<PAGE>
February 1, 1999
STAGECOACH FUNDS/R/
Stagecoach
Equity Index Fund
Prospectus
Class O Please read this Prospectus and keep it for
future reference. It is designed to provide
Investment Advisor you with important information and to help you
and Administrator: decide if the Fund's goals match your own.
Wells Fargo Bank These securities have not been approved or
disapproved by the U.S. Securities and
Investment Exchange Commission ("SEC"), any state
Sub-Advisor: securities commission or any other regulatory
authority, nor have any of these authorities
Barclays Global passed upon the accuracy or adequacy of this
Fund Advisors Prospectus. Any representation to the contrary
is a criminal offense.
Distributor and
Co-Administrator: Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
Stephens Inc. guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), Barclays Global Investors, N.A.,
or any of their affiliates. Fund shares are
NOT insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve
Board or any other governmental agency. AN
INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
About this Prospectus
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What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how 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:
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[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.
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[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of a Fund's key permitted investments and practices.
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[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.
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[LOGO OF Additional Fund Facts
ADDITION
SIGN] Provides additional information about the Fund.
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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
Key Information 4
Summary of Expenses 6
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The Fund Equity Index Fund 8
This section contains General Investment Risks 10
important information
about the Fund.
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Your Account Your Account 14
Turn to this section How to Buy Shares 14
for information on
how to open and Selling Shares 16
maintain your account,
including how to buy, Exchanges 17
sell and exchange Fund
shares. Additional Services and
Other Information 18
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Reference Organization and
Management of the Fund 21
Look here for
details on the Glossary 24
organization of
the Fund and term
definitions.
<PAGE>
Key Information
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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").
4 Stagecoach Equity Index Fund Prospectus
<PAGE>
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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.
Stagecoach Equity Index Fund Prospectus 5
<PAGE>
Equity Index Fund Summary of Expenses
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<TABLE>
<CAPTION>
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SHAREHOLDER TRANSACTION EXPENSES
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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.
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Equity Index
----------------
CLASS O
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<S> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) None
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Maximum sales charge on reinvested dividends None
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Maximum sales charge on:
Redemption during first year None
Redemption after first year None
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Exchange fees None
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<CAPTION>
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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.
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Equity Index
----------------
CLASS O
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<S> <C>
Management fee 0.25%
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Rule 12b-1 fee 0.00%
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Other expenses
(after waivers or reimbursements) 0.25%
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TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.50%
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Other expenses
(before waivers or reimbursements) 0.40%
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TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.65%
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</TABLE>
6 Stagecoach Equity Index Fund Prospectus
<PAGE>
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<TABLE>
<CAPTION>
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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 Equity Index
investment assuming a 5% annual return, whether or --------------
not you redeem your shares at the end of each period. CLASS O
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<S> <C>
1 year $ 5
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3 years $ 16
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5 years $ 28
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10 years $ 63
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</TABLE>
Stagecoach Equity Index Fund Prospectus 7
<PAGE>
Equity Index Fund
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Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
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[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
We buy most or all of the stocks in the S&P 500 Index in
approximately the same "capitalization weighted" percentages
as the S&P 500 Index. We 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.
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[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
. 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.
8 Stagecoach Equity Index Fund Prospectus
<PAGE>
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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.
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[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 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.
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[LOGO OF Additional Fund Facts
ADDITION
SIGN] The S&P 500 Index is an index of 500 widely held common stocks
representing, among others, industrial, financial, utility and
transportation companies listed or traded on national
exchanges or over-the-counter markets. It is one of the most
widely used benchmarks of U.S. equity performance.
"Standard & Poor's/R/," "S&P/R/," "S&P 500/R/" and "Standard &
Poor's 500" are trademarks of McGraw-Hill, Inc. The Equity
Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the
Fund.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
Stagecoach Equity Index Fund Prospectus 9
<PAGE>
General Investment Risks
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Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your 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.
. 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
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
10 Stagecoach Equity Index Fund Prospectus
<PAGE>
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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.
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 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
Stagecoach Equity Index Fund Prospectus 11
<PAGE>
General Investment Risks
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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 each Fund
remains within the parameters of its objective.
================================================================
12 Stagecoach Equity Index Fund Prospectus
<PAGE>
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<TABLE>
<CAPTION>
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
<S> <C> <C>
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.
