As filed with the Securities and Exchange Commission
on November 3, 1999
Registration No. 33-42927; 811-6419
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 58 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 59 [X]
(Check appropriate box or boxes)
------------------------
STAGECOACH FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[_] 60 days after filing pursuant to Rule
485(a)(1), or
[_] on _________ pursuant
to Rule 485(a)(1)
[X] Immediately upon filing pursuant
to Rule 485(b), or
[_] on _________ pursuant
to Rule 485(b)
[_] 75 days after filing pursuant
to Rule 485(a)(2)
[_] on ___________pursuant
to Rule 485(a)(2)
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
STAGECOACH FUNDS, INC.
Cross Reference Sheet
Form N-1A Item Number
Part A Prospectus Captions
1 Front and Back Cover Pages
2 Objectives and Principal Strategies
Important Risks
3 Summary of Expenses
Example of Expenses
4 Objectives and Principal Strategies
Important Risks
See Individual Fund Summaries
General Investment Risks
5 Not applicable
6 Organization and Management of the Funds
7 Your Account
How to Buy Shares
How to Sell Shares
Dividends and Distributions
Taxes
8 A Choice of Share Classes
Reduced Sales Charges
Distribution Plan
Exchanges
9 See Individual Fund Summaries
Part B Statement of Additional Information Captions
10 Cover Page and Table of Contents
11 Historical Fund Information
12 Investment Restrictions
Additional Investment Policies
Risk Factors
13 Management
14 Capital Stock
15 Management
16 Portfolio Transactions
17 Capital Stock
18 Determination of Net Asset Value
Additional Purchase and Redemption Information
19 Federal Income Taxes
20 Management
21 Performance Calculations
22 Financial Information
Part C Other Information
23-30 Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Document.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 58 (the "Amendment") to the Registration
Statement of Stagecoach Funds, Inc. (the "Company") is being filed to register
the definitive forms of prospectuses and statements of additional information
for the Income and Tax-Free Income Funds, and to make certain other non-material
changes to the prospectuses and statements of additional information for these
Funds.
This Post-Effective Amendment does not affect the Registration Statement
for any of the Company's other funds.
<PAGE>
November 1, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Stagecoach Income Funds
Prospectus
Corporate Bond Fund Please read this Prospectus and keep it for
future reference. It is designed to provide you
Short-Intermediate with important information and to help you
U.S. Government decide if a Fund's goals match your own.
Income Fund
Federal law requires us to update this
Strategic Income Prospectus annually. Federal law does not
Fund allow us to satisfy Prospectus delivery
requirements by sending one Prospectus
U.S. Government for all accounts and people within a
Income Fund household. Therefore, if you own the same
Fund in more than one account or if several
Variable Rate people in your household own the same Fund, Government Fund you
will receive multiple Prospectuses.
These securities have not been approved
Class A, Class B and or disapproved by the U.S. Securities and
Class C Exchange Commission ("SEC") nor has
the SEC passed upon the accuracy or
adequacy of this Prospectus. Any
representation to the contrary is a
criminal offense.
Fund shares are NOT deposits or other obligations of,
or issued, endorsed or guaranteed by Wells Fargo
Bank, N.A. ("Wells Fargo Bank") or any of its
affiliates. Fund shares are NOT insured or guaranteed
by the U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental
agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Table of Contents
Overview Objectives, Principal
Strategies and Fund Specific Risks
This section contains Summary of Important Risks
important summary Performance History
information about the Summary of Expenses
Funds. Key Information
The Funds Corporate Bond Fund
Short-Intermediate U.S. Government Income Fund
This section contains Strategic Income Fund
important information U.S. Government Income Fund
about the individual Variable Rate Government Fund
Funds.
General Investment Risks
Organization and Management of the Funds
Your Investment Account
Turn to this section for A Choice of Share Classes
information on how to Reduced Sales Charges
open an account and how Exchanges
to buy, sell and exchange Your Account
Fund shares. How to Buy Shares
How to Sell Shares
Reference Additional Services and
Other Information
Look here for Portfolio Managers
additional information Glossary
and term definitions.
<PAGE>
Stagecoach Income Funds Overview
Corporate Bond Fund
Objective
Seeks a high level of current income consistent with reasonable risk.
Principal Strategy
We invest primarily in investment grade corporate debt securities of any
maturity. Under normal market conditions we expect to maintain a dollar
weighted-average maturity for portfolios of between 10 and 15 years. We may also
invest in U.S. Government obligations and up to 25% of our assets in below
investment grade securities.
Fund Specific Risks
We may invest in debt securities that are in low or below investment grade
categories, or are unrated or in default at the time of purchase. Such debt
securities have a much greater risk of default (or in the case of bonds
currently in default, of not returning principal) and are more volatile than
higher-rated securities of similar maturity. The value of such debt securities
will be affected by overall economic conditions, interest rates, and the
creditworthiness of the individual issuers. Additionally, these lower rated debt
securities may be less liquid and more difficult to value than higher rated
securities.
Securities of the smaller and medium-sized companies in which the Fund may
invest may be more volatile than larger company securities. Investments in
foreign markets may also present special risks, including currency, political,
diplomatic, regulatory and liquidity risks.
Short-Intermediate U.S. Government Income Fund
Objective
Seeks current income, while preserving capital.
Principal Strategy
We invest in short- to intermediate-term U.S. Government obligations. Under
ordinary circumstances, we expect to maintain a dollar weighted-average maturity
of between 2 and 5 years. However, we may invest in securities of any maturity.
We seek to preserve capital by shortening average maturity when we expect
interest rates to increase and to increase total return by lengthening maturity
when we expect interest rates to fall.
Fund Specific Risks
The U.S. Government does not guarantee the market value or current yield of its
obligations. Not all U.S. Government obligations are backed by the full faith
and credit of the U.S. Government. Mortgage-backed securities are subject to
prepayment risk and to extension risk, either of which can reduce the rate of
return on the portfolio. Asset-backed securities are subject to risk of default
on the underlying assets, particularly during periods of economic downturn.
Securities of U.S. branches of foreign banks and foreign branches of U.S. banks
are subject to additional risks, such as political turmoil, the imposition of
foreign withholding taxes, and the establishment of exchange controls or the
adoption of other foreign governmental restrictions that may affect the payment
of principal and/or interest on these securities.
<PAGE>
Strategic Income Fund
Objective
Seeks to maximize income while maintaining prospects for capital appreciation.
