-------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
Money Market 0.05% of the first $960 million in assets
Money Market Trust 0.04% of all assets above $960 million
California Tax-Free Money Market
California Tax-Free Money Market Trust
Government Money Market
National Tax-Free Money Market
National Tax-Free Money Market Trust
Overland Express Sweep
Prime Money Market
Treasury Money Market
100% Treasury Money Market Fund
-------------------------------------------------------------------------------------------
</TABLE>
Approved: April 30, 1998
Approved, as amended: July 30, 1998
A-1
<PAGE>
FORM OF
CUSTODY AGREEMENT
STAGECOACH FUNDS, INC.
111 CENTER STREET
LITTLE ROCK, ARKANSAS 72201
This Agreement is made as of the 1st day of August, 1998 (the
"Agreement"), by and between STAGECOACH FUNDS, INC. (the "Company"), on behalf
of the 100% Treasury Money Market Fund (the "Fund"), and WELLS FARGO BANK, N.A.
(the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Company and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meaning:
1. "Authorized Person" shall be deemed to include the treasurer, the
controller or any other person, whether or not any such person is an Officer or
employee of the Company, duly authorized by the Board of Directors ("Directors")
to give Oral Instructions and Written Instructions on behalf of the Fund and
listed in the Certificate attached hereto as Appendix A or such other
Certificate as may be received from time to time by the Custodian.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-
entry system for United States and federal agency securities, its successor(s)
and its nominee(s).
3. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the
Custodian, which is actually received by the Custodian and signed on behalf of
the Fund by any two Officers of the Company.
4. "Clearing Member" shall mean a registered broker-dealer that is a
member of a national securities exchange qualified to act as a custodian for an
investment company, or any broker-dealer reasonably believed by the Custodian to
be such a clearing member.
5. "Depository" shall mean The Depository Trust Company ("DTC"),
Participants Trust Company ("PTC"), and any other clearing agency registered
with the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, its successor(s) and its nominee(s), provided the
Custodian has received a certified copy of a
-1-
<PAGE>
resolution of the Board of Directors specifically approving deposits in DTC, PTC
or such other clearing agency. The term "Depository" shall further mean and
include any person authorized to act as a depository pursuant to Section 17,
Rule 17f-4 or Rule 17f-5 thereunder, under the Investment Company Act of 1940,
its successor(s) and its nominee(s), specifically identified in a certified copy
of a resolution of the Board of Directors approving deposits therein by the
Custodian.
6. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, or Clearing Member, or in the name of the Company or the Fund
for the benefit of a broker, dealer, or Clearing Member, or otherwise, in
accordance with an agreement between the Company on behalf of the Fund, the
Custodian and a broker, dealer, or Clearing Member (a "Margin Account
Agreement"), separate and distinct from the custody account, in which certain
Securities and/or moneys of the Fund shall be deposited and withdrawn from time
to time in connection with such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or the Depository shall be
deemed to have been deposited in, or withdrawn from, a Margin Account upon the
Custodian's effecting an appropriate entry on its books and records.
7. "Money Market Securities" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and interest
by the government of the United States or agencies or instrumentalities thereof,
commercial paper, certificates of deposit and bankers' acceptances, repurchase
and reverse repurchase agreements with respect to the same and bank time
deposits, where the purchase and sale of such securities normally requires
settlement in federal funds on the same date as such purchase or sale.
8. "Officers" shall be deemed to include the President, Vice President,
the Secretary, the Treasurer, the Controller, any Assistant Secretary, any
Assistant Treasurer or any other person or persons duly authorized by the
Directors of the Company to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate attached
hereto as Appendix B or such other Certificate as may be received by the
Custodian from time to time.
9. "Oral Instructions" shall mean verbal instructions actually received
by the Custodian from an Authorized Person or from a person reasonably believed
by the Custodian to be an Authorized Person.
10. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
11. "Security" or "Securities" shall be deemed to include, without
limitation, Money Market Securities, Reverse Repurchase Agreements, common stock
and other instruments or rights having characteristics similar to common stocks,
preferred stocks, debt obligations issued by state or municipal governments and
by public authorities (including, without limitation, general obligations
bonds), bonds, debentures, notes, mortgages or other obligations, and any
2
<PAGE>
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
12. "Segregated Security Account" shall mean an account maintained under
the terms of this Agreement as a segregated account, by recordation or
otherwise, within the custody account in which certain Securities and/or other
assets of the Fund shall be deposited and withdrawn from time to time in
accordance with Certificates received by the Custodian in connection with such
transactions as the Fund may from time to time determine.
13. "Shares" shall mean the shares of common stock of the Fund, each of
which, in the case of the Fund having Series, is allocated to a particular
Series.
14. "Written Instructions" shall mean written communications actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person by telex or any other such
system whereby the receiver of such communications is able to verify by codes or
otherwise with a reasonable degree of certainty the authenticity of the sender
of such communication.
ARTICLE II
APPOINTMENT OF A CUSTODIAN
1. The Company on behalf of the Fund hereby constitutes and appoints
the Custodian as custodian of all the Securities and moneys at any time owned by
the Fund during the term of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform all the duties thereof as set forth in this Agreement.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in Article V, the Fund will deliver or
cause to be delivered to the Custodian all Securities and all moneys owned by
it, including cash received for the issuance of its Shares, at any time during
the term of this Agreement. The Custodian will not be responsible for such
Securities and such moneys until actually received by it. The Custodian will be
entitled to reverse any credits made on the Fund's behalf where such credits
have been previously made and moneys are not finally collected. The Fund shall
deliver to the Custodian a certified resolution of the Directors of the Company
authorizing and instructing the Custodian on a continuous and ongoing basis to
deposit in the Book-Entry System all Securities eligible for deposit therein and
to utilize the Book-Entry System to the extent possible in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities
3
<PAGE>
collateral. Prior to a deposit of Securities of the Fund in the Depository, the
Fund shall deliver to the Custodian a certified resolution of the Directors of
the Company approving, authorizing and instructing the Custodian on a continuous
and ongoing basis until instructed to the contrary by a Certificate actually
received by the Custodian to deposit in the Depository all Securities eligible
for deposit therein and to utilize the Depository to the extent possible in
connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities and
moneys of the Fund deposited in either the Book-Entry System or the Depository
will be represented in accounts which include only assets held by the Custodian
for customers, including, but not limited to, accounts in which the Custodian
acts in a fiduciary or representative capacity.
2. The Custodian shall credit to a separate account in the name of the
Fund all moneys received by it for the account of the Fund, and shall disburse
the same only:
(a) In payment for Securities purchased, as provided in Article IV
hereof;
(b) In payment of dividends or distributions, as provided in Article
VIII hereof;
(c) In payment of original issue or other taxes, as provided in Article
IX hereof;
(d) In payment for Shares redeemed by it, as provided in Article IX
hereof;
(e) Pursuant to Certificate(s) setting forth the name(s) and address(es)
of the person(s) to whom the payment is to be made, and the purpose for which
payment is to be made; or
(f) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian, as provided in Article XII hereof.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary of all transfers to or
from the account of the Fund during said day. Where Securities are transferred
to the account of the Fund, the Custodian shall also by book-entry or otherwise
identify as belonging to the Fund a quantity of Securities in a fungible bulk of
Securities registered in the name of the Custodian (or its nominee) or shown on
the Custodian's account on the books of the Book-Entry System or the Depository.
The Custodian shall furnish the Fund at least monthly with a detailed statement
of the Securities and moneys held for the Fund under this Agreement.
4. Except as otherwise provided in Article V, all Securities held for
the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Fund, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor(s) or their
nominee(s). The Company agrees to
4
<PAGE>
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. The Custodian shall hold all
such Securities which are not held in the Book-Entry System or in the Depository
in a separate account in the name of the Fund physically segregated at all times
from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to the
Securities therein deposited, shall, with respect to all Securities held for the
Fund in accordance with this Agreement:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix C annexed hereto, which may be amended at
any time by the Custodian upon five business days' prior notification to the
Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as Custodian, any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of the Fund all
rights and similar securities issued with respect to any Securities held by the
Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of the Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for the Fund in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
5
<PAGE>
(c) Deliver any Securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfer or exchanges of the assets of the Fund and take
such other steps as shall be stated in said order to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase or sale (as applicable) of Securities by
the Fund, other than a purchase or sale of any Reverse Repurchase Agreement, the
Fund shall deliver to the Custodian (i) with respect to each purchase or sale of
Securities which are not Money Market Securities, a Certificate; and (ii) with
respect to each purchase or sale of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to each such
purchase or sale: (a) the name of the issuer and the title of the Securities;
(b) the number of shares or the principal amount purchased or sold and accrued
interest, if any; (c) the date of purchase or sale and settlement date; (d) the
purchase or sale price per unit; (e) the total amount payable upon such purchase
or sale; (f) the name of the person from whom or the broker through whom the
purchase or sale was made, and the name of the clearing broker, if any; (g) in
the case of a purchase, the name of the broker to which payment is to be made;
and (h) in the case of a sale, the name of the broker to whom the Securities are
to be delivered. In the case of a purchase, the Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay out of the moneys held for the
account of the Fund the total amount payable to the person from whom, or the
broker through whom, the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Oral Instructions or
Written Instructions. In the case of a sale, the Custodian shall deliver the
Securities upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
6
<PAGE>
ARTICLE V
SHORT SALES
1. Promptly after any short sale, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the name of the issuer and the title of
the Security; (b) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (c) the dates of the sale and settlement; (d) the
sale price per unit; (e) the total amount credited to the Fund upon such sale,
if any (f) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (g) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Segregated Security
Account; and (h) the name of the broker through which such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Segregated Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing-out: (a) the name of the issuer and the title of the Security; (b)
the number of shares or the principal amount, and accrued interest or dividends,
if any, required to effect such closing-out to be delivered to the broker; (c)
the dates of the closing-out and settlement; (d) the purchase price per unit;
(e) the net total amount payable to the Fund upon such closing-out; (f) the net
total amount payable to the broker upon such closing-out; (g) the amount of cash
and the amount and kind of Securities, if any, to be withdrawn, from the Margin
Account; (h) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Segregated Security Account; and (i) the name of
the broker through which the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Segregated Security Account, as the same are specified in the Certificate.
ARTICLE VI
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate, or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate, Oral
Instructions or Written Instructions specifying: (a) the total amount payable
to the Fund in connection with such Reverse Repurchase Agreement; (b) the broker
or dealer through or with which the Reverse Repurchase Agreement is entered; (c)
the amount and kind of Securities to be delivered by the Fund to such broker or
dealer; (d) the date of such Reverse Repurchase Agreement; and (e) the amount of
cash and/or the amount and kind of Securities, if
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any, to be deposited in a Segregated Security Account in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate, Oral Instructions or
Written Instructions make the delivery to the broker or dealer, and the
deposits, if any, to the Segregated Security Account, specified in such
Certificate, Oral Instructions or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
paragraph 1 of this Article VI, the Fund shall promptly deliver a Certificate
or, in the event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate, Oral Instructions or Written Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being terminated; (b) the
total amount payable by the Fund in connection with such termination; (c) the
amount and kind of Securities to be received by the Fund in connection with such
termination; (d) the date of termination; (e) the name of the broker or dealer
with or through which the Reverse Repurchase Agreement is to be terminated; and
(f) the amount of cash and/or the amount and kind of Securities to be withdrawn
from the Segregated Security Account. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate, Oral Instructions or Written Instructions, make the payment to the
broker or dealer, and the withdrawals, if any, from the Segregated Security
Account, specified in such Certificate, Oral Instructions or Written
Instructions.