- --------------------------------------------------------------------------------
Options
The right or obligation to receive or deliver Credit, Information and
a security or cash payment depending on the Liquidity Risk
security's price or the performance
of an index or benchmark.
----------------------------------------------------------------------------
Stock Index Futures *
Options on Stock Index Futures *
Index Swaps *
Interest Rate Futures *
Interest Rate Swaps *
- --------------------------------------------------------------------------------
Privately Issued Securities
Securities that are not publicly traded Liquidity Risk *
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 to brokers, Credit, Counter-Party *
dealers and financial institutions to increase and Leverage Risk
return on those securities. Loans may be made
in accordance with existing investment policies.
Limited to 33 1/3% of assets.
- --------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an equivalent of 20% Leverage Risk *
of assets from banks for temporary purposes
to meet shareholder redemptions.
- --------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be readily sold, or Liquidity Risk *
cannot be readily sold without negatively
affecting its fair price.
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Index Fund Prospectus 13
<PAGE>
Your Account
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This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares through an online account established with an approved
selling agent.
Minimum Investments:
. $1,000 minimum initial investment; or
. $25 minimum initial investment if you use the periodic investment
plan option.
. $100 for all investments after your first.
Important Information:
. Read this Prospectus carefully. Discuss any questions you have with your
selling agent. You may also obtain 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 net asset value ("NAV") 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 Funds' liabilities from its total assets, and then dividing
the result by the total number of outstanding shares. 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 your selling agent for
additional information.
. Once an on-line account has been opened, you can add additional Funds
available for purchase on-line under the same registration without
requiring a new application.
14 Stagecoach Equity Index Fund Prospectus
<PAGE>
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. 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 15
<PAGE>
Your Account
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================================================================================
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.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of the NYSE, which is generally
1:00 PM Pacific time.
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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 systematic
purchase plan 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.
- --------------------------------------------------------------------------------
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.
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16 Stagecoach Equity Index Fund Prospectus
<PAGE>
Exchanges
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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 Class O shares and shares of certain other
Funds or a money market fund that are available online through a selling
agent.
. 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 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 17
<PAGE>
Additional Services and Other Information
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Automatic Program:
This program provides you with a convenient way to purchase shares each month.
. Periodic Investment Plan-- with this program, you can regularly purchase
shares of a Stagecoach Fund with money automatically transferred from your
settlement account. Simply select the Fund you would like to purchase,
specify an amount of at least $25, and tell us the day of the month you
would like the money invested.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
. Automatic Reinvestment Option-- Allows you to 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.
. 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
18 Stagecoach Equity Index Fund Prospectus
<PAGE>
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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.
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.
Stagecoach Equity Index Fund Prospectus 19
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Share Class-- This Prospectus contains information about Class O 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.
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
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.
Wells Fargo & Company/Norwest Merger-- On November 2, 1998, Wells Fargo &
Company, the parent company of Wells Fargo Bank, merged with Norwest
Corporation. The combined company is called Wells Fargo & Company. Wells Fargo
Bank, which provides investment advice and other services to the Fund, became
an indirect wholly-owned subsidiary of the new combined 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.
20 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 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
================================================================================
Barclays Global Fund Advisors, 45 Fremont Street, San Francisco, CA
Manages the Fund's investment activities
- --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank Barclays Global Investors, N.A.,
525 Market St., San Francisco, CA 45 Fremont St., San Francisco, CA
Manages the Funds' Provides safekeeping
investment activities for the Funds' assets
- --------------------------------------------------------------------------------
|
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
Stagecoach Equity Index Fund Prospectus 21
<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 spent 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 September 30, 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
September 30, 1998:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Index Fund .06%
- --------------------------------------------------------------------------------
22 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.
The 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 .20%.
Stagecoach Equity Index Fund Prospectus 23
<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.
24 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Interest Rate Swaps
Involve the exchange between parties of their respective commitments to pay or
receive interest.
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
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.
Stagecoach Equity Index Fund Prospectus 25
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
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.
26 Stagecoach Equity Index 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 the Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
========================================================
STAGECOACH FUNDS:
--------------------------------------------------------
. are NOT insured by the FDIC.
. are NOT obligations or deposits of Wells Fargo Bank,
nor guaranteed by the Bank.
. involve investment risk including possible loss of
principal.