Principal Strategy
We invest in our corporate and government debt securities and income-producing
equity securities selected with particular consideration for their potential to
generate current income. We shift assets between such debt and equity securities
based on our assessment of the potential income available. We may buy, up to 50%
of our total assets, debt securities that are below investment-grade (sometimes
referred to as "junk bonds"), as well as debt rated in the lower investment
grade categories. An equity focus will be on securities issued by companies and
industries that tend to pay high ongoing dividends, such as utilities. We may
also buy preferred stock and other convertible securities, as well as common
stock of any size company.
Fund Specific Risks
We may invest in debt securities that are in low or below investment grade
categories, or are unrated or in default at the time of purchase. Such debt
securities have a much greater risk of default (or in the case of bonds
currently in default, of not returning principal) and are more volatile than
higher-rated securities of similar maturity. The value of such debt securities
will be affected by overall economic conditions, interest rates, and the
creditworthiness of the individual issuers. Additionally, these lower rated debt
securities may be less liquid and more difficult to value than higher rated
securities.
We may invest Fund assets in equity securities, which are subject to equity
market risk. This is the risk that stock prices will fluctuate and can decline
and reduce the value of a Fund's portfolio. Certain types of stock and certain
individual stocks selected for a Fund's portfolio may underperform or decline in
value more than the overall market. As of the date of this Prospectus, the
equity markets, as measured by the S&P 500 Index and other commonly used
indexes, are trading at or close to record levels. There can be no guarantee
that these levels will continue.
U.S. Government Income Fund
Objective
Seeks a high level of current income while preserving capital.
Principal Strategy
We invest primarily in U.S. Government mortgage pass-through securities. Under
normal circumstances, we invest at least 65% of our total assets in mortgage
pass-through securities. We target the average portfolio duration in a range
based on the average duration of 5 year U.S. Treasury securities.
Fund Specific Risks
The U.S. Government does not guarantee the market value or current yield of its
obligations. Not all U.S. Government obligations are backed by the full faith
and credit of the U.S. Government. Mortgage-backed securities are subject to
prepayment risk and to extension risk, either of which can reduce the rate of
return on the portfolio. Mortgage-backed securities are subject to the risk that
homeowners may refinance existing mortgages to take advantage of lower rates.
Such "prepayments" result in an early return of principal that is then
reinvested at what is likely to be a lower yield.
Variable Rate Government Fund
Objective
Seeks a high level of current income, while reducing principal volatility.
Principal Strategy
In order to reduce principal volatility, we invest in adjustable rate mortgage
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and we may also invest in U.S. Treasury securities with
remaining maturities of up to 5 years. We invest in obligations of any maturity,
but under ordinary conditions we will maintain a dollar weighted-average
maturity of between 10 to 30 years.
Fund Specific Risks
Adjustable rate mortgages ("ARMS") have interest rates tied to an index, such as
U.S. Treasury bill rates or the federal funds target rate, so that payments may
be periodically reset according to changes in the index. Individual ARMS are
bundled together and sold as securities. Unlike conventional debt securities,
which typically make semi-annual interest payments and repay principal at
maturity, ARMs provide a monthly payment of a pro-rated share of both interest
payments and payments and pre-payments of principal. Since ARMs adjust to
interest rate changes, they may be less sensitive to interest rate changes than
their weighted-average maturity might suggest. Not all U.S. Government
obligations are backed by the full faith and credit of the U.S. Government. ARMS
are subject to prepayment risk and to extension risk, either of which can reduce
the rate of return on the portfolio.
<PAGE>
Summary of Important Risks
This section summarizes important risks that are common to all of the Funds
described in this Prospectus, and important risks that relate specifically to
particular Funds. Both are important to your investment choice. Additional
information about these and other risks is included in:
o the individual Fund Descriptions later in this Prospectus; o under the
"General Investment Risks" section beginning on page 32; and o in the Funds'
Statement of Additional Information.
An investment in a Fund is not a deposit of Wells Fargo Bank and is not insured
or guaranteed by the FDIC or any other government agency. It is possible to lose
money by investing in a Fund.
Common Risks for the Funds
Debt Securities. The Funds invest in debt securities, such as notes and bonds,
which are subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of an instrument will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate
risk is the risk that interest rates may increase, which will reduce the resale
value of instruments in a Fund's portfolio, including U.S. Government
obligations. Debt securities with longer maturities are generally more sensitive
to interest rate changes than those with shorter maturities. Changes in market
interest rates do not affect the rate payable on debt securities held in a Fund,
unless the instrument has adjustable or variable rate features, which can reduce
interest rate risk. Changes in market interest rates may also extend or shorten
the duration of certain types of instruments, such as asset-backed securities,
thereby affecting their value and the return on your investment.
<PAGE>
Performance History
The information on the following pages shows you how each Fund has performed and
illustrates the variability of a Fund's returns over time. Each Fund's average
annual returns from inception, and for one-, five- and ten-year periods (as
applicable) are compared to the performance of an appropriate broad-based index.
Please remember that past performance is no guarantee of future results.
The Corporate Bond and Strategic Income Funds have been in operation less than a
calendar year, so return information is not reported for these Funds.
Performance History
Short-Intermediate U.S. Government Income Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1994 -1.42
1995 12.67
1996 3.61
1997 7.57
1998 7.61
Best Qtr.: Q3 '98: 4.81% Worst Qtr.: Q3 '94: -0.67%
* Returns do not reflect sales charges. If they did, returns would be lower.
The Fund's year-to-date performance through September 30, 1999 was -0.28%.
Average annual total return (%)
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Class A (Incept. 10/27/93) 4.35 5.26 5.18
Class B (Incept. 6/15/98)1 1.97 4.92 4.99
LB 1-3 Year Gov't. Bond Index2 6.97 5.96 5.85
1 Performance shown for periods prior to the inception of this Class reflects
the performance of the Class A shares adjusted to reflect this Class's fees and
expenses.
2 Lehman Brothers 1-3 Year Government Bond Index.
<PAGE>
U.S. Government Income Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1989 14.82
1990 10.17
1991 18.08
1992 6.27
1993 10.67
1994 -4.81
1995 19.32
1996 -0.11
1997 8.73
1998 7.35
Best Qtr.: Q2 '89: 8.09% Worst Qtr.: Q1 '96: -3.75%
* Returns do not reflect sales charges. If they did, returns would be lower.
The Fund's year-to-date performance through September 30, 1999 was -0.89%.