ARTICLE VII
MARGIN ACCOUNTS, SEGREGATED SECURITY
ACCOUNTS AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Segregated Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the amount of cash
and/or the amount and kind of Securities to be deposited in, or withdrawn from,
the Segregated Security Account. In the event that the Fund fails to specify in
a Certificate the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities to be deposited by the Custodian
into, or withdrawn from, a Segregated Securities Account, the Custodian shall be
under no obligation to make any such deposit or withdrawal and shall so notify
the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account
to the broker, dealer or Clearing Member in whose name, or for whose benefit,
the account was established as specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein.
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5. On each business day, the Custodian shall furnish the Fund with a
statement with respect to the Fund's Margin Account in which money or Securities
are held specifying as of the close of business on the previous business day:
(a) the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker or dealer specified in the name of a Margin
Account a copy of the statement furnished the Fund with respect to such Margin
Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account, the Custodian
shall furnish the Fund with a statement with respect to the Fund's Collateral
Account specifying the amount of cash and/or the amount and kind of Securities
held therein. No later than the close of business next succeeding the delivery
to the Fund of such statement, the Fund shall furnish the Custodian with a
Certificate or Written Instructions specifying the then market value of the
Securities described in such statement.
ARTICLE VIII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish the Custodian with a copy of the resolution of
the Directors, certified by the Secretary or any Assistant Secretary, either (i)
setting forth the date of the declaration of a dividend or distribution, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of that date and the total amount payable to the Dividend Agent of the
Fund on the payment date, or (ii) authorizing the declaration of dividends and
distributions on a daily basis or some other periodic basis and authorizing the
Custodian to rely on Oral Instructions, Written Instructions or a Certificate
setting forth the date of the declaration of such dividend or distribution, the
date of payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per share to the shareholders of
record as of that date and the total amount payable to the Dividend Agent on the
payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, the Custodian shall pay out
the moneys held for the account of the Fund the total amount payable to the
Dividend Agent of the Fund.
ARTICLE IX
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any of its Shares, it shall deliver to
the Custodian a Certificate duly specifying the number of Shares sold, trade
date, price and the amount of money to be received by the Custodian for the sale
of such Shares.
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2. Upon receipt of such money from the Transfer Agent or a co-transfer
agent, the Custodian shall credit such money to the account of the Fund.
3. Upon issuance of any of the Fund's Shares in accordance with the
foregoing provisions of this Article IX, the Custodian shall pay, out of the
money held for the account of the Fund, all original issue or other taxes
required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund shall redeem any of
its Shares, it shall furnish the Custodian with a Certificate specifying the
number of Shares redeemed and the amount to be paid for the Shares redeemed.
5. Upon receipt from the Transfer Agent or co-transfer agent of an
advice setting forth the number of Shares received by the Transfer Agent or co-
transfer agent for redemption, and that such Shares are valid and in good form
for redemption, the Custodian shall make payment to the Transfer Agent or co-
transfer agent, as the case may be, out of the moneys held for the account of
the Fund of the total amount specified in the Certificate issued pursuant to
paragraph 4 of this Article IX.
6. Notwithstanding the above provisions regarding the redemption of any
of the Fund's Shares, whenever its Shares are redeemed pursuant to any check
redemption privilege which may from time to time be offered by the Fund, the
Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of
an advice from the Fund or its agent setting forth that the redemption is in
good form for redemption in accordance with the check redemption procedure,
honor the check presented as part of such check redemption privilege out of the
money held in the account of the Fund for such purposes.
ARTICLE X
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of the Fund which results in an overdraft because the moneys held by the
Custodian for the account of the Fund shall be insufficient to pay the total
amount payable upon a purchase of Securities as set forth in a Certificate or
Oral Instructions issued pursuant to Article IV, or which results in an
overdraft for some other reason, or if the Fund is, for any other reason,
indebted to the Custodian (except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant to a separate
agreement and subject to the provisions of paragraph 2 of this Article X), such
overdraft or indebtedness shall be deemed to be a loan made by the Custodian to
the Fund payable on demand and shall bear interest from the date incurred at a
rate per annum (based on a 360-day year for the actual number of days involved)
equal to 1/2% over the Custodian's prime commercial lending rate in effect from
time to time, such rate to be adjusted on the effective date of any change in
such prime commercial lending rate but in no event to be less than 6% per annum.
Any such overdraft or indebtedness shall be reduced by an amount equal to the
total of all amounts due the Fund which have not been collected by the Custodian
on
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behalf of the Fund when due because of the failure of the Custodian to make
timely demand or presentment for payment. In addition, the Company on behalf of
the Fund hereby agrees that the Custodian shall have a continuing lien and
security interest in and to any property at any time held by it for the benefit
of the Fund or in which the Fund may have an interest which is then in the
Custodian's possession or control or in possession or control of any third party
acting on the Custodian's behalf. The Company authorizes the Custodian, in its
sole discretion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any balance of account standing to
the Fund's credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities as collateral for such borrowings, a notice or
undertaking in the form currently employed by any such bank setting forth the
amount which such bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such borrowing: (a) the name of the bank; (b)
the amount and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund, or other
loan agreement; (c) the time and date, if known, on which the loan is to be
entered into; (d) the date on which the loan becomes due and payable; (e) the
total amount payable to the Fund on the borrowing date; (f) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal of any
particular Securities; and (g) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amounts payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the name of
the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XI
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. If the Fund is permitted by the terms of the Company's Articles of
Incorporation and as disclosed in the Fund's most recent and currently effective
prospectus to lend its portfolio Securities, within twenty-four (24) hours after
each loan of portfolio Securities the Fund shall
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<PAGE>
deliver or cause to be delivered to the Custodian a Certificate specifying with
respect to each such loan; (a) the name of the issuer and the title of the
Securities; (b) the number of shares or the principal amount loaned; (c) the
date of loan and delivery; (d) the total amount to be delivered to the Custodian
against the loan of the Securities, including the amount of cash collateral and
the premium, if any, separately identified; and (e) the name of the broker,
dealer or financial institution to which the loan was made. The Custodian shall
deliver the Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the Book-
Entry System or Depository only in the form of a certified or bank cashier's
check payable to the order of the Fund or the Custodian drawn on New York
Clearing House funds and may deliver Securities in accordance with the customs
prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, it shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the name of the issuer and the title of the Securities to be returned; (b)
the number of shares or the principal amount to be returned; (c) the date of
termination; (d) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate); and (e) the name of the broker, dealer or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XII
THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its nominee
shall be liable for any loss or damage, including attorney's fees, resulting
from its action or omission to act or otherwise, either hereunder or under any
Margin Account Agreement, except for any such loss or damage arising out of its
own negligence or willful misconduct. The Custodian may, with respect to
questions of law arising hereunder or under any Margin Account Agreement, apply
for and obtain the advice and opinion of counsel to the Fund or of its own
counsel, at the expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity with such advice
or opinion. The Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian shall
be under no obligation to inquire into, and shall not be liable for:
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<PAGE>
(a) The validity of the issue of any Securities purchased, sold or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received thereof;
(b) The legality of the issue or sale of any of the Fund's Shares, or
the sufficiency of the amount to be received therefor;
(c) The legality of the redemption of any of the Fund's Shares, or the
propriety of the amount to be paid therefor;
(d) The legality of the declaration or payment of any dividend by the
Fund;
(e) The legality of any borrowing by the Fund using Securities as
collateral;
(f) The legality of any loan of portfolio Securities pursuant to Article
XI of this Agreement, nor shall the Custodian be under any duty or obligation to
see to it that any cash collateral delivered to it by a broker, dealer or
financial institution or held by it at any time as a result of such loan of
portfolio Securities of the Fund is adequate collateral for the Fund against any
loss it might sustain as a result of such loan. The Custodian specifically, but
not by way of limitation, shall not be under any duty or obligation periodically
to check or notify the Fund that the amount of such cash collateral held by it
for the Fund is sufficient collateral for the Fund, but such duty or obligation
shall be the sole responsibility of the Fund. In addition, the Custodian shall
be under no duty or obligation to see that any broker, dealer or financial
institution to which portfolio Securities of the Fund are lent pursuant to
Article XI of this Agreement makes payment to it of any dividends or interest
which are payable to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however, that the Custodian
shall promptly notify the Fund in the event that such dividends or interest are
not paid and received when due; or
(g) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Segregated Security Account or Collateral Account in
connection with transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer, or Clearing Member
makes payment to the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker, dealer, or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, or Clearing Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of any such payment;
provided however that the Custodian, upon the Fund's written request, shall as
Custodian, demand from any broker, dealer, or Clearing Member identified by the
Fund the payment of any variation margin payment or similar payment that the
Fund asserts it is entitled to receive pursuant to the terms of a Margin Account
Agreement or otherwise from such broker, dealer, or Clearing Member.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft or other
instrument for the payment of money, received by it on behalf of the Fund until
the Custodian actually receives and collects
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<PAGE>
such money directly or by the final crediting of the account representing the
Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchanges, offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository, the
Custodian shall make a claim against the Depository on behalf of the Fund,
except that the Custodian shall not be under any obligation to appear in,
prosecute or defend any action, suit or proceeding in respect to any Securities
held by the Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expense and liability
be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories or as sub-custodian(s), including, but not limited
to, banking institutions located in foreign countries, of Securities and moneys
at any time owned by the Fund, upon terms and conditions approved in a
Certificate, which shall, if requested by the Custodian, be accompanied by an
approving resolution of the Company's Board of Directors adopted in accordance
with Rule 17f-5 under the Investment Company Act of 1940, as amended.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
the Fund are such as properly may be held by the Fund under the provisions of
its Articles of Incorporation.
9. The Custodian shall not be entitled to compensation for providing
custody services to the Fund so long as the Custodian receives fees for
providing agency services to the Fund. If it no longer receives compensation
for providing such services, the Custodian shall be entitled to such reasonable
fees as it may from time to time negotiate with the Fund.
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10. The Custodian shall be entitled to rely upon any Certificate, notice
or other instrument in writing received by the Custodian and reasonably believed
by the Custodian to be a Certificate. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions actually received by the
Custodian pursuant to Article IV or VII hereof. The Fund agrees to forward to
the Custodian a Certificate or facsimile thereof, confirming such Oral
Instructions or Written Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand delivery, telex
or otherwise, by the close of business of the same day that such Oral
Instructions or Written Instructions are given to the Custodian. The Fund
agrees that the fact that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions, provided such instructions reasonably
appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, or Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws, rules and
regulations. The Fund, or the Fund's authorized representative(s), shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative(s) at the Fund's expense.