========================================================
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SCIX0LP (2/99)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1999
EQUITY INDEX FUND
CLASS O
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 O shares of the
Fund.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, also dated February 1, 1999. 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......................... 25
Determination of Net Asset Value................. 29
Additional Purchase and Redemption Information... 30
Portfolio Transactions........................... 31
Fund Expenses.................................... 32
Federal Income Taxes............................. 33
Capital Stock.................................... 39
Other............................................ 40
Counsel.......................................... 41
Independent Auditors............................. 41
Financial Information............................ 41
Appendix......................................... A-1
i
</TABLE>
<PAGE>
HISTORICAL FUND INFORMATION
The Equity Index Fund commenced operations on January 1, 1992, as successor
to the Corporate Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor Fund's commencement of operations was January 25,
1984. During the period from April 28, 1996 to December 12, 1997, the Fund
invested all of its assets in a Master Portfolio with a corresponding investment
objective. Prior to December 12, 1997, the Equity Index Fund was known as the
"Corporate Stock Fund."
The Class O shares of the Fund commenced operations on February 1, 1999.
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;
1
<PAGE>
(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
2
<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
3
<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 Barclays Global Fund Advisors ("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
6
<PAGE>
GDRs are receipts issued by either a U.S. or non-U.S. banking institution, that
evidence ownership of the underlying foreign securities. Generally, ADRs in
registered form are designed for use in U.S. securities markets and EDRs and
IDRs in bearer form are designed primarily for use in Europe.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
----------------------------------------------------------------
Transactions
------------
The Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Fund will generally purchase securities with the intention of acquiring them,
the Fund may dispose of securities purchased on a when-issued, delayed-delivery
or a forward commitment basis before settlement when deemed appropriate by the
advisor. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience price fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
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
7
<PAGE>
date. Futures contracts and options are standardized and exchange-traded, where
the exchange serves as the ultimate counterparty for all contracts.
Consequently, the only credit risk on futures contracts is the creditworthiness
of the exchange. Futures contracts, however, are subject to market risk (i.e.,
exposure to adverse price changes).
The Fund may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange.
The Fund's futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the Commodity Futures Trading Commission.
In addition, the Fund may not engage in futures transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired options on
futures contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of the Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts;
provided, however, that in the case of an option on a futures contract that is
in-the money at the time of purchase, the in-the money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the U.S. Securities and Exchange Commission ("SEC"), the Fund may
be required to segregate cash, U.S. Government obligations or other high-quality
debt instruments in connection with its futures transactions in an amount
generally equal to the entire value of the underlying commitment.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, the Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
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
8
<PAGE>
periods during the trading day. Futures contracts prices could move to the limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subject the
Fund to substantial losses. If it is not possible, or the Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e. seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract.
The Fund may enter into futures contracts and may purchase and write
options thereon. Upon the exercise, the writer of the option delivers to the
holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the Fund.
Options. The Fund may purchase or sell options on individual securities or
options on indices of securities as described below. The purchaser of an option
risks a total loss of the premium paid for the option if the price of the
underlying security does not increase or decrease sufficiently to justify
exercise. The seller of an option, on the other hand, will recognize the premium
as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option.
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
9
<PAGE>
purchasers of listed options by the Options Clearing Corporation, which performs
the obligations of its members who fail to perform in connection with the
purchase or sale of options.
Stock Index Options. The Fund may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 15% of the value of its
net assets. The Fund may purchase and write (i.e., sell) put and call options
on stock indices as a substitute for comparable market positions in the
underlying securities. A stock index fluctuates with changes in the market
values of the stocks included in the index. The aggregate premiums paid on all
options purchased may not exceed 20% of the Fund's total assets and the value of
the options written may not exceed 10% of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss from purchasing
or writing stock index options depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of particular
stock.
When the Fund writes an option on a stock index, the Fund will place in a
segregated account with the Fund's custodian cash or liquid securities in an
amount at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or otherwise will cover the
transaction.
Stock Index Futures and Options on Stock Index Futures. The Fund may invest
in stock index futures and options on stock index futures as a substitute for a
comparable market position in the underlying securities. A stock index future
obligates the seller to deliver (and the purchaser to take), effectively, an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time 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.
10
<PAGE>
The Fund may also sell options on interest-rate futures contracts as part of
closing purchase transactions to terminate its options positions. No assurance
can be given that such closing transactions can be effected or as to the degree
of correlation between price movements in the options on interest rate futures
and price movements in the Fund's portfolio securities which are the subject of
the transaction.