Average annual total return (%)
for the period ended 12/31/98 1 Year 5 Years 10 Years
Class A (Incept. 4/7/88)1 2.55 4.76 8.28
Class B (Incept. 12/15/97)1 1.63 4.67 8.08
Class C (Incept. 7/1/93) 5.63 4.98 8.09
Lehman Brothers U.S. Government 13.41 9.35 11.54
Long Bond Index
1 Performance shown for periods prior to the inception of this Class reflects
the performance of the Institutional Class shares adjusted to reflect this
Class's fees and expenses.
<PAGE>
Variable Rate Government Fund Class A Calendar Year Returns*
[BAR CHART]
1991 8.60
1992 4.23
1993 4.87
1994 -3.81
1995 7.69
1996 4.41
1997 5.43
1998 3.58
Best Qtr.: Q4 '90: 2.75% Worst Qtr.: Q4 '94: -2.09%
* Returns do not reflect sales charges. If they did, returns would be lower.
The Fund's year-to-date performance through September 30, 1999 was 1.63%.
Average annual total return (%)
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Class A (Incept. 11/1/90) 0.43 2.76 4.18
LB ARMs Index1 5.27 6.11 N/A
1 Lehman Brothers Adjustable Rate Mortgages Index.
<PAGE>
Summary of Expenses
These tables are intended to help you understand the various costs and
expenses you will pay as a shareholder in a Fund. These tables do not reflect
charges that may be imposed in connection with an account through which you
hold Fund shares.
- -------------------------------------- =============== ================ -----------
Shareholder Fees All Funds All Funds All Funds
Class A Class B Class C
- -------------------------------------- =============== ================ -----------
Maximum sales charge (load)
imposed on purchases (as a
percentage of
offering price) 4.50% None None
- -------------------------------------- =============== ================ -----------
Maximum deferred sales charge (load)
(as a percentage of the lower of None1 5.00% 1.00%
the net asset value ("NAV") at
purchase or the NAV at redemption)
- -------------------------------------- =============== ================ -----------
Annual Fund Operating Expenses (Expenses that are deducted from
Fund Assets)2
- ----------------------- ---------------------- --------------- -----------------------
Short-Intermediate
U.S.
Government
Corporate Bond Fund Income Fund Strategic Income Fund
---------------------- --------------- -----------------------
------- ------- ------ ------- ------- ------- ------ --------
Class Class Class Class Class Class Class Class
A B C A B A B C
- -----------------------
------- ------- ------ ------- ------- ------- ------ --------
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60%
- ----------------------- ------- ------- ------ ------- ------- ------- ------ --------
- ----------------------- ------- ------- ------ ------- ------- -------
Distribution (12b-1) 0.05% 0.75% 0.75% 0.05% 0.75% 0.00% 0.75% 0.75%
Fees
- ----------------------- ------- ------- ------ ------- ------- ------- ------ --------
Other Expenses 1.55% 1.40% 1.69% 0.66% 0.74% 0.97% 0.79% 1.14%
- ----------------------- ------- ------- ------ ------- ------- ------- ------ --------
TOTAL ANNUAL FUND
OPERATING
EXPENSES 2.10% 2.65% 2.94% 1.21% 1.99% 1.62% 2.14% 2.49%
- ----------------------- ------- ------- ------ ------- ------- ------- ------ --------
- ----------------------- -------------------------------- ---------------
U.S. Government Variable Rate
Income Fund Government
Fund
-------------------------------- ---------------
---------- ---------- ---------- ---------------
Class Class Class Class
A B C A
- -----------------------
---------- ---------- ---------- ---------------
Management Fees 0.50% 0.50% 0.50% 0.50%
- ----------------------- ---------- ---------- ---------- ---------------
- ----------------------- ---------- ---------- ---------- ---------------
Distribution (12b-1) 0.05% 0.70% 0.75% 0.25%
Fees
- ----------------------- ---------- ---------- ---------- ---------------
Other Expenses 0.66% 0.79% 0.66% 0.38%
- ----------------------- ---------- ---------- ---------- ---------------
TOTAL ANNUAL FUND
OPERATING
EXPENSES 1.21% 1.99% 1.91% 1.13%
- ----------------------- ---------- ---------- ---------- ---------------
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more will
be assessed a 1.00% contingent deferred sales charge ("CDSC") if they are
redeemed within one year from the date of purchase. All other Class A shares
will not have a CDSC.
2 Expense information in the table has been restated to reflect current fees.
The actual expenses incurred by the Funds will be lower than the contract
amounts shown above in certain instances as a result of voluntary fee waivers.
The Funds' actual expenses after waivers are currently as follows for the
share classes indicated: Corporate Bond Fund -- Class A: 1.00%, Class B:
1.75%, Class C: 1.75%; Short-Intermediate U.S. Government Income Fund -- Class
A: 0.96%, Class B: 1.66%; Strategic Income Fund -- Class A: 1.10%, Class B:
1.85%, Class C: 1.85%; U.S. Government Income Fund -- Class A: 0.96%, Class B:
1.66%, Class C: 1.66%; Variable Rate Government Fund -- Class A: 0.78%. Fee
waivers are voluntary and may be discontinued or modified at any time.
<PAGE>
Summary of Expenses (Cont'd)
Example of Expenses
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume a fixed
rate of return and that fund operating expenses remain the same. Your actual
costs may be higher or lower than those shown.