13. The Custodian shall provide the Company with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System or the Depository and with such reports on its own systems of internal
accounting control as the Company may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with the Custodian's payment or non-payment of checks pursuant to
paragraph 6 of Article IX as part of any check redemption privilege program of
the Fund, except for any such liability, claim, loss and demand arising out of
the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, the Custodian
may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to
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be made and received by the Custodian in accordance with the customs prevailing
from time to time among brokers or dealers in such Securities.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement or Appendix D attached hereto, and no covenant or obligation shall be
implied in this Agreement against the Custodian.
ARTICLE XIII
TERMINATION
1. This Agreement shall continue until December ____, 1996, and
thereafter shall continue automatically for successive annual periods ending on
the last day of December of each year, provided such continuance is specifically
approved at least annually by (i) the Company's Directors or (ii) vote of a
majority (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event its continuance
also is approved by a majority of the Company's Directors who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable without penalty, on sixty (60) days'
notice, by the Company's Directors or, by vote of holders of a majority of the
Fund's Shares or, upon not less than ninety (90) days' notice, by the Custodian.
In the event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Directors of the Company on behalf of the Fund, certified
by the Secretary or any Assistant Secretary, electing to terminate this
Agreement and designating a successor custodian or custodians, each of which
shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is given by
the Custodian, the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Directors, certified by the Secretary or
any Assistant Secretary, designating a successor custodian or custodians. In
the absence of such designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus and undivided profits. Upon the date set
forth in such notice, this Agreement shall terminate and the Custodian shall,
upon receipt of a notice of acceptance by the successor custodian, on that date
deliver directly to the successor custodian all Securities and moneys then owned
by the Fund and held by it as Custodian, after deducting all fees, expenses, and
other amounts for the payment of reimbursement of which shall then be entitled.
2. If a successor custodian is not designated by the Company on behalf
of the Fund or the Custodian in accordance with the preceding paragraph, the
Fund shall, upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to the Fund)
and moneys then owned by the Fund, be deemed to be its own custodian, and the
Custodian shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities held in the
Book-Entry System, in any Depository or by a Clearing Member which cannot be
delivered to the Fund, to hold such Securities hereunder in accordance with this
Agreement.
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ARTICLE XIV
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Company under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Company agrees to furnish to
the Custodian a new Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person or in the event that
other or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Company under its seal, setting forth the names and the
signatures of the present Officers of the Company. The Fund agrees to furnish
to the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Company, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be fully be protected in acting under the
provisions of this Agreement upon the signatures of the Officers as set forth in
the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be deemed sufficiently given
if addressed to the Custodian and mailed or delivered to it at its offices at
420 Montgomery Street, San Francisco, California, 94105, or at such other place
as the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given by or on behalf of the Fund, shall be deemed
sufficiently given if addressed to the Fund and mailed or delivered to it at its
office at 111 Center Street, Little Rock, Arkansas, 72201, or at such other
place as the Fund may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties to this Agreement and approved by a
resolution of the Directors of the Company.
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successor(s) and assign(s); provided, however, that
this Agreement shall not be assignable by the Company without the written
consent of the Custodian, or by the Custodian without the written consent of the
Company, authorized or approved by a resolution of its Directors.
7. This Agreement shall be construed in accordance with the laws of the
State of California.
17
<PAGE>
8. This Agreement may be executed in any number of counterparts, each
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized, as of the day
and year first above written.
STAGECOACH FUNDS, INC. WELLS FARGO BANK, N.A.
By: /s/ Richard H. Blank, Jr. By: /s/ Vito P. Limitone
---------------------------------- -----------------------------
Name: Richard H. Blank, Jr. Name: Vito P. Limitone
--------------------------------- -------------------------
Title: Chief Operating Officer Title: Senior Vice President
--------------------------------- ------------------------
18
<PAGE>
APPENDIX A
AUTHORIZED PERSONS
------------------
Pursuant to Article I, Para. 1, and Article XIV, Para. 1, of the
Custody Agreement, the following persons have been authorized by the Board of
Directors to give Oral Instructions and Written Instructions on behalf of the
Fund.
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
By: ________________________ By: __________________________
Name: ______________________ Name: ________________________
Title: _____________________ Title: _______________________
A
<PAGE>
APPENDIX B
----------
OFFICERS
Pursuant to Article I, Para. 8, and Article XIV, Para. 2, of the
Custody Agreement, the term "Officers" does not include any persons other than
the President, Vice President, Secretary, Treasurer, Controller, Assistant
Secretary and Assistant Treasurer; and the following persons are Officers of the
Company authorized by the Board of Directors to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund.
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
By: ______________________ By:__________________________
Name: ________________________ Name:_________________________
Title: _____________________ Title:________________________
-B-
<PAGE>
APPENDIX C
----------
DESIGNATED PUBLICATIONS LIST FOR CALLED INSTRUMENTS
The following publications are designated publications for the purposes
of Article III, Para. 5(b):
A. The Bond Buyer
B. The Depository Trust Company Notices
C. Financial Daily Card Services
D. The New York Times
E. Standard & Poor's Called Bond Record
F. The Wall Street Journal
-C-
<PAGE>
APPENDIX D
----------
COMPANY AND FUND ACCOUNTING SERVICES:
SCHEDULE OF SERVICES
A. Maintain Fund general ledger and journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projection of available cash balances.
G. Record trading activity for purposes of determining net asset values and
daily dividend.
H. Prepare daily portfolio evaluation report to value portfolio Securities and
determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine the daily dividend per share.
K. Prepare monthly, quarterly, semi-annual and annual financial statements.
L. Provide financial information for reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Company Act
of 1940 and the Securities Act of 1933, the Internal Revenue Service and
any other regulatory or governmental agencies as required.
M. Provide financial, yield, net asset value, etc., information to National
Association of Securities Dealers, Inc., and other survey and statistical
agencies as instructed from time to time by the Fund.
-D-
<PAGE>
ADMINISTRATION AGREEMENT
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of February, 1998, by and between
the Stagecoach Funds, Inc., a Maryland corporation ("Stagecoach") and Wells
Fargo Bank, N.A., a national banking association ("Wells Fargo").
WHEREAS, Stagecoach is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Stagecoach desires to retain Wells Fargo to render certain
administrative services to Stagecoach's investment portfolios listed in Appendix
A (individually, a "Fund" and collectively, the "Funds"), and Wells Fargo is
willing to render such services; and
WHEREAS, Stagecoach is retaining Stephens Inc. pursuant to a separate Co-
Administration Agreement with Stagecoach and Wells Fargo to provide certain
other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Stagecoach hereby appoints Wells Fargo to act as
-----------
Administrator of the Funds, and Wells Fargo hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 3, for the
compensation and on the terms herein provided. Each new investment portfolio
established in the future by Stagecoach shall automatically become a "Fund" for
all purposes hereunder as if it were listed in Appendix A, absent written
notification to the contrary by either Stagecoach or Wells Fargo.
2. Delivery of Documents. Stagecoach shall furnish to, or cause to be
---------------------
furnished to, Wells Fargo originals of, or copies of, all books, records, and
other documents and papers related in any way to the administration of
Stagecoach.
3. Duties as Administrator. Wells Fargo shall, at its expense, provide
-----------------------
the following administrative services in connection with the operations of
Stagecoach and the Funds:
(a) track authorized vs. issued shares;
(b) furnish statistical and research data;
1
<PAGE>
(c) coordinate (or assist in) the preparation and filing with the U.S.
Securities and Exchange Commission of registration statements, notices, reports,
and other material required to be filed under applicable laws;
(d) coordinate (or assist in) the preparation of reports and other
information materials regarding the Funds including proxies and other
shareholder communications, and review prospectuses;
(e) prepare expense table information for annual updates;
(f) provide legal and regulatory advice to the Funds in connection with
its other administrative functions;
(g) provide office facilities and clerical support for the Funds;
(h) develop and implement procedures for monitoring compliance with
regulatory requirements and compliance with the Funds' investment objectives,
policies and restrictions;
(i) provide liaison with the Funds' independent auditors;
(j) prepare and file tax returns;
(k) review payments of Fund expenses;
(l) prepare expense budgeting and accruals;
(m) provide communication, coordination, and supervision services with
regard to the Funds' transfer agent, custodian, fund accountant, co-
administrator, and other service organizations that render recordkeeping or
shareholder communication services;
(n) provide information to the Funds' distributor concerning fund
performance and administration;
(o) assist Stagecoach in the development of additional investment
portfolios;
(p) provide reports to the Funds' board of directors regarding its
activities;
(q) assist in the preparation and assembly of meeting materials,
including comparable fee information, as required, for the Funds' board of
directors;
(r) provide any other administrative services reasonably necessary for
the operation of the Funds other than those services that are to be provided by
Stephens pursuant to its Co-Administration Agreement with Stagecoach and Wells
Fargo, and by Stagecoach's transfer
2
<PAGE>
and dividend disbursing agent, custodian, and fund accountant, provided that
nothing in this Agreement shall be deemed to require Wells Fargo to provide any
services that may not be provided by it under applicable banking laws and
regulations.
In performing all services under this agreement, Wells Fargo shall: (a) act
in conformity with Stagecoach's Articles of Incorporation and By-Laws, the 1940
Act, and any other applicable laws as may be amended from time to time; and
Stagecoach's registration statement under the Securities Act of 1933 and the
1940 Act, as may be amended from time to time; (b) consult and coordinate with
legal counsel to Stagecoach as necessary and appropriate; and (c) advise and
report to Stagecoach and its legal counsel, as necessary and appropriate, with
respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3, Wells Fargo may, at
its own expense, enter into sub-administration agreements with other service
providers, provided that each such service provider agrees with Wells Fargo to
comply with all relevant provisions of the 1940 Act, the Investment Advisers Act
of 1940, any other applicable laws as may be amended from time to time, and all
relevant rules thereunder. Wells Fargo will provide Stagecoach with a copy of
each sub-administration agreement it executes relating to Stagecoach. Wells
Fargo will be liable for acts or omissions of any such sub-administrators under
the standards of care described herein under Paragraph 5.
In performing its services under this agreement, Wells Fargo shall
cooperate and coordinate with Stephens as necessary and appropriate and shall
provide such information to Stephens as is reasonably necessary or appropriate
for Stephens to perform its obligations to Stagecoach.
4. Compensation. In consideration of the administration services to be
------------
rendered by Wells Fargo under this agreement, Stagecoach shall pay Wells Fargo a
monthly fee, as shown on Appendix A, of the average daily value (as determined
on each business day at the time set forth in the Prospectus for determining net
asset value per share) of the Funds' net assets during the preceding month. If
the fee payable to Wells Fargo pursuant to this Paragraph 4 begins to accrue
before the end of any month or if this agreement terminates before the end of
any month, the fee for the period from the effective date to the end of that
month or from the beginning of that month to the termination date, respectively,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of each Fund's net assets shall be
computed in the manner specified in the Prospectus and Stagecoach's Articles of
Incorporation for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of Fund shares. For
purposes of this agreement, a "business day" is any day that Stagecoach is open
for trading.