Interest-Rate and Index Swaps. The Fund may enter into interest-rate and
index swaps in pursuit of its investment objective. Interest-rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments). Index swaps involve the exchange by the Fund with another
party of cash flows based upon the performance of an index of securities or a
portion of an index of securities that usually include dividends or income. In
each case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. The Fund will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If the Fund enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Fund These transactions generally do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with
respect to swaps generally is limited to the net amount of payments that the
Fund is contractually obligated to make. There is also a risk of a default by
the other party to a swap, in which case the Fund may not receive net amount of
payments that the Fund contractually is entitled to receive. The Fund may invest
up to 10% of its respective net assets in interest-rate and index swaps.
Future Developments. The Fund may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by the
Fund or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. 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-
11
<PAGE>
quality debt instruments equal to at least 100% of the current market value of
the securities loan (including accrued interest thereon) plus the interest
payable to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, Wells Fargo Bank will consider all relevant facts and
circumstances, including the creditworthiness of the broker, dealer, or
financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. Any securities that the Fund may
receive as collateral will not become part of the Fund's portfolio at the time
of the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. The Fund will not lend securities having a
value that exceeds one third of the current value of its total assets. Loans of
securities by the Fund will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, its Advisor, or its Distributor.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Fund invest can be expected to charge fees for
operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Fund.
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 "Prime1" by Moody's or "A1" or "A1--" 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>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 77 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Senior Vice President of Stephens Inc.;
Chairman and Manager of Financial Services Group;
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, 56 Director Business Associate Professor, Wake Frost
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 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, 59 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, 72 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 54 Director Private Investor/Real Estate Developer; Chairman of
4 Beaufain Street Vault Holdings, LLC.
Charleston, SC 29401
Richard H. Blank, Jr., 42 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 September 30, 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 $26,500 $35,000
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $26,500 $35,000
Director
Peter G. Gordon $25,750 $33,250
Director
Joseph N. Hankin $26,500 $35,000
Director
W. Rodney Hughes $25,750 $33,250
Director
Robert M. Joses $ 750 $ 1,750
Director
J. Tucker Morse $25,750 $33,250
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company,
18
<PAGE>
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 master/feeder structure from April 29, 1996 to December 12, 1997, at
which time the master/feeder structure was dissolved.
19
<PAGE>
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>
Six-Month
Period Ended Year Ended
9/30/98 3/31/98
------------- ----------
Fees Paid Fees Waived Fees Paid Fees Waived
---------- ----------- --------- -----------
<S> <C> <C> <C>
$572,998 $158,503 $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>
<S> <C> <C>
Six-Month Nine-Month
Period Ended Period Ended Year Ended
3/31/97 9/30/96 12/31/95
------------ ---------- ----------
$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 average daily net assets and 0.01% of net assets over $500 million. This
fee may be paid
20
<PAGE>
by Wells Fargo Bank or directly by the Fund. If the sub-advisory fee is paid
directly by the Fund, the compensation paid to Wells Fargo Bank for advisory
fees will be reduced accordingly. The predecessor Master Portfolio was also sub-
advised by BGFA, and from October 30, 1997 to December 12, 1997, was entitled to
receive the fee described above. Prior to October 30, 1997, BGFA was entitled to
receive a monthly fee equal to an annual rate of 0.08% of the Master Portfolio's
average daily net assets plus an annual payment of $40,000.
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an
affiliate of Wells Fargo Institutional Trust Company, N.A. Prior to January 1,
1996, WFNIA served as sub-advisor to the Fund and the predecessor portfolio
under substantially similar terms to the 0.08%/$40,000 annual payment
arrangement described above.
For the six-month period ended September 30, 1998, the Fund paid to BGFA
$39,172 in sub-advisory fees.
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 these
periods.
<TABLE>
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
21
<PAGE>
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Fund's operations, including coordination of the services performed by
the Fund's investment advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the Fund's business 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>
Total Wells Fargo Stephens
----- ----------- --------
<S> <C> <C> <C>
Six-Month $204,820 $ 88,073 $116,747
Period Ended
9/30/98
Year-Ended $306,855 $205,593 $101,262
3/31/98
Six-Month $ 80,775 $ 16,155 $ 64,620
Period Ended
3/31/97
</TABLE>
22
<PAGE>
For the periods indicated below, the Fund paid the following dollar amounts
to Stephens for administration fees :
<TABLE>
<S> <C>
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
-------------- -----------
$ 79,533 $ 92,555
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Fund. Stephens does
not receive compensation for the distribution of Class O shares.