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you redeem your shares at the end of each period:
- --------------- ------------------------ ------------------------- -----------------
Short-Intermediate Term Strategic Income
Corporate Bond Fund U.S. Government Income Fund
Fund
------------------------ ------------------------- -----------------
------ -------- -------- -------- ------- -------- -------- --------
Class Class Class Class Class Class Class Class
A B C A B A B C
- ---------------
------ -------- -------- -------- ------- -------- -------- --------
1 YEAR $ $ 768 $ 397 $ 568 $ $ 607 $ 717 $ 397
653 702
- --------------- ------ -------- -------- -------- ------- -------- -------- --------
3 YEARS $1,078 $1,123 $ 910 $ 817 $ $ 938 $ 970 $ 910
924
- --------------- ------ -------- -------- -------- ------- -------- -------- --------
5 YEARS $1,528 $1,605 $1,548 $1,085 $1,273 $1,292 $1,349 $1,548
- --------------- ------ -------- -------- -------- ------- -------- -------- --------
10 YEARS $2,778 $2,788 $3,261 $1,850 $2,021 $2,285 $2,279 $3,261
- --------------- ------ -------- -------- -------- ------- -------- -------- --------
- --------------- ------------------------ --------------
U.S. Government Variable Rate
Income Fund Government
Fund
------------------------ --------------
------ -------- -------- --------------
Class Class Class Class
A B C A
- ---------------
------ -------- -------- --------------
1 YEAR $ $ 702 $ 294 $ 560
568
- --------------- ------ -------- -------- --------------
3 YEARS $ $ 924 $ 600 $ 793
817
- --------------- ------ -------- -------- --------------
5 YEARS $1,085 $1,273 $1,032 $1,044
- --------------- ------ -------- -------- --------------
10 YEARS $1,850 $2,021 $2,233 $1,763
- --------------- ------ -------- -------- --------------
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you do NOT redeem your shares at the end of the periods
shown:
- --------------- -------------------------- ------------------- --------------------------
Short-Intermediate
U.S. Government
Corporate Bond Fund Income Fund Strategic Income Fund
-------------------------- ------------------- --------------------------
------- --------- -------- --------- --------- --------- -------- -------
Class Class Class Class Class Class Class Class
A B C A B A B C
- ---------------
------- --------- -------- --------- --------- --------- -------- -------
1 YEAR $ $ 268 $ 297 $ 568 $ 202 $ 607 $ 217 $
653 297
- --------------- ------- --------- -------- --------- --------- --------- -------- -------
3 YEARS $1,078 $ 823 $ 910 $ 817 $ 624 $ 938 $ 670 $
910
- --------------- ------- --------- -------- --------- --------- --------- -------- -------
5 YEARS $1,528 $1,405 $1,548 $1,085 $1,073 $1,292 $1,149 $1,548
- --------------- ------- --------- -------- --------- --------- --------- -------- -------
10 YEARS $2,778 $2,708 $3,261 $1,850 $2,021 $2,285 $2,279 $3,261
- --------------- ------- --------- -------- --------- --------- --------- -------- -------
- --------------- ------------------------ --------------
U.S. Government Variable Rate
Income Fund Government
Fund
------------------------ --------------
------ -------- -------- --------------
Class Class Class Class
A B C A
- ---------------
------ -------- -------- --------------
1 YEAR $ $ 202 $ 194 $ 560
568
- --------------- ------ -------- -------- --------------
3 YEARS $ $ 624 $ 600 $ 793
817
- --------------- ------ -------- -------- --------------
5 YEARS $1,085 $1,073 $1,032 $1,044
- --------------- ------ -------- -------- --------------
10 YEARS $1,850 $2,021 $2,233 $1,763
- --------------- ------ -------- -------- --------------
<PAGE>
Key Information
Important information you should look for as you decide to invest in a Fund:
The summary information on the previous pages is designed to provide you with an
overview of each Fund. The sections that follow provide more detailed
information about the investments and management of each Fund.
Investment Objective and Investment Strategies
The investment objective of each Fund in this Prospectus is fundamental, that
is, it can be changed only by a vote of the shareholders. The objectives and
strategies descriptions for each Fund tell you:
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes a Fund different from the other Funds offered in this Prospectus.
Permitted Investments
A summary of the Fund's key permitted investments and practices.
Important Risk Factors
Describes the key risk factors for the Fund, and includes risks described in the
"Summary of Important Risks" and "General Investment Risks" sections.
Words appearing in italicized print are defined in the Glossary.
<PAGE>
Corporate Bond Fund
Portfolio Managers: N. Graham Allen, FCMA
John W. (Jack) Burgess
Jacqueline A. Flippin
Daniel J. Kokoszka, CFA
Scott Smith, CFA
Investment Objective
The Corporate Bond Fund seeks a high level of current income, consistent with
reasonable risk. Changes to this objective do not require a shareholder vote.
Investment Strategies
We seek a high rate of current income by actively managing a diversified
portfolio consisting primarily of corporate debt securities. When purchasing
these securities we consider, among other things, the yield differences for
various corporate sectors, and the current economic cycle's potential effect on
the various types of bonds. We may invest in securities of any maturity. Under
normal market conditions, we expect to maintain a dollar-weighted average
maturity for portfolio securities of between 10 and 15 years. We also may invest
in U.S. Government obligations.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in investment grade corporate debt
securities; o in U.S. Government obligations; o up to 25% of our total assets in
debt securities that are below investment grade; and o up to 25% of our total
assets in securities of foreign issuers.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interests
of shareholders to do so. During these periods, the Fund may not achieve its
objective of a high level of current income.
Important Risk Factors
We may invest in securities regardless of their rating, or in securities that
are unrated or in default at the time of purchase. Debt securities are subject
to interest rate risk, maturity risk and credit risk.
You should consider the "Summary of Important Risks" section on page 6; the
"General Investment Risks" section beginning on page 32; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Corporate Bond Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON APRIL 1, 1998
----------------------- -------------------- -------
June 30, 1999 June 30, 1998
----------------------- -------------------- -------
For the period ended:
Net asset value, beginning of period $10.03 $10.00
Income from investment operations:
Net investment income (loss) 0.62 0.17
Net realized and unrealized gain (loss)
on investments (0.37) 0.03
Total from investment operations 0.25 0.20
Less distributions:
Dividends from net investment income (0.62) (0.17)
Distributions from net realized gain (0.04) 0.00
Total from distributions (0.66) (0.17)
Net asset value, end of period $9.62 $10.03
Total return (not annualized)1 2.45% 1.98%
Ratios/supplemental data:
Net assets, end of period (000s) $5,482 $5,503
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.93% 0.56%
Ratio of net investment income (loss) to
average net assets 6.21% 6.47%
Portfolio turnover 115% 33%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.10% 3.74%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.04% 3.29%
- ------------------------------------------------------- ----------------------- -------------------- -------