5. Limitation of Liability; Indemnification.
----------------------------------------
(a) Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stagecoach in connection with the
performance of its obligations and
3
<PAGE>
duties under this agreement, except a loss resulting from Wells Fargo's willful
misfeasance, bad faith, or negligence in the performance of its obligations and
duties or that of its agents or sub-administrators, or by reason of its or their
reckless disregard thereof. Any person, even though also an officer, director,
employee or agent of Wells Fargo, shall be deemed, when rendering services to
Stagecoach or acting on any business of Stagecoach (other than services or
business in connection with Wells Fargo's duties as Administrator hereunder) to
be acting solely for Stagecoach and not as an officer, director, employee, or
agent or one under the control or discretion of Wells Fargo even though paid by
it.
(b) Stagecoach, on behalf of each Fund, will indemnify Wells Fargo
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Wells Fargo or its agents or sub-administrators in the performance of such
obligations and duties, or by reason of its or their reckless disregard thereof.
Wells Fargo will not confess any claim or settle or make any compromise in any
instance in which Stagecoach will be asked to provide indemnification, except
with Stagecoach's prior written consent. Any amounts payable by Stagecoach under
this Paragraph 5(b) shall be satisfied only against the assets of the Fund
involved in the claim, demand, action, or suit and not against the assets of any
other Fund.
6. Stagecoach expenses. Except as provided in each of Stagecoach's
-------------------
advisory contracts and its co-administration and distribution agreements with
Stephens, Stagecoach shall bear all costs of its operations, including the
compensation of its directors who are entitled to receive compensation; advisory
and administration fees; payments of distribution-related expenses pursuant to
any Rule 12b-1 Plan under the 1940 Act; governmental fees; 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 Rule 12b-1 Plan), shareholders' reports, notices, proxy statements and reports
to regulatory agencies; travel expenses of directors, officers and employees;
office supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Funds; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Stagecoach and Wells Fargo, provided that the Board of
Directors of Stagecoach approve any such amendment in advance.
4
<PAGE>
8. Administrator's other businesses. Except to the extent necessary to
--------------------------------
perform Wells Fargo's obligations under this agreement, nothing herein shall be
deemed to limit or restrict the right of Wells Fargo, or any affiliate or
employee of Wells Fargo, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
9. Duration. This agreement shall become effective on its execution date
--------
and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Directors, including a majority of the directors who
are not interested persons of Stagecoach or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at any
------------------------
time, without the payment of any penalty, by a vote of a majority of the members
of Stagecoach's Board of Directors, on 60 days' written notice to Wells Fargo;
or by Wells Fargo on 60 days' written notice to Stagecoach.
11. Expense waivers. If in any fiscal year the total expenses of a Fund
---------------
incurred by, or allocated to, the Fund excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, other expenditures that
are capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in Paragraph 4 and those provided
for pursuant to the Fund's Advisory Agreement ("includible expenses"), exceed
the applicable voluntary expense waivers, if any, set forth in the Prospectus,
Wells Fargo shall waive or reimburse that portion of the excess derived by
multiplying the excess by a fraction, the numerator of which shall be the
percentage at which the excess portion attributable to the fee payable pursuant
to this agreement is calculated under Paragraph 4 hereof, and the denominator of
which shall be the sum of such percentage plus the percentage at which the
excess portion attributable to the fee payable pursuant to the Fund's Advisory
Agreement is calculated (the "Applicable Ratio"), but only to the extent of the
fee hereunder for the fiscal year. If the fees payable under this agreement
and/or the Fund's Advisory Agreement contributing to such excess portion are
calculated at more than one percentage rate, the Applicable Ratio shall be
calculated separately on the basis of, and applied separately to, the portions
of the fees calculated at the different rates. At the end of each month of
Stagecoach's fiscal year, Stagecoach shall review the includible expenses
accrued during that fiscal year to the end of that period and shall estimate the
includible expenses for the balance of that fiscal year. If as a result of that
review and estimation it appears likely that the includible expenses will exceed
the limitations referred to in this Paragraph 11 for a fiscal year with respect
to the Fund, the monthly fee set forth in Paragraph 4 payable to Wells Fargo for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this Paragraph 11. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified
5
<PAGE>
in Paragraph 4, and any reimbursements required to be made by Wells Fargo shall
be made once a year promptly after the end of Stagecoach's fiscal year.
12. Stagecoach not bound to violate its Articles. Nothing in this
--------------------------------------------
agreement shall require Stagecoach to take any action contrary to any provision
of its Articles of Incorporation or to any applicable statute or regulation.
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Stagecoach or Wells Fargo shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To Stagecoach:
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Wells Fargo:
Wells Fargo Bank, N.A.
525 Market Street, 19th Floor
San Francisco, California 94105
Attention: Michael J. Hogan
(b) This agreement shall extend to and be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
agreement shall not be subject to assignment (as that term is defined under the
1940 Act) without the written consent of the other party.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
(e) The captions of this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
6
<PAGE>
In witness whereof, the parties have caused this agreement to be executed
by their duly authorized officers as of the day and year first above written.
STAGECOACH FUNDS, INC.
By: /s/ Richard H. Blank
---------------------
Richard H. Blank
Chief Operating Officer
WELLS FARGO BANK, N.A.
By: /s/ Michael J. Hogan
---------------------
Michael J. Hogan
Senior Vice President
By: /s/ Elizabeth A. Gottfried
---------------------------
Elizabeth A. Gottfried
Vice President
7
<PAGE>
Appendix A
Stagecoach Funds
Fee of 0.03% of average daily Fee of 0.06% of average daily
- ----------------------------- -----------------------------
net assets on an annual basis: net assets on an annual basis:
- ------------------------------ -----------------------------
Arizona Tax-Free Fund International Equity Fund
Asset Allocation Fund
Balanced Fund
California Tax-Free Bond Fund
California Tax-Free Income Fund
California Tax-Free Money Market Mutual Fund
California Tax-Free Money Market Trust
Corporate Bond Fund
Diversified Equity Income Fund
Equity Index Fund
Equity Value Fund
Government Money Market Mutual Fund
Growth Fund
Index Allocation Fund
Intermediate Bond Fund
Money Market Mutual Fund
Money Market Trust
National Tax-Free Fund
National Tax-Free Money Market Mutual Fund
National Tax-Free Money Market Trust
Oregon Tax-Free Fund
Overland Express Sweep Fund
Prime Money Market Mutual Fund
Short-Intermediate U.S. Government Income Fund
Short-Term Government-Corporate Income Fund
Short-Term Municipal Income Fund
Small Cap Fund
Strategic Growth Fund
Strategic Income Fund
Treasury Money Market Mutual Fund
U.S. Government Allocation Fund
U.S. Government Income Fund
Variable Rate Government Fund
100% Treasury Money Market Fund
Approved: January 16, 1997
Approved as Amended: April 29, 1997 to include the International Equity Fund
Approved as Amended: July 23, 1997 to include the Index Allocation, Overland
Express Sweep, Short-Term Government-Corporate Income,
Short-Term Municipal Income, and Variable Rate Government
Funds
Approved as Amended: January 29, 1998 to change the fee rate and to include the
Corporate Bond and Strategic Income Funds
Approved as Amended: April 30, 1998 to include the 100% Treasury Money Market
Fund
A-1
<PAGE>
CO-ADMINISTRATION AGREEMENT
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of February, 1998, by and among
the Stagecoach Funds, Inc., a Maryland corporation ("Stagecoach"), Stephens Inc.
("Stephens"), an Arkansas corporation, and Wells Fargo Bank, N.A., a national
banking association ("Wells Fargo").
WHEREAS, Stagecoach is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Stagecoach desires to retain Stephens to render certain co-
administrative services to Stagecoach's investment portfolios listed in Appendix
A (individually, a "Fund" and collectively, the "Funds"), and Stephens is
willing to render such services; and
WHEREAS, Stagecoach is retaining Wells Fargo pursuant to a separate
Administration Agreement to provide certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Stagecoach hereby appoints Stephens to act as Co-
-----------
Administrator of the Funds, subject to the control and supervision of Wells
Fargo and the overall supervision of the Board of Directors of Stagecoach.
Stephens hereby accepts such appointment and agrees to render such services and
duties set forth in Paragraph 3, for the compensation and on the terms herein
provided, the performance of which Wells Fargo agrees to supervise. Each new
investment portfolio established in the future by Stagecoach shall automatically
become a "Fund" for all purposes hereunder as if it were listed in Appendix A,
absent written notification to the contrary by either Stagecoach, Wells Fargo,
or Stephens.
2. Delivery of Documents. Stagecoach and Wells Fargo shall furnish
---------------------
Stephens with originals of, or copies of, all books, records, and other
documents and papers related in any way to the administration of Stagecoach.
3. Duties as Co-Administrator. Stephens shall, at its expense, provide
--------------------------
the following co-administrative services in connection with the operations of
Stagecoach and the Funds:
(a) prepare and file with the states registration statements, notices,
reports, and other material required to be filed under applicable laws;
(b) prepare and file Form 24F-2s and N-SARs;
1
<PAGE>
(c) review bills submitted to the Funds and, upon determining that a
bill is appropriate, allocating amounts to the appropriate Funds and instructing
the Funds' custodian to pay such bills;
(d) provide officers at no cost to the Funds;
(e) provide office space and facilities;
(f) provide reports to the Funds' board of directors ("Board")
regarding its activities;
(g) assist in the preparation and assembly of Board meeting materials,
including comparable fee information, as required;
(h) prepare and retain original minutes of Board meetings, shareholder
meetings, and other official corporate records;
(i) maintain and preserve the records of the Funds, including
financial and corporate records;
(j) coordinate (or assist in) the preparation of shareholder reports
and other information materials regarding the Funds;
(k) provide legal and regulatory advice to the Funds in connection
with its other administrative functions;
(l) provide liaison with the Funds' independent auditors;
(m) establish and maintain a service desk to assist in handling Fund
administrative activities; and
(n) provide any other administrative services reasonably necessary for
the operation of the Funds, as Stagecoach, Wells Fargo, and Stephens shall agree
from time to time, other than those services that are to be provided by Wells
Fargo pursuant to its Administration Agreement with Stagecoach, and by
Stagecoach's transfer and dividend disbursing agent, custodian, and fund
accountant.
In performing all services under this agreement, Stephens shall: (a) act in
conformity with Stagecoach's Articles of Incorporation and By-Laws, the 1940
Act, the Investment Advisers Act of 1940, as applicable, and any other
applicable laws as may be amended from time to time; and Stagecoach's
registration statement under the Securities Act of 1933 and the 1940 Act, as may
be amended from time to time; (b) consult and coordinate with legal counsel to
Stagecoach as necessary and appropriate; and (c) advise and report to Stagecoach
and its legal counsel, as necessary and appropriate, with respect to any
compliance or other matters that come to its attention.
2
<PAGE>
Nothing in this Agreement shall be deemed to require Wells Fargo to provide
any supervisory services that may not be provided by it under applicable banking
laws and regulations.
In connection with its duties under this Paragraph 3, Stephens may, at its
own expense, enter into sub-administration agreements with other service
providers, provided that: (a) each such service provider agrees with Stephens to
comply with all relevant provisions of the 1940 Act, the Investment Advisers Act
of 1940, any other applicable laws as may be amended from time to time, and all
relevant rules thereunder; and (b) Wells Fargo agrees to the appointment of such
service provider. Stephens will provide Stagecoach and Wells Fargo with a copy
of each sub-administration agreement it executes relating to Stagecoach.