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 O shares, and
may enter into agreements with other servicing agents. Under the agreement,
Shareholder Servicing Agents (including Wells Fargo Bank) agree to perform, as
agents for their customers, administrative services, with respect to Fund
shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee of up to 0.20%, on an annualized basis, of
the average daily net assets of the Class O 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.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreement may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
23
<PAGE>
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.
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 six-month period ended September 30, 1998, the Fund paid $87,126 in
fund accounting fees.
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 attributable to the Class O shares.
UNDERWRITING COMMISSIONS. The Fund does not pay underwriting commissions
------------------------
in connection with the sales/redemptions of the Class O shares. For the six-
month period ended September 30, 1998, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $799,856. Stephens retained $90,039 of such commissions. Wells Fargo
Securities Inc. ("WFSI"), an affiliated broker-dealer of the Company, and its
registered representatives retained $587,294 and $122,523, respectively, of such
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
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.
24
<PAGE>
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 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.
25
<PAGE>
Performance shown or advertised for the Class O 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.
Average Annual Total Return for the Applicable Period Ended September 30, 1998
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Year Five Year Three Year One Year
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Class O/1/ 16.24% 18.91% 21.64% 8.46%
</TABLE>
/1/ The performance of the Class O shares, which commenced operations 2/1/99,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class O share expenses and sales charges.
CUMULATIVE TOTAL RETURN: In addition to the above performance
------------------------
information, the Funds may advertise the cumulative total return for onemonth,
threemonth, sixmonth and yeartodate periods. The cumulative total return for
such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1998
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Year Five Year Three Year
No No No
Sales Sales Sales
Charge Charge Charge
-------- -------- ---------
<S> <C> <C> <C>
Class O/1/ 350.37% 137.73% 79.97%
</TABLE>
/1/ The performance of the Class O shares, which commenced operations 2/1/99,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class O share expenses and sales charges.
From time to time and only to the extent the comparison is appropriate for
the Fund or the Class O 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
26
<PAGE>
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged indices or performance data of
bonds, municipal securities, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of the Fund or Class, as
appropriate, also may be compared to those of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The performance of the Fund will be
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains, distributions and dividends paid, at the end of the period. The Fund's
comparative performance will be based on a comparison of yields, 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
27
<PAGE>
the Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
the Fund or the general economic, business, investment, or financial environment
in which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the Fund or a Class of shares, or on returns in general,
may be illustrated by graphs, charts, etc., where such graphs or charts would
compare, at various points in time, the return from an investment in the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate the Fund's historical performance or current or potential
value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare the
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
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
28
<PAGE>
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 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
29
<PAGE>
debt securities maturing in 60 days or less are valued at amortized cost. The
assets of the Fund, other than money market instruments or debt securities
maturing in 60 days or less, are valued at latest quoted bid prices. Futures
contracts will be marked to market daily at their respective settlement prices
determined by the relevant exchange. Prices may be furnished by a reputable
independent pricing service approved by the Company's Board of Directors. Prices
provided by an independent pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Fund for which current market
quotations are not readily available are valued at fair value as determined in
good faith by the Company's Board of Directors and in accordance with procedures
adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about 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
30
<PAGE>
of a shareholder which is applicable to shares of the Fund as provided from time
to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Fund will not deal with Stephens,
Wells Fargo 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
31
<PAGE>
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 does not pay brokerage commissions
---------------------
related to the sales/redemptions of the Class O shares.
Securities of Regular Broker/Dealers. As of September 30, 1998, the Fund
------------------------------------
held no securities of its "regular brokers or dealers" or any of their 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.
32
<PAGE>
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to the Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to the Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of Fund shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against the Fund's assets. General expenses of the Company are
allocated among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The 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
33
<PAGE>
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.
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.
34
<PAGE>
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 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
35
<PAGE>
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.
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
36
<PAGE>
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 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.
37
<PAGE>
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.
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.
38
<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
12b1) 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.
39
<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 November 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 JANUARY 31, 1999
-----------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
ADDRESS OF OWNERSHIP OF CLASS OF FUND
- -------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Stephens Inc. Class O 100.00% N/A
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 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
40
<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 LLP serves as the independent auditors for the Company. KPMG LLP
provides audit services, tax return preparation and assistance and consultation
in connection with review of certain SEC filings. KPMG 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 as of and 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.
41
<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