1 Total returns do not include sales charges.
<PAGE>
CLASS B SHARES--COMMENCED CLASS C SHARES--COMMENCED
ON APRIL 1, 1998 ON APRIL 1, 1998
----------------- ----------------- ---------------- -----------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
----------------- ----------------- ---------------- -----------------
For the period ended:
Net asset value, beginning of period $10.03 $10.00 $10.03 $10.00
Income from investment operations:
Net investment income (loss) 0.55 0.15 0.55 0.15
Net realized and unrealized gain (loss)
on investments (0.37) 0.03 (0.37) 0.03
Total from investment operations 0.18 0.18 0.18 0.18
Less distributions:
Dividends from net investment income (0.55) (0.15) (0.55) (0.15)
Distributions from net realized gain (0.04) 0.00 (0.04) 0.00
Total from distributions (0.59) (0.15) (0.59) (0.15)
Net asset value, end of period $9.62 $10.03 $9.62 $10.03
Total return (not annualized)1 1.68% 1.81% 1.67% 1.78%
Ratios/supplemental data:
Net assets, end of period (000s) $11,311 $4,595 $1,994 $299
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.68% 1.35% 1.70% 1.34%
Ratio of net investment income (loss) to
average net assets 5.43% 5.47% 5.39% 5.57%
Portfolio turnover 115% 33% 115% 33%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.65% 4.30% 2.94% 8.58%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.46% 2.52% 4.15% (1.67%)
- ------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
<PAGE>
Short-Intermediate U.S. Government Income Fund
Portfolio Managers: Paul C. Single
Jacqueline A. Flippin
Investment Objective
The Short-Intermediate U.S. Government Income Fund seeks current income, while preserving capital.
Investment Strategies
We seek current income by actively managing a diversified portfolio consisting
primarily of short- to intermediate-term U.S. Government obligations. We may
invest in securities of any maturity. Under ordinary circumstances, we expect to
maintain a dollar-weighted average maturity of between 2 and 5 years. We seek to
preserve capital by shortening average maturity when we expect interest rates to
increase and to increase total return by lengthening maturity when we expect
interest rates to fall.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in short to intermediate term U.S. Government obligations or repurchase agreements
collateralized by U.S. Government obligations;
o in investment grade corporate debt securities including asset-backed securities;
o no more than 5% of our total assets in securities downgraded below
investment-grade after we acquired them; o up to 25% of assets in
dollar-denominated debt of U.S. branches of foreign banks or foreign branches of
U.S. banks; and o in stripped Treasury securities, adjustable-rate mortgage
securities, and adjustable portions of collateralized mortgage
obligations ("CMOs").
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interests
of shareholders to do so. During these periods, the Fund may not achieve its
objective of current income and capital preservation.
Important Risk Factors
Mortgage- and asset-backed securities and CMOs may not be guaranteed by the U.S.
Treasury. Mortgage- and asset-backed securities and CMOs are subject to
prepayment acceleration and extension risk, either of which can reduce the rate
of return on the portfolio. Asset-backed securities are subject to risk of
default on the underlying assets, particularly during periods of economic
downturn. Securities of U.S. branches of foreign banks and foreign branches of
U.S. banks are subject to additional risks, such as political turmoil, the
imposition of foreign withholding taxes, and the establishment of exchange
controls or the adoption of other foreign governmental restrictions that may
affect the payment of principal and/or interest on these securities.
Stripped Treasury securities have greater interest rate risk than traditional
government securities with identical credit ratings and like maturities because
interest payments and the repayment of principal are separated and sold as
securities.
You should consider the "Summary of Important Risks" section on page 6; the
"General Investment Risks" section beginning on page 32; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Short-Intermediate U.S. Government Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON OCTOBER 27, 1993
----------------------- ---------------------- ----------------------
June 30, 1999 June 30, 19981 March 31, 1998
----------------------- ---------------------- ----------------------
For the period ended:
Net asset value, beginning of period $9.97 $9.95 $9.64
Income from investment operations:
Net investment income (loss) 0.57 0.13 0.51
Net realized and unrealized gain (loss)
on investments (0.23) 0.02 0.31
Total from investment operations 0.34 0.15 0.82
Less distributions:
Dividends from net investment income (0.57) (0.13) (0.51)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.57) (0.13) (0.51)
Net asset value, end of period $9.74 $9.97 $9.95
Total return (not annualized)4 3.37% 1.54% 8.69%
Ratios/supplemental data:
Net assets, end of period (000s) $42,956 $38,149 $29,694
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.96% 0.96% 0.78%
Ratio of net investment income (loss) to
average net assets 5.66% 5.36% 5.19%
Portfolio turnover 116% 12% 48%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.21% 1.24% 1.30%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.41% 5.08% 4.67%
- ------------------------------------------------------- ----------------------- ---------------------- ----------------------
1 The Fund changed its fiscal year-end from March 31 to June 30. 2 The Fund
changed its fiscal year-end from September 30 to March 31. 3 The Fund changed
its fiscal year-end from December 31 to September 30. 4 Total returns do not
include any sales charges.
<PAGE>
CLASS A SHARES--COMMENCED
ON OCTOBER 27, 1993
------------------- ------------------ --------------- ----------------
March 31, 19972 Sept. 30, 19963 Dec. 31, 1995 Dec. 31, 1994
------------------- ------------------ --------------- ----------------
For the period ended:
Net asset value, beginning of period $9.73 $10.00 $9.39 $9.99
Income from investment operations:
Net investment income (loss) 0.34 0.41 0.55 0.46
Net realized and unrealized gain (loss)
on investments (0.09) (0.27) 0.61 0.60
Total from investment operations 0.25 0.14 1.16 (0.14)
Less distributions:
Dividends from net investment income (0.34) (0.41) (0.55) (0.46)
Distributions from net realized gain 0.00 0.00 0.00 0.00
Total from distributions (0.34) (0.41) (0.55) (0.46)
Net asset value, end of period $9.64 $9.73 $10.00 $9.39
Total return (not annualized)4 2.57% 1.34% 12.67% (1.42%)
Ratios/supplemental data:
Net assets, end of period (000s) $33,920 $37,465 $39,928 $11,602
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.71% 0.76% 0.71% 0.25%
Ratio of net investment income (loss) to
average net assets 6.96% 5.60% 5.64% 4.75%
Portfolio turnover 52% 389% 472% 288%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.12% 1.21% 1.67% 2.28%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 6.55% 5.15% 4.68% 2.72%
- ------------------------------------------------------- ------------------- ------------------ --------------- ----------------
<PAGE>
CLASS B SHARES--COMMENCED
ON JUNE 15, 1998
----------------------- -------------------- -------
June 30, 1999 June 30, 1998
----------------------- -------------------- -------
For the period ended:
Net asset value, beginning of period $9.97 $10.03
Income from investment operations:
Net investment income (loss) 0.50 0.02
Net realized and unrealized gain (loss)
on investments (0.23) (0.06)
Total from investment operations 0.27 (0.04)
Less distributions:
Dividends from net investment income (0.50) (0.02)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.50) (0.02)
Net asset value, end of period $9.74 $9.97
Total return (not annualized)4 2.65% (0.38%)
Ratios/supplemental data:
Net assets, end of period (000s) $9,643 $7,514
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.66% 1.66%
Ratio of net investment income (loss) to
average net assets 4.95% 5.08%
Portfolio turnover 116% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.99% 1.97%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.62% 4.77%
- ------------------------------------------------------- ----------------------- -------------------- -------
<PAGE>
Strategic Income Fund
Portfolio Managers: N. Graham Allen, FCMA
Jacqueline A. Flippin
Scott Smith, CFA
Investment Objective
The Strategic Income Fund seeks to maximize income while maintaining prospects
for capital appreciation.