Stephens will be liable for acts or omissions of any such sub-administrators
under the standards of care described herein under Paragraph 5.
In performing its services under this agreement, Stephens shall cooperate
and coordinate with Wells Fargo as necessary and appropriate and shall provide
such information to Wells Fargo as is reasonably necessary or appropriate for
Wells Fargo to perform its obligations to Stagecoach. Similarly, Wells Fargo
shall cooperate and coordinate with Stephens as necessary and appropriate and
shall provide such information to Stephens as is reasonably necessary or
appropriate for Stephens to perform its obligations to Stagecoach.
4. Compensation. In consideration of the administration services to be
------------
rendered by Stephens under this agreement, Stagecoach shall pay Stephens a
monthly fee, as shown in Appendix A, of the average daily value (as determined
on each business day at the time set forth in the Prospectus for determining net
asset value per share) of the Funds' net assets during the preceding month. If
the fee payable to Stephens pursuant to this Paragraph 4 begins to accrue before
the end of any month or if this agreement terminates before the end of any
month, the fee for the period from the effective date to the end of that month
or from the beginning of that month to the termination date, respectively, shall
be prorated according to the proportion that the period bears to the full month
in which the effectiveness or termination occurs. For purposes of calculating
each such monthly fee, the value of each Fund's net assets shall be computed in
the manner specified in the Prospectus and Stagecoach's Articles of
Incorporation for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of Fund shares. For
purposes of this agreement, a "business day" is any day that Stagecoach is open
for trading.
5. Limitation of Liability; Indemnification.
----------------------------------------
(a) Stephens shall not be liable for any error of judgment or mistake
of law or for any loss suffered by Stagecoach in connection with the performance
of its obligations and duties under this agreement, except a loss resulting from
Stephens' willful misfeasance, bad faith, or negligence in the performance of
its obligations and duties, or by reason of its reckless disregard thereof. Any
person, even though also an officer, director, employee or agent of Stephens,
shall be deemed, when rendering services to Stagecoach or acting on any business
of Stagecoach (other than services or business in connection with Stephens'
duties as Co-Administrator hereunder) to be acting solely for Stagecoach and not
as an officer, director, employee, or agent or one under the control or
discretion of Stephens even though paid by it.
3
<PAGE>
Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stagecoach in connection with
Stephen's performance of its obligations and duties under this Agreement, except
a loss resulting from Wells Fargo's willful misfeasance, bad faith, or
negligence in failing to supervise Stephens as required by this Agreement.
(b) Stagecoach, on behalf of each Fund, will indemnify Stephens
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Stephens in the performance of such obligations and duties, or by reason of its
reckless disregard thereof. Stephens will not confess any claim or settle or
make any compromise in any instance in which Stagecoach will be asked to provide
indemnification, except with Stagecoach's prior written consent. Any amounts
payable by Stagecoach under this Paragraph 5(b) shall be satisfied only against
the assets of the Fund involved in the claim, demand, action, or suit and not
against the assets of any other Fund.
6. Stagecoach expenses. Except as provided in each of Stagecoach's
-------------------
advisory contracts and its Administration Agreement with Wells Fargo, Stagecoach
shall bear all costs of its operations, including the compensation of its
directors who are not affiliated with Stephens or any of their affiliates;
advisory and administration fees; payments of distribution-related expenses
pursuant to any Rule 12b-1 Plan under the 1940 Act; governmental fees; 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 Rule 12b-1 Plan), shareholders' reports, notices, proxy statements
and reports to regulatory agencies; travel expenses of directors, officers and
employees; office supplies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio securities transactions; fees
and expenses of any custodian, including those for keeping books and accounts
and calculating the net asset value per share of the Funds; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Stagecoach, Stephens, and Wells Fargo, provided that the
Board of Directors of Stagecoach approve any such amendment in advance.
8. Co-Administrator's other businesses. Except to the extent necessary to
-----------------------------------
perform Stephens' obligations under this agreement, nothing herein shall be
deemed to limit or restrict the right of Stephens, or any affiliate or employee
of Stephens, to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a
4
<PAGE>
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
9. Duration. This agreement shall become effective on its execution date
--------
and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Directors, including a majority of the directors who
are not interested persons of Stagecoach or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at any
------------------------
time, without the payment of any penalty by a vote of a majority of the members
of Stagecoach's Board of Directors, on 60 days' written notice to Stephens and
Wells Fargo; or by Stephens on 60 days' written notice to Stagecoach and Wells
Fargo; or by Wells Fargo on 60 days' written notice to Stagecoach and Stephens.
11. Confidentiality. Stephens shall keep confidential all books, records,
---------------
information, and data pertaining to the business of Stagecoach and its prior,
present, or potential shareholders that are exchanged or received pursuant to
the performance of Stephens' duties under this agreement and Stephens shall not
disclose the aforementioned to any other person, except as Stagecoach shall
specifically authorize or as required by law, and the aforementioned documents,
information, and data shall not be used for any purpose other than performance
of its responsibilities and duties under this agreement.
12. Stagecoach not bound to violate its Articles. Nothing in this
--------------------------------------------
agreement shall require Stagecoach to take any action contrary to any provision
of its Articles of Incorporation or to any applicable statute or regulation.
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Stagecoach, Wells Fargo, or Stephens shall
be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To Stagecoach: Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Stephens: Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
5
<PAGE>
To Wells Fargo: Wells Fargo Bank, N.A.
525 Market Street, 19th Floor
San Francisco, California 94105
Attention: Michael J. Hogan
(b) This agreement shall extend to and be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
agreement shall not be subject to assignment (as that term is defined under the
1940 Act) without the written consent of the other party.
(c) This agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
(e) The captions of this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
In witness whereof, the parties have caused this agreement to be executed
by their duly authorized officers in the day and year first above written.
STAGECOACH FUNDS, INC.
By: /s/ Richard H. Blank
---------------------------
Richard H. Blank
Chief Operating Officer
STEPHENS INC.
By: /s/ Richard H. Blank
---------------------------
Richard H. Blank
Vice President
WELLS FARGO BANK, N.A.
By: /s/ Michael J. Hogan
---------------------------
Michael J. Hogan
Senior Vice President
By: /s/ Elizabeth A. Gottfried
---------------------------
Elizabeth A. Gottfried
Vice President
6
<PAGE>
Appendix A
Stagecoach Funds
Fee of 0.03% of average daily Fee of 0.04% of average daily
- ----------------------------- -----------------------------
net assets on an annual basis: net assets on an annual basis:
- ----------------------------- -----------------------------
International Equity Fund
Arizona Tax-Free Fund
Asset Allocation Fund
Balanced Fund
California Tax-Free Bond Fund
California Tax-Free Income Fund
California Tax-Free Money Market Mutual Fund
California Tax-Free Money Market Trust
Corporate Bond Fund
Diversified Equity Income Fund
Equity Index Fund
Equity Value Fund
Government Money Market Mutual Fund
Growth Fund
Index Allocation Fund
Intermediate Bond Fund
Money Market Mutual Fund
Money Market Trust
National Tax-Free Fund
National Tax-Free Money Market Mutual Fund
National Tax-Free Money Market Trust
Oregon Tax-Free Fund
Overland Express Sweep Fund
Prime Money Market Mutual Fund
Short-Intermediate U.S. Government Income Fund
Short-Term Government-Corporate Income Fund
Short-Term Municipal Income Fund
Small Cap Fund
Strategic Growth Fund
Strategic Income Fund
Treasury Money Market Mutual Fund
U.S. Government Allocation Fund
U.S. Government Income Fund
Variable Rate Government Fund
100% Treasury Money Market Fund
Approved: January 16, 1997
Approved as Amended: April 29, 1997 to include the International Equity Fund
Approved as Amended: July 23, 1997 to include the Index Allocation, Overland
Express Sweep, Short-Term Government-Corporate Income,
Short-Term Municipal Income, and Variable Rate
Government Funds
Approved as Amended: January 29, 1998 to change the fee rate, and to include
the Corporate Bond and Strategic Income Funds
Approved as Amended: April 30, 1998 to include the 100% Treasury Money
Market Fund
A-1
<PAGE>
FORM OF
SHAREHOLDER SERVICING AGREEMENT FOR
STAGECOACH FUNDS, INC. AND
STAGECOACH TRUST
THIS SHAREHOLDER SERVICING AGREEMENT ("Agreement"), dated as of ________,
1998, is made among Stagecoach Funds, Inc. (the "Company"), a Maryland
corporation, Stagecoach Trust (the "Trust"), a Massachusetts business trust,
(sometimes referred to herein as the "Companies"), each having its principal
place of business at 111 Center Street, Little Rock, Arkansas 72201, on behalf
of the classes of shares of the Funds of the Company and the Trust listed in the
attached Appendix, as amended from time to time, (each a "Class" and a "Fund"
and, collectively, the "Classes" and the "Funds"), and Wells Fargo Bank, N.A. as
shareholder servicing agent hereunder ("Shareholder Servicing Agent");
W I T N E S S E T H:
WHEREAS, shares of common stock of a Fund of the Company, and shares of
beneficial interest of a Fund of the Trust (hereinafter the "Shares") may be
purchased or redeemed through a broker/dealer or financial institution which has
entered into a shareholder servicing agreement with the Company and the Trust on
behalf of their respective Funds; and
WHEREAS, the Shareholder Servicing Agent wishes to facilitate purchases
and redemptions of Shares by its customers (the "Customers") and wishes to act
as the Customers' agent in performing certain administrative functions in
connection with transactions in Shares from time to time for the account of the
Customers and to provide related services to the Customers in connection with
their investments in a Fund; and
WHEREAS, it is in the best interests of the Funds to make the services of
the Shareholder Servicing Agent available to the Customers who, from time to
time, become shareholders of a Fund;
NOW THEREFORE, the Company and the Trust, on behalf of their respective
Funds, and the Shareholder Servicing Agent hereby agree as follows:
1. Appointment. The Shareholder Servicing Agent hereby agrees to
-----------
perform certain services for Customers as hereinafter set forth. The
Shareholder Servicing Agent's appointment hereunder is not exclusive, and the
Shareholder Servicing Agent shall not be entitled to notice of or a right to
consent to the execution of a shareholder servicing agreement with any other
person.
2. Services to be Performed.
------------------------
2.1 Types of Services. The Shareholder Servicing Agent shall be
-----------------
responsible for performing shareholder administrative and liaison services,
which shall include, without limitation:
(a) answering Customer inquiries regarding account status and
history, and the manner in which purchases, exchanges and redemptions of Shares
may be effected;
(b) assisting Customers in designating and changing dividend
options, account designations and addresses;
(c) providing necessary personnel and facilities to establish
and maintain Customer accounts and records;
1
<PAGE>
(d) assisting in aggregating and transmitting purchase,
redemption and exchange transactions;
(e) arranging for the wiring of money;
(f) transferring money in connection with Customer orders to
purchase or redeem shares;
(g) verifying and guaranteeing Customer signatures in
connection with redemption and exchange orders and transfers and changes in
Customer accounts with a bank which is designated in the Fund Account
Application and which is approved by a Fund's Transfer Agent;
(h) furnishing (either separately or on an integrated basis
with other reports sent to a Customer by the Shareholder Servicing Agent)
monthly and year-end statements and confirmations of purchases, redemptions and
exchanges;
(i) furnishing, on behalf of the Shares of a Fund, proxy
statements, annual reports, updated prospectuses and other communications to
Customers;
(j) receiving, tabulating and sending to a Fund, proxies
executed by Customers; and
(k) providing such other related services, and necessary
personnel and facilities to provide all of the shareholder services contemplated
hereby, in each case, as the Company or the Trust, as the case may be, or a
Customer may reasonably request.