Investment Strategies
We actively manage a diversified portfolio of debt securities and
income-producing equity securities selected with particular consideration for
their potential to generate current income. We shift assets between such debt
and equity securities based on our assessment of the potential income available
while attempting to maintain prospects for capital appreciation. We may buy debt
securities that are below investment grade (sometimes referred to as "junk
bonds"), as well as debt rated in the lower investment grade categories. Our
equity focus will be on securities issued by companies in industries that tend
to pay high ongoing dividends, such as utilities. We may buy preferred stock and
other convertible securities, as well as common stock of any size company. Any
capital appreciation will come primarily from the income-producing equity
portion of the portfolio.
Permitted Investments
Under normal market conditions, we invest:
o at least 25% of our total assets in corporate and government bonds;
o up to 35% of our total assets in a wide range of income-producing equity securities.;
o up to 50% of our total assets in debt securities that are below investment grade, including "high risk" securities; and
o up to 25% of our total assets in securities of foreign issuers.
We will generally invest in debt securities that are rated at least "Caa" by
Moody's or "CCC" by S&P, or that are unrated but deemed by the advisor to be of
comparable equity. The average credit quality of this portion of the portfolio
is expected to be "BB" as rated by S&P(TM).
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interests
of shareholders to do so. During these periods, the Fund may not achieve its
objective of maximizing income while maintaining prospects for capital
appreciation.
Important Risk Factors
We may invest in debt securities that are in low or below investment grade
categories, or are unrated or in default at the time of purchase. Such debt
securities have a much greater risk of default (or in the case of bonds
currently in default, of not returning principal) and are more volatile than
higher-rated securities of similar maturity. The value of such debt securities
will be affected by overall economic conditions, interest rates, and the
creditworthiness of the individual issuers. Additionally, these lower rated debt
securities may be less liquid and more difficult to value than higher rated
securities.
Stocks of the smaller and medium-sized companies in which the Fund may invest
may be more volatile than larger company stocks. Investments in foreign markets
may also present special risks, including currency, political, diplomatic,
regulatory and liquidity risks.
You should consider the "Summary of Important Risks" section on page 6; the
"General Investment Risks" section beginning on page 32; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Strategic Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES-- CLASS B SHARES-- CLASS C SHARES--
COMMENCED COMMENCED COMMENCED
ON JULY 13, 1998 ON JULY 13, 1998 ON JULY 13, 1998
----------------------- ---------------------- ----------------------
June 30, 1999 June 30, 1999 June 30, 1999
----------------------- ---------------------- ----------------------
For the period ended:
Net asset value, beginning of period $12.50 $12.50 $12.50
Income from investment operations:
Net investment income (loss) 0.77 0.68 0.68
Net realized and unrealized gain (loss)
on investments (0.46) (0.45) (0.45)
Total from investment operations 0.31 0.23 0.23
Less distributions:
Dividends from net investment income (0.77) (0.68) (0.68)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.77) (0.68) (0.68)
Net asset value, end of period $12.04 $12.05 $12.05
Total return (not annualized)1 2.52% 1.87% 1.87%
Ratios/supplemental data:
Net assets, end of period (000s) $11,223 $36,892 $3,037
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.66% 1.50% 1.47%
Ratio of net investment income (loss) to
average net assets 6.95% 6.25% 6.23%
Portfolio turnover 176% 176% 176%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.62% 2.14% 2.49%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.99% 5.61% 5.21%
- ------------------------------------------------------- ----------------------- ---------------------- ----------------------
1 Total returns do not include any sales charges.
<PAGE>
U.S. Government Income Fund
Portfolio Managers: Scott Smith
Paul Single
Investment Objective
The U.S. Government Income Fund seeks a long-term total rate of return through
preserving capital and earning high interest income by investing principally in
a portfolio of U.S. Government mortgage pass-through securities, consisting
primarily of securities issued by GNMA, FNMA and FHLMC.
Investment Strategies
We actively manage a diversified portfolio of U.S. Government mortgage
pass-through securities (including those issued by GNMA, FNMA and FHLMC), U.S.
Treasury securities and repurchase agreements collateralized by U.S. Government
obligations.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of total Fund assets in U.S. Government mortgage pass-through
securities; and o in Treasury securities and repurchase agreements
collateralized by U.S. Government obligations.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interest
of shareholders to do so.
Important Risk Factors
You should consider both the General Investment Risks beginning on page 32 and
the specific risks listed below. They are equally important to your investment
choice.
The U.S. Government guarantees the timely payment of interest and principal of
GNMA and Treasury securities with its full faith and credit. FNMA and FHLMC
securities, however, are guaranteed by the issuing agencies and not by the U.S.
Government. There is no guarantee that the U.S. Government will support FNMA and
FHLMC securities if they are unable to meet their obligations.
The U.S. Government does not directly or indirectly insure or guarantee the
performance of the Fund. Mortgage-backed securities are subject to the risk that
homeowners may refinance existing mortgages to take advantage of lower rates.
Such "prepayments" result in an early return of principal that is then
reinvested at what is likely to be a lower yield.
<PAGE>
U.S. Government Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON APRIL 7, 19884
----------------------- ----------------------
June 30, 1999 June 30, 19982
----------------------- ----------------------
For the period ended:
Net asset value, beginning of period $10.93 $10.88
Income from investment operations:
Net investment income (loss) 0.59 0.30
Net realized and unrealized gain (loss)
on investments (0.31) 0.05
Total from investment operations 0.28 0.35
Less distributions:
Dividends from net investment income (0.59) (0.30)
Distributions from net realized gain 0.00 0.00
Total from distributions 0.00 (0.30)
Net asset value, end of period $10.62 $10.93
Total return (not annualized)1 2.52% 3.23%
Ratios/supplemental data:
Net assets, end of period (000s) $154,122 $192,538
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.95% 0.89%
Ratio of net investment income (loss) to
average net assets 5.37% 5.51%
Portfolio turnover 57% 245%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.21% 1.25%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.11% 5.15%
- ------------------------------------------------------- ----------------------- ----------------------
<PAGE>
CLASS A SHARES--COMMENCED
ON APRIL 7, 19884
------------------- ----------------- --------------- ----------------
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------------- ----------------- --------------- ----------------
For the period ended:
Net asset value, beginning of period $10.65 $11.34 $10.16 $11.44
Income from investment operations:
Net investment income (loss) 0.64 0.66 0.73 0.74
Net realized and unrealized gain (loss)
on investments 0.23 (0.69) 1.18 (1.28)
Total from investment operations 0.87 (0.03) 1.91 (0.54)
Less distributions:
Dividends from net investment income (0.64) (0.66) (0.73) (0.74)
Distributions from net realized gain 0.00 0.00 0.00 0.00
Total from distributions (0.64) (0.66) (0.73) (0.74)
Net asset value, end of period $10.88 $10.65 $11.34 $10.16
Total return (not annualized)1 8.73% (0.11)% 19.32% (4.81)%
Ratios/supplemental data:
Net assets, end of period (000s) $207,558 $77,239 $30,471 $35,838
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.88% 0.89% 0.88% 0.76%
Ratio of net investment income (loss) to
average net assets 6.01% 6.07% 6.79% 6.84%
Portfolio turnover 306% 240% 95% 50%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 0.96% 1.24% 1.24% 1.08%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.93% 5.72% 6.44% 6.52%
- ------------------------------------------------------- ------------------- ----------------- --------------- ----------------
1 Total returns do not include any sales charges. 2 The Fund changed its fiscal
year-end from December 31 to June 30.
3 This class of shares commenced operations as Class D and was renamed as Class
C in conjunction with the consolidation of Overland Express Funds, Inc. and
Stagecoach Funds, Inc. on December 14, 1997. Funds, Inc. and Stagecoach Funds
Inc. on December 15, 1997.
4 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds, Inc.
and Stagecoach Funds, Inc.
<PAGE>
CLASS B SHARES--COMMENCED
ON DECEMBER 15, 19974
----------------------- -------------------- ---------------------
June 30, 1999 June 30, 19982 Dec. 31, 1997
----------------------- -------------------- ---------------------
For the period ended:
Net asset value, beginning of period $10.76 $10.70 $10.72
Income from investment operations:
Net investment income (loss) 0.50 0.26 0.03
Net realized and unrealized gain (loss)
on investments (0.31) 0.06 (0.02)
Total from investment operations 0.19 0.32 0.01
Less distributions:
Dividends from net investment income (0.50) (0.26) (0.03)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.50) (0.26) (0.03)
Net asset value, end of period $10.45 $10.76 $10.70
Total return (not annualized)1 1.75% 2.98% 0.08%
Ratios/supplemental data:
Net assets, end of period (000s) $36,780 $29,867 $26,401
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.66% 1.59% 1.58%
Ratio of net investment income (loss) to
average net assets 4.66% 4.78% 5.75%
Portfolio turnover 57% 245% 306%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.99% 1.90% 1.87%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.33% 4.47% 5.46%
- ------------------------------------------------------- ----------------------- -------------------- ---------------------
1 Total returns do not include any sales charges. 2 The Fund changed its
fiscal year-end from December 31 to June 30.
3 This class of shares commenced operations as Class D and was renamed as
Class C in conjunction with the consolidation of Overland Express Funds,
Inc. and Stagecoach Funds, Inc. on December 14, 1997. Funds, Inc. and
Stagecoach Funds Inc. on December 15, 1997.
4 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds,
Inc. and Stagecoach Funds, Inc.
<PAGE>
CLASS C SHARES3--COMMENCED
ON JULY 1, 19934
----------------------- -------------------- ---------------------
June 30, 1999 June 30, 1998 Dec. 31, 1997
----------------------- -------------------- ---------------------
For the period ended:
Net asset value, beginning of period $10.76 $10.71 $10.49
Income from investment operations:
Net investment income (loss) 0.50 0.26 0.55
Net realized and unrealized gain (loss)
on investments (0.30) 0.05 0.22
Total from investment operations 0.20 0.31 0.77
Less distributions:
Dividends from net investment income (0.50) (0.26) (0.55)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.50) (0.26) (0.55)
Net asset value, end of period $10.46 $10.76 $10.71
Total return (not annualized)1 1.85% 2.88% 7.56%
Ratios/supplemental data:
Net assets, end of period (000s) $4,629 $2,262 $1,772
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.66% 1.59% 1.62%
Ratio of net investment income (loss) to
average net assets 4.66% 4.76% 5.27%
Portfolio turnover 57% 245% 306%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.91% 2.46% 3.06%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.41% 3.89% 3.83%
- ------------------------------------------------------- ----------------------- -------------------- ---------------------
<PAGE>
CLASS C SHARES3--COMMENCED
ON JULY 1, 19934
----------------------- -------------------- ---------------------
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
----------------------- -------------------- ---------------------
For the period ended:
Net asset value, beginning of period $11.17 $10.01 $11.26
Income from investment operations:
Net investment income (loss) 0.58 0.64 0.65
Net realized and unrealized gain (loss)
on investments (0.68) 1.16 (1.25)
Total from investment operations (0.10) 1.80 (0.60)
Less distributions:
Dividends from net investment income (0.58) (0.64) (0.65)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.58) (0.64) (0.65)
Net asset value, end of period $10.49 $11.17 $10.01
Total return (not annualized)1 (0.79)% 18.54% (5.45)%
Ratios/supplemental data:
Net assets, end of period (000s) $2,290 $2,793 $3,722
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.62% 1.62% 1.37%
Ratio of net investment income (loss) to
average net assets 5.50% 6.07% 6.14%
Portfolio turnover 240% 95% 50%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 3.39% 2.29% 1.87%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.73% 5.40% 5.64%
- ------------------------------------------------------- ----------------------- -------------------- ---------------------
1 Total returns do not include any sales charges. 2 The Fund changed its
fiscal year-end from December 31 to June 30.
3 This class of shares commenced operations as Class D and was renamed as
Class C in conjunction with the consolidation of Overland Express Funds,
Inc. and Stagecoach Funds, Inc. on December 14, 1997. Funds, Inc. and
Stagecoach Funds Inc. on December 15, 1997.