2.2 Standard of Services. All services to be rendered by the
--------------------
Shareholder Servicing Agent hereunder shall be performed in a professional,
competent and timely manner. Any detailed operating standards and procedures to
be followed by the Shareholder Servicing Agent in performing the services
described above shall be determined from time to time by agreement between the
Shareholder Servicing Agent and the Companies. The Company and the Trust each
acknowledges that the Shareholder Servicing Agent's ability to perform on a
timely basis certain of its obligations under this Agreement depends upon a
Fund's timely delivery of certain materials and/or information to the
Shareholder Servicing Agent. The Company and the Trust each agrees to use its
best efforts to provide, or cause to be provided, such materials to the
Shareholder Servicing Agent in a timely manner.
2.3 Investments through Distributor. The Company, the Trust and
-------------------------------
the Shareholder Servicing Agent each hereby agrees that all purchases of Shares
effected by the Shareholder Servicing Agent on behalf of its Customers shall be
effected by it through Stephens Inc. ("Distributor") in its capacity as the
Funds' principal underwriter.
3. Fees.
----
3.1 Fees from the Funds. In consideration of the services
-------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Shareholder Servicing Agent shall receive a fee, from each of the
Classes of Shares of the Funds identified in the attached Appendix, which shall
be paid in arrears periodically or on a periodic basis to be agreed between the
Company and the Shareholder Servicing Agent, and between the Trust and the
Shareholder Servicing Agent, from time to time (but in no event less frequently
than semi-annually) determined by a formula based upon the number of accounts of
the particular Class in a particular Fund serviced by the Shareholder Servicing
Agent during the period for which payment is being made, the level of assets or
activity in such accounts during such period, and/or the expenses incurred by
the Shareholder Servicing Agent. In no event will the fees charged to a Class of
Shares of a Fund exceed the amount set forth opposite such Class of Shares of
such Fund in the Appendix attached hereto. In addition, all fees paid by Classes
of Shares of the Funds hereunder shall be calculated based on the average daily
net assets of the particular Class of Shares of such Fund owned of record by the
Shareholder Servicing Agent on behalf of the Customers during the period for
which payment is being
2
<PAGE>
made. For purposes of determining the fees payable to the Shareholder Servicing
Agent hereunder, the per share value of a Class of a Fund shall be computed in
the manner specified in the Fund's then-current prospectus. Notwithstanding the
foregoing, if applicable laws, regulations or rules impose a maximum fee amount
(a "cap") with respect to shareholder servicing fees and/or fees for
distribution-related services that may be paid by the Shares of a Fund, the
amount payable hereunder shall be reduced to an amount which, when considered in
conjunction with the fees payable by a Fund for the Shares' distribution-related
activities, is the maximum amount payable to the Shareholder Servicing Agent
under applicable laws, regulations or rules. Notwithstanding anything herein to
the contrary, neither the Company nor the Trust shall be obligated to make any
payments under this Agreement that exceed the maximum amounts payable under Rule
2830 of the Conduct Rules of the National Association of Securities Dealers,
Inc. The above fee constitutes all fees to be paid to the Shareholder Servicing
Agent by a Class of Shares of a Fund of the Company or the Trust with respect to
the shareholder services contemplated hereby.
3.2 Fees from Customers. It is agreed that the Shareholder
-------------------
Servicing Agent may impose certain conditions on Customers, subject to the terms
of the relevant Fund's then-current prospectus, in addition to or different from
those imposed by the Fund, such as requiring a minimum initial investment or the
payment of additional fees directly by the Customer for additional services
offered by the Shareholder Servicing Agent to the Customer; provided, however,
-------- -------
that the Shareholder Servicing Agent may not charge Customers any direct fee
which would constitute a "sales load" within the meaning of Section 2(a)(35) of
the Investment Company Act of 1940, as amended (the "1940 Act"). The
Shareholder Servicing Agent shall bill Customers directly for any such
additional fees. In the event the Shareholder Servicing Agent charges Customers
such additional fees, it shall notify the Company in advance and make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers of any such additional fees charged directly
to the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission ("SEC"), the Company and the Trust shall
make written disclosure of the fees paid or to be paid by a Fund to the
Shareholder Servicing Agent pursuant to Section 3.1 of this Agreement. In no
event shall the Shareholder Servicing Agent have recourse or access, as
Shareholder Servicing Agent or otherwise, to the assets in the Customer's
account, except to the extent expressly authorized by law or by such Customer,
or to any assets of a Fund, the Company or the Trust, for payment of any
additional direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Shareholder Servicing
------------------------------------
Agent and its officers, employees and agents are not authorized to make any
representations concerning the Company, the Trust, a Fund or the Shares of any
Class thereof to Customers or prospective Customers, excepting only accurate
communication of any information provided by or on behalf of any administrator
of the Company, the Trust or the Distributor of information contained in the
relevant Fund's then-current prospectus. In furnishing such information
regarding the Company, the Trust, a Fund or the Shares, the Shareholder
Servicing Agent shall act as agent for the Customer only and shall have no
authority to act as agent for the Company, the Trust, a Fund or the Shares.
Advance copies or proofs of all materials which are proposed to be circulated or
disseminated by the Shareholder Servicing Agent to Customers or prospective
Customers and which identify or describe the Company, the Trust, a Fund or the
Shares shall be provided to the Company or the Trust, as the case may be, at
least 10 days prior to such circulation or dissemination (unless the Company or
the Trust, as the case may be, consents in writing to a shorter period), and
such materials shall not be circulated or disseminated or further circulated or
disseminated at any time after the Company or the Trust, as the case may be,
shall have given written notice to the Shareholder Servicing Agent of any
objection thereto.
Nothing in this Section 4 shall be construed to make the Company or the
Trust liable for the use (as opposed to the accuracy) of any information about
the Company, the Trust, a Fund or the Shares which is disseminated by the
Shareholder Servicing Agent.
5. Use of the Shareholder Servicing Agent's Name. Neither the Company
---------------------------------------------
nor the Trust shall use the name of the Shareholder Servicing Agent, or any of
its affiliates or subsidiaries, in any prospectus, sales literature or other
materials relating to the Company, the Trust, a Fund or the Shares in a manner
not approved by the Shareholder Servicing Agent prior thereto in writing;
provided, however, that the approval of the Shareholder Servicing Agent shall
- -------- -------
not be required for any use of its name which merely refers in accurate and
factual terms to its appointment hereunder or which is required by the SEC or
any state securities authority or any other appropriate
3
<PAGE>
regulatory, governmental or judicial authority; provided, further, that in no
-------- -------
event shall such approval be unreasonably withheld or delayed.
6. Use of the Name of the Company, the Trust or a Fund. The
---------------------------------------------------
Shareholder Servicing Agent shall not use the name of the Company, the Trust, a
Fund or any Class of Shares on any checks, bank drafts, bank statements or forms
for other than internal use in a manner not approved by the Company or the
Trust, as the case may be, prior thereto in writing; provided, however, that the
-------- -------
approval of the Company or the Trust, as the case may be, shall not be required
for (i) the use of the Company's or the Trust's name, or the name of a Fund, in
connection with communications permitted by Section 4 hereof, or (ii) (subject
to Section 4, to the extent the same may be applicable) for any use of the
Company's or the Trust's name or a Fund's name which merely identifies the
Company, the Trust or a Fund, as the case may be, in connection with the
Shareholder Servicing Agent's role hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
7. Security. The Shareholder Servicing Agent represents and warrants
--------
that to the best of its knowledge, the various procedures and systems which it
has implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to fire,
theft or any other cause the Companies records and other data within its
possession or control and the Shareholder Servicing Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Company and the Trust shall each, from time to
time, specify the types of records and other data of the Company and the Trust,
respectively, to be safeguarded in accordance with this Section 7.
8. Compliance with Laws. The Shareholder Servicing Agent shall comply
--------------------
with all applicable federal and state laws and regulations, including securities
laws. The Shareholder Servicing Agent represents and warrants to the Company
and the Trust, respectively, that the performance of all its obligations
hereunder will comply with all applicable laws and regulations, the provisions
of its charter documents and by-laws and all material contractual obligations
binding upon the Shareholder Servicing Agent. The Shareholder Servicing Agent
furthermore undertakes that it will promptly, after the Shareholder Servicing
Agent becomes so aware, inform the Company and the Trust of any change in
applicable laws or regulations (or interpretations thereof) or in its charter or
by-laws or material contracts which would prevent or impair full performance of
any of its obligations hereunder.
9. Reports. To the extent requested by the Company or the Trust from
-------
time to time, but at least quarterly, the Shareholder Servicing Agent will
provide the Treasurer of the Company or the Trust, as the case may be, with a
written report of the amounts expended by the Shareholder Servicing Agent
pursuant to this Agreement and the purposes for which such expenditures were
made. Such written reports shall be in a form satisfactory to the Company or
the Trust, as the case may be, and shall supply all information necessary for
the Company and the Trust to discharge their responsibilities under applicable
laws and regulations. In addition, the Shareholder Servicing Agent shall have a
duty to furnish to the Company's Board of Directors and the Trust's Board of
Trustees such information as may reasonably be necessary to an informed
determination of whether this Agreement should be implemented or continued
pursuant to Section 16.
10. Recordkeeping.
-------------
10.1 Each party shall maintain and preserve records as required by
law to be maintained and preserved by it in connection with providing the
services contemplated by this Agreement. The Shareholder Servicing Agent's
recordkeeping responsibilities shall include those relating to establishing and
maintaining sub-accounts and records on behalf of Customers, and recording
Customers' sub-account balances and changes thereto.
10.2. Upon the request of the Company or the Trust, the Shareholder
Servicing Agent shall provide copies of all records relating to the transactions
between the Funds and the Customers as are maintained by the Shareholder
Servicing Agent in the ordinary course of its business and in compliance with
laws and regulations
4
<PAGE>
as may reasonably be requested to enable the Company and the Trust to comply
with any applicable laws or regulations or request of a governmental body or
self-regulatory organization.
10.3. The recordkeeping and access obligations imposed in this
Section 10 shall survive the termination of this Agreement for the shorter of a
period of six years or that minimum period required by applicable rules or
regulations of the SEC.
11. Force Majeure. The Shareholder Servicing Agent shall not be liable
-------------
or responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
communication systems or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Shareholder Servicing Agent by the
---------------------------------------------------------
Companies. Each of the Company and the Trust will indemnify and hold the
- ---------
Shareholder Servicing Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in the Funds' prospectus, actions or
inactions by the Company or the Trust, as the case may be, or any of its agents
or contractors or the performance of the Shareholder Servicing Agent's
obligations hereunder and (b) not resulting from (i) the bad faith or negligence
of the Shareholder Servicing Agent, its officers, employees or agents, or (ii)
any breach of applicable law by the Shareholder Servicing Agent, its officers,
employees or agents, or (iii) any action of the Shareholder Servicing Agent, its
officers, employees or agents which exceeds the legal authority of the
Shareholder Servicing Agent or its authority hereunder, or (iv) any error or
omission of the Shareholder Servicing Agent, its officers, employees or agents
with respect to the purchase, redemption and transfer of Customers' Shares or
the Shareholder Servicing Agent's verification or guarantee of any Customer
signature. Notwithstanding anything herein to the contrary, each of the Company
and the Trust will indemnify and hold the Shareholder Servicing Agent harmless
from any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any Claim as a result of
its acting in accordance with any written instructions reasonably believed by
the Shareholder Servicing Agent to have been executed by any person duly
authorized by the Company or the Trust, as the case may be, or as a result of
acting in reliance upon any instrument or stock certificate reasonably believed
by the Shareholder Servicing Agent to have been genuine and signed,
countersigned or executed by a person duly authorized by the Company or the
Trust, as the case may be, excepting only the gross negligence or bad faith of
the Shareholder Servicing Agent.
In any case in which the Company or the Trust may be asked to indemnify
or hold the Shareholder Servicing Agent harmless, the Company or the Trust, as
the case may be, shall be advised of all pertinent facts concerning the
situation in question and the Shareholder Servicing Agent shall use reasonable
care to identify and notify the Company or the Trust, as the case may be,
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Company or the Trust. The Company and the
Trust shall have the option to defend the Shareholder Servicing Agent against
any Claim which may be the subject of indemnification hereunder. In the event
that the Company or the Trust, as the case may be, elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Company or the
Trust, as the case may be, and reasonably satisfactory to the Shareholder
Servicing Agent. The Shareholder Servicing Agent may retain additional counsel
at its expense. Except with the prior written consent of the Company or the
Trust, as the case may be, the Shareholder Servicing Agent shall not confess any
Claim or make any compromise in any case in which the Company or the Trust will
be asked to indemnify the Shareholder Servicing Agent.
12.2 Indemnification of the Companies by the Shareholder Servicing
-------------------------------------------------------------
Agent. Without limiting the rights of the Companies under applicable law, the
- -----
Shareholder Servicing Agent will indemnify and hold each of the Company and the
Trust harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any Claim (a) resulting
from (i) the bad faith or negligence of the Shareholder Servicing Agent, its
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing
5
<PAGE>
Agent, its officers, employees or agents which exceeds the legal authority of
the Shareholder Servicing Agent or its authority hereunder, or (iv) any error or
omission of the Shareholder Servicing Agent, its officers, employees or agents
with respect to the purchase, redemption and transfer of Customers' Shares or
the Shareholder Servicing Agent's verification or guarantee of any Customer
signature, and (b) not resulting from the Shareholder Servicing Agent's actions
in accordance with written instructions reasonably believed by the Shareholder
Servicing Agent to have been executed by any person duly authorized by the
Company or the Trust, as the case may be, or in reliance upon any instrument or
stock certificate reasonably believed by the Shareholder Servicing Agent to have
been genuine and signed, countersigned or executed by a person duly authorized
by the Company or the Trust, as the case may be.
In any case in which the Shareholder Servicing Agent may be asked to
indemnify or hold the Company or the Trust harmless, the Shareholder Servicing
Agent shall be advised of all pertinent facts concerning the situation in
question and the Company or the Trust, as the case may be, shall use reasonable
care to identify and notify the Shareholder Servicing Agent promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Shareholder Servicing Agent. The Shareholder
Servicing Agent shall have the option to defend the Company or the Trust, as the
case may be, against any Claim which may be the subject of indemnification
hereunder. In the event that the Shareholder Servicing Agent elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Shareholder Servicing Agent and satisfactory to the Company or the Trust, as the
case may be. The Company or the Trust may retain additional counsel at its
expense. Except with the prior written consent of the Shareholder Servicing
Agent, neither the Company nor the Trust shall confess any Claim or make any
compromise in any case in which the Shareholder Servicing Agent will be asked to
indemnify the Company or the Trust.
12.3 Indemnification Between the Companies. The Company will
------------------------------------
indemnify and hold harmless the Trust against any losses, claims, damages and
liabilities to which the Trust may become subject arising in connection with
this Agreement, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any prospectus of
the Company for which the Shareholder Servicing Agent acts as such pursuant to
this Agreement, or arise out of or are based upon actions or inactions by the
Company or any of its agents or contractors or the performance of the
Shareholder Servicing Agent's obligations hereunder and (b) not resulting from
(i) the bad faith or negligence of the Trust, its officers, employees or agents,
or (ii) any breach of applicable law by the Trust, its officers, employees or
agents, or (iii) any action of the Trust, its officers, employees or agents
which exceeds the legal authority of the Trust or its authority hereunder, or
(iv) any error or omission of the Shareholder Servicing Agent, its officers,
employees or agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Shareholder Servicing Agent's verification or guarantee
of any Customer signature.
The Trust will indemnify and hold harmless the Company against any
losses, claims, damages and liabilities to which The Company may become subject
arising in connection with this Agreement, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any the Trust prospectus for which the Shareholder Servicing Agent
acts as such pursuant to this Agreement, or arise out of or are based upon
actions or inactions by the Trust or any of its agents or contractors or the
performance of the Shareholder Servicing Agent's obligations hereunder and (b)
not resulting from (i) the bad faith or negligence of the Company, its officers,
employees or agents, or (ii) any breach of applicable law by the Company, its
officers, employees or agents, or (iii) any action of the Company, its officers,
employees or agents which exceeds the legal authority of the Company or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature.
In any case in which the Company or the Trust may be asked to indemnify
or hold the other harmless, the indemnifying party shall be advised of all
pertinent facts concerning the situation in question and the party to be
indemnified shall use reasonable care to identify and notify the indemnifying
party promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the indemnifying party. The
indemnifying party shall have the option to defend the indemnified party against
any Claim which may be the
6
<PAGE>
subject of indemnification hereunder. In the event that the indemnifying party
elects to defend against such Claim, the defense shall be conducted by counsel
chosen by the indemnifying party and reasonably satisfactory to the indemnified
party. The indemnified party may retain additional counsel at its expense.
Except with the prior written consent of the indemnifying party, the indemnified
party shall not confess any claim or make any compromise in any case in which
indemnifying party will be asked to indemnify the indemnified party.
12.4 Survival of Indemnities. The indemnities granted by the
-----------------------
parties in this Section 12 shall survive the termination of this Agreement.
13. Insurance. The Shareholder Servicing Agent shall maintain
---------
reasonable insurance coverage against any and all liabilities which may arise in
connection with the performance of its duties hereunder.
14. Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed sufficient if mailed to each other party at the
address of such party set forth in the preamble of this Agreement or at such
other address as such party may have designated by written notice to the others.
15. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. Implementation and Duration of Agreement. This Agreement is
----------------------------------------
effective upon the date first written above and shall continue in effect with
respect to a Class of Shares of a Fund of the Company and the Trust for a period
of more than one year from the date hereof so long as the Servicing Plan adopted
for such Class and related form of agreement or this Agreement is not
specifically terminated by a vote of the Board of Directors/Trustees of the
Company/Trust (as applicable) and of the Directors/Trustees who are not
"interested persons" of the Company/Trust (as defined in the 1940 Act) and have
no direct or indirect financial interest in the operation of the relevant
Servicing Plan (the "Plan") pursuant to which the fees are paid, this Agreement,
or any other agreement related to such Plan, cast in person at a meeting called
for the purpose of voting on this Agreement.
17. Termination. This Agreement may be terminated with respect to the
-----------
Company or the Trust, or one or more Funds of the Company or the Trust, by the
Company or the Trust, respectively, without the payment of any penalty, at any
time upon not more than 60 days' nor less than 30 days' notice, by a vote of a
majority of the Board of Directors/Trustees of the Company/Trust (as applicable)
who are not "interested persons" of the Company/Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
relevant Plan, this Agreement or any other agreement related to such Plan,
including the Amended Distribution Agreement, or by "a vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the relevant
class of shares of the Fund. The Shareholder Servicing Agent may terminate this
Agreement with respect to either the Company or the Trust upon not more than 60
days' nor less than 30 days' notice to the Company or the Trust, as the case may
be. Either the Company, the Trust or the Shareholder Servicing Agent may assign
this Agreement provided that such assigning party obtains the prior written
consent of the other parties hereto. Upon termination hereof, a Fund shall pay
such compensation as may be due the Shareholder Servicing Agent as of the date
of such termination.
18. Changes; Amendments. Except as otherwise provided in this Section
-------------------
18, this Agreement may be supplemented or amended only by written instrument
signed by all parties, but may not be amended to increase materially the maximum
amount payable by a Class of Shares of a Fund without the approval of "a vote of
a majority of the outstanding voting securities" (as defined in the 1940 Act) of
such Class of Shares of such Fund, and all material amendments must be approved
in the manner described in Section 16. From time to time, the Company and the
Trust may, by written notice to the Shareholder Servicing Agent, amend the
Appendix attached hereto to add or delete Funds and/or classes of Shares as
available investment options hereunder. Any such notice shall be effective upon
receipt by the Shareholder Servicing Agent.
19. Limitation of Liability. The Shareholder Servicing Agent hereby
-----------------------
agrees that obligations assumed by the Company and the Trust pursuant to this
Agreement shall be limited in all cases to the Funds and their assets and that
the Shareholder Servicing Agent shall not seek satisfaction of any such
obligations from the
7
<PAGE>
Board of Directors or any individual Director of the Company, or from the Board
of Trustees or any individual Trustee of the Trust. The Shareholder Servicing
Agent further agrees that all obligations of a Fund hereunder shall be solely
the obligations of such Fund and that in no case will any Fund of either the
Company or the Trust be liable for the obligations of any other Fund of the
Company of the Trust, nor shall any Fund of the Company be liable for any
obligation of a Fund of the Trust, or vice versa.
20. Subcontracting by Shareholder Servicing Agent. The Shareholder
---------------------------------------------
Servicing Agent may, with the written approval of each of the Company and the
Trust (such approval not to be unreasonably withheld or delayed), subcontract
for the performance of the Shareholder Servicing Agent's obligations hereunder
with any one or more persons, including but not limited to any one or more
persons which is an affiliate of the Shareholder Servicing Agent; provided,
--------
however, that the Shareholder Servicing Agent shall be as fully responsible to
- -------
the Companies for the acts and omissions of any subcontractor as it would be for
its own acts or omissions.
21. Authority to Vote. The Company and the Trust hereby confirm that
-----------------
nothing contained in its Articles of Incorporation or Declaration of Trust,
respectively, would preclude the Shareholder Servicing Agent, at any meeting of
shareholders of the Company, the Trust or of a Fund, from voting any Shares held
in accounts serviced by the Shareholder Servicing Agent and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all Shares otherwise represented at
the meeting in person or by proxy and held in accounts serviced by the
Shareholder Servicing Agent.
22. Compliance with Laws and Policies; Cooperation. The Company and the
----------------------------------------------
Trust each hereby agrees that it will comply with all laws and regulations
applicable to operations of Funds thereof and the Shareholder Servicing Agent
agrees that it will comply with all laws and regulations applicable to providing
the services contemplated hereby.
8
<PAGE>
22.1 Miscellaneous. This Agreement shall be construed and
-------------
enforced in accordance with and governed by the laws of the State of California.
The captions in this Agreement are included for convenience of reference only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect. This Agreement may be executed simultaneously in
three or more counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
STAGECOACH FUNDS, INC. on behalf of the
classes of shares of the Funds listed in the
attached Appendix
By:_________________________________
Name:_______________________________
Title:______________________________
STAGECOACH TRUST, on behalf of the classes of
shares of the Funds listed in the attached
Appendix
By:_________________________________
Name:_______________________________
Title:______________________________
[SHAREHOLDER SERVICING AGENT]
By:_____________________________
Name:___________________________
Title:__________________________
By:_____________________________
Name:___________________________
Title:__________________________
9
<PAGE>
APPENDIX
--------
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
- ------------------------ --------
STAGECOACH FUNDS, INC.
----------------------
Arizona Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Asset Allocation Fund
Class A .30%
Class B .30%
Class C .25%
Balanced Fund
Class A .25%
Class B .25%
Institutional Class .25%
California Tax-Free Bond Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
California Tax-Free Income Fund
Class A .30%
Institutional Class .25%
California Tax-Free Money Market Mutual Fund
Single Class .30%
California Tax-Free Money Market Trust
Single Class .20%
Corporate Bond Fund
Class A .25%
Class B .25%
Class C .25%
Diversified Equity Income Fund
Class A .30%
Class B .30%
Equity Index
Class A .25%
Class B .25%
A-1
<PAGE>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
- ------------------------ --------
Equity Value Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Government Money Market Mutual Fund
Class A .25%
Growth Fund
Class A .30%
Class B .30%
Institutional Class .25%
Index Allocation Fund
Class A .25%
Class B .25%
Class C .25%
Intermediate Bond Fund
Class A .25%
Class B .25%
Institutional Class .25%
International Equity Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Money Market Mutual Fund
Class A .30%
Service Class .25%
Institutional Class .25%
Money Market Trust
Single Class .20%
National Tax-Free Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
National Tax-Free Money Market Mutual Fund
Class A .25%
Institutional Class .20%
A-2
<PAGE>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
- ------------------------ --------
National Tax-Free Money Market Trust
Single Class .20%
Oregon Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Overland Express Sweep Fund
Single Class .30%
Prime Money Market Mutual Fund
Class A .30%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
Short-Term Government-Corporate Income Fund
Single Class .25%
Short-Intermediate U.S. Government Income Fund
Class A .30%
Institutional Class .25%
Short-Term Municipal Income Fund
Single Class .25%
Small Cap Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Strategic Growth Fund
Class A .25%
Class B .25%
Class C .25%
Strategic Income Fund
Class A .25%
Class B .25%
Class C .25%
Treasury Money Market Mutual Fund
Class A .30%
Class E .30%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
A-3
<PAGE>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
- ------------------------ --------
U.S. Government Allocation Fund
Class A .30%
Class B .30%
U.S. Government Income Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
Variable Rate Government Fund
Class A .25%
Class C .25%
Stagecoach 100% Treasury Money Market Fund
Class A .30%
Service Class .20%
STAGECOACH TRUST
----------------
LifePath Opportunity
Class A .25%
Institutional Class .25%
LifePath 2010
Class A .25%
Class B .25%
Institutional Class .25%
LifePath 2020
Class A .25%
Class B .25%
Institutional Class .25%
LifePath 2030
Class A .25%
Class B 25%
Institutional Class .25%
LifePath 2040
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
[LARGE CAP ALPHA TILT]
Class A .25%
Class B .25%
Class C .25%
A-4
<PAGE>
[SMALL CAP ALPHA TILT]
Class A .25%
Class B .25%
Class C .25%
Approved: July 23, 1997
Approved as Amended: September 8, 1997, for the Prime and Treasury Money Market
Mutual Funds
Approved as Amended: October 30, 1997, for the Equity Index Fund
Approved as Amended: January, 1998, for the Asset Allocation, Corporate Bond,
Equity Value, Growth, Strategic Income, and International
Equity Funds.
Approved as Amended: April 30, 1998, for the 100% Treasury Money Market Fund
[Approved as Amended: _______________, 1998 for the Stagecoach Trust Large Cap
Alpha Tilt Fund and the Small Cap Alpha Tilt Fund and to
increase all Stagecoach Trust shareholder servicing fees
to 0.25%.]
A-5
<PAGE>
STAGECOACH FUNDS, INC.
SERVICING PLAN
--------------
Section 1. Each of the proper officers of Stagecoach Funds, Inc. (the
"Company") is authorized to execute and deliver, in the name and on behalf of
the Company, written agreements based substantially on the form attached hereto
as Exhibit A or any other form duly approved by the Company's Board of Directors
("Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners ("Servicing Agents") of the various
classes of shares (each a "Class") of the portfolios of the Company (each a
"Fund") listed on the attached Appendix, as amended from time to time. Pursuant
to such Agreements, Servicing Agents shall provide support services as set forth
therein to their clients who beneficially own shares of the particular Class of
the particular Fund in consideration of a fee, computed monthly in the manner
set forth in the Fund's then current prospectus, at the annual rates set forth
on the attached Appendix. The Company's distributor, administrator and adviser
and their respective affiliates are eligible to become Servicing Agents and to
receive fees under this Servicing Plan. All expenses incurred by a particular
Fund in connection with the Agreements and the implementation of this Servicing
Plan shall be borne entirely by the holders of the particular Class of the
particular Fund involved.
Section 2. The Company's administrator shall monitor the arrangements
pertaining to the Company's Agreements with Servicing Agents. The Company's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Company shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Company's
administrator shall provide to the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to this Servicing Plan and the purposes for which such
expenditures were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by "vote of a majority of the outstanding voting securities," as
defined in the Investment Company Act of 1940, as amended, and rules and
regulations thereunder, of the particular Class of the Fund and a majority of
the Directors of the Company, including a majority of the Qualified Directors,
pursuant to a vote cast in person at a meeting or meetings called for the
purpose of voting on the approval of the Plan, or on the date the Fund commences
operations, if such date is later.
1
<PAGE>
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its date of
approval and shall continue thereafter for successive annual periods, provided
that such Plan is not specifically terminated by a majority of the Board of
Directors, including a majority of the Directors who are not "interested
persons," as defined in the Investment Company Act of 1940, of the Company and
have no direct or indirect financial interest in the operation of this Servicing
Plan or in any Agreement related to this Servicing Plan (the "Disinterested
Directors") cast in person at a meeting called for the purpose of voting on such
approval.
Section 6. This Servicing Plan may be amended at any time with respect to
the Fund by the Company's Board of Directors, provided that any material
amendment of the terms of this Servicing Plan (including a material increase of
the fee payable hereunder) shall become effective only upon the approvals set
forth in Section 5.
Section 7. This Servicing Plan is terminable at any time with respect to
the Fund by vote of a majority of the Disinterested Directors.
Section 8. While this Servicing Plan is in effect, the selection and
nomination of the Disinterested Directors shall be committed to the discretion
of such Disinterested Directors.
Section 9. Notwithstanding anything herein to the contrary, the Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
Section 10. The Company will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Directors for a period of not less than six years.
Approved: January 29, 1998
2
<PAGE>
APPENDIX
--------
Fees are expressed as a percentage of the average daily net asset value of
the particular Class of the particular Fund beneficially owned by or
attributable to such clients of the Servicing Agent.
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
- ------------------------ --------
STAGECOACH
----------
<S> <C>
Arizona Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Asset Allocation Fund
Class A .30%
Class B .30%
Class C .25%
Balanced Fund
Class A .25%
Class B .25%
Institutional Class .25%
California Tax-Free Bond Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
California Tax-Free Income Fund
Class A .30%
Institutional Class .25%
California Tax-Free Money Market Mutual Fund
Single Class .30%
California Tax-Free Money Market Trust
Single Class .20%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
------------------------ --------
<S> <C>
Corporate Bond Fund
Class A .25%
Class B .25%
Class C .25%
Diversified Equity Income Fund
Class A .30%
Class B .30%
Equity Index
Class A .25%
Class B .25%
Equity Value Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Government Money Market Mutual Fund
Single Class .25%
Growth Fund
Class A .30%
Class B .30%
Institutional Class .25%
Index Allocation Fund
Class A See Administrative Plan
Class B .25%
Class C .25%
Intermediate Bond Fund
Class A .25%
Class B .25%
Institutional Class .25%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
------------------------ --------
<S> <C>
International Equity Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Money Market Mutual Fund
Class A .30%
Service Class .25%
Institutional Class .25%
Money Market Trust
Single Class .20%
National Tax-Free Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
National Tax-Free Money Market Mutual Fund
Class A .25%
Institutional Class .20%
National Tax-Free Money Market Trust
Single Class .20%
Oregon Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Overland Express Sweep Fund
Single Class .30%
Prime Money Market Mutual Fund
Class A .30%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
------------------------ --------
<S> <C>
Short-Intermediate U.S. Government Income Fund
Class A .30%
Institutional Class .25%
Short-Term Government-Corporate Income Fund
Single Class See Administrative Plan
Short-Term Municipal Income Fund
Single Class See Administrative Plan
Small Cap Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Strategic Growth Fund
Class A .25%
Class B .25%
Class C .25%
Strategic Income Fund
Class A .25%
Class B .25%
Class C .25%
Treasury Money Market Mutual Fund
Class A .30%
Class E .30%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
U.S. Government Allocation Fund
Class A .30%
Class B .30%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL
FUND AND SHARE CLASS(ES) FEE RATE
------------------------ --------
<S> <C>
U.S. Government Income Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
Variable Rate Government Fund
Class A See Administrative Plan
Class C .25%
[Stagecoach] 100% Treasury Fund
Class A .30%
Institutional Class .20%
</TABLE>
Approved: January 29, 1998
Approved as amended: _______, 1998 to include the [Stagecoach] 100% Treasury
Fund
7
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
July 31, 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. 48 and Amendment No. 49 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 Money Market and Treasury Money Market Funds (the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its series. We
have also verified with the Company's transfer agent the maximum number of
shares issued by the Company through March 31, 1998.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company, upon completion of
such corporate action as is deemed necessary or appropriate, will be duly and
validly authorized by such corporate action and assuming delivery by sale or in
accord with the Company's dividend reinvestment plan in accordance with the
description set forth in the Fund's current prospectus 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
"Additional Services and Other Information - Glass-Steagall Act" in the
Prospectuses, and under the heading "Counsel" in the Statements of Additional
Information, 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
Stagecoach Funds, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the references to our firm under the headings "How to Read the Financial
Highlights" and "Financial Highlights" in the Prospectuses and "Independent
Auditors" in the Statements of Additional Information.
San Francisco, California
July 30, 1998