4 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds,
Inc. and Stagecoach Funds, Inc.
<PAGE>
Variable Rate Government Fund
Portfolio Managers: Paul Single
Scott Smith
Investment Objective
The Variable Rate Government Fund seeks a high level of current income, while
reducing principal volatility, by investing primarily in adjustable rate
mortgage securities.
Investment Strategies
We actively manage a diversified portfolio primarily of adjustable rate mortgage
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, also known as "ARMS" in order to reduce principal volatility.
We invest in obligations of any maturity, but under ordinary conditions we will
maintain a dollar-weighted average maturity of between 10 to 30 years. In
unusual circumstances, the dollar-weighted average maturity may be below 10
years. We also may invest in U.S. Treasury securities with remaining maturities
of up to 5 years.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in ARMS issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; o in adjustable rate portions of
collateralized mortgage obligations ("CMOs") issued by U.S. Government agencies
and CMOs rated
"AAA" by S&P, or "Aaa" by Moody's; and
o no more than 5% of our assets in securities purchased on a "when-issued" basis.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interests
of shareholders to do so. During such periods, the Fund may not achieve its
investment objective of a high level of current income.
Important Risk Factors
The U.S. Government does not directly or indirectly insure or guarantee the
performance of the Fund. Mortgage-backed securities are subject to the risk that
homeowners may refinance existing mortgages to take advantage of lower rates.
Such "prepayments" result in an early return of principal that is then
reinvested at what is likely to be a lower yield.
You should consider the "Summary of Important Risks" section on page 6; the
"General Investment Risks" section beginning on page 32; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Variable Rate Government Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON NOVEMBER 1, 1990
----------------------- -------------------- -------
June 30, 1999 June 30, 19981
----------------------- -------------------- -------
For the period ended:
Net asset value, beginning of period $9.19 $9.23
Income from investment operations:
Net investment income (loss) 0.43 0.24
Net realized and unrealized gain (loss)
on investments (0.23) (0.04)
Total from investment operations 0.20 0.20
Less distributions:
Dividends from net investment income (0.43) (0.24)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.43) (0.24)
Net asset value, end of period $8.96 $9.19
Total return (not annualized)2 2.17% 2.16%
Ratios/supplemental data:
Net assets, end of period (000s) $108,203 $164,994
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.78% 0.78%
Ratio of net investment income (loss) to
average net assets 4.71% 5.21%
Portfolio turnover 80% 45%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.13% 1.11%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.36% 4.88%
- ------------------------------------------------------- ----------------------- -------------------- -------
1 The Fund changed its fiscal year-end from December 31 to June 30. 2 Total
returns do not include sales charges.
<PAGE>
CLASS A SHARES--COMMENCED
ON NOVEMBER 1, 1990
------------------- ----------------- --------------- ----------------
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------------- ----------------- --------------- ----------------
For the period ended:
Net asset value, beginning of period $9.25 $9.35 $9.19 $9.99
Income from investment operations:
Net investment income (loss) 0.51 0.50 0.53 0.43
Net realized and unrealized gain (loss)
on investments (0.02) (0.10) 0.16 (0.80)
Total from investment operations 0.49 0.40 0.69 (0.37)
Less distributions:
Dividends from net investment income (0.51) (0.46) (0.53) (0.43)
Distributions from net realized gain 0.00 (0.04) 0.00 0.00
Total from distributions (0.51) (0.50) (0.53) (0.43)
Net asset value, end of period $9.23 $9.25 $9.35 $9.19
Total return (not annualized)2 5.43% 4.41% 7.69% (3.81%)
Ratios/supplemental data:
Net assets, end of period (000s) $227,353 $393,948 $653,897 $1,215,546
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.81% 0.88% 0.84% 0.79%
Ratio of net investment income (loss) to
average net assets 5.55% 5.36% 5.71% 4.40%
Portfolio turnover 92% 277% 317% 164%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.09% 0.98% 0.96% 0.94%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.27% 5.26% 5.59% 4.25%
- ------------------------------------------------------- ------------------- ----------------- --------------- ----------------
<PAGE>
General Investment Risks
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider the risks common to investing in all mutual funds,
including the Wells Fargo Funds. Certain common risks are identified in the
"Summary of Important Risks" section on page 6. Other risks of mutual fund
investing include the following:
o Unlike bank deposits such as CDs or savings accounts, mutual funds are not insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a Fund, nor can we assure you that the market value of your investment will not
decline. We will not "make good" any investment loss you may suffer, nor
can anyone we contract with to provide certain services, such as selling
agents or investment advisors, offer or promise to make good any such
losses.
o Share prices -- and therefore the value of your investment -- will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as price volatility.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
o The Funds that invest in smaller companies, foreign companies (including
investments made through ADRs and similar instruments) and in emerging
markets are subject to additional risks, including less liquidity and
greater price volatility. A Fund's investment in foreign and emerging
markets may also be subject to special risks associated with international
trade, including currency, political, regulatory and diplomatic risk.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
o The Funds invest a portion of their assets in U.S. Government obligations,
such as securities issued or guaranteed by the Government National Mortgage
Association ("GNMAs"), the Federal National Mortgage Association ("FNMAs")
and the Federal Home Loan Mortgage Corporation ("FHLMCs"). Each are
mortgage-backed securities representing partial ownership of a pool of
residential mortgage loans. A "pool" or group of such mortgages is
assembled and, after being approved by the issuing or guaranteeing entity,
is offered to investors through securities dealers. Mortgage-backed
securities are subject to prepayment and extension risk, which can alter
the maturity of the securities and also reduce the rate of return on the
portfolio. It is important to recognize that the U.S. Government does not
guarantee the market value or current yield of those obligations. Not all
U.S. Government obligations are backed by the full faith and credit of the
U.S. Treasury, and the U.S. Government's guarantee does not extend to the
Funds themselves. Collateralized mortgage obligations ("CMOs") typically
represent principal-only and interest-only portions of such securities and
are subject to increased interest-rate and credit risk.
o The market value of lower-rated debt securities and unrated securities of
comparable quality that the Corporate Bond and Strategic Income Funds may
invest in tends to reflect individual developments affecting the issuer to
a greater extent than the market value of higher-rated securities, which
react primarily to fluctuations in the general level of interest rates.
Lower-rated securities also tend to be more sensitive to economic
conditions than higher-rated securities. These lower-rated debt securities
are considered by the rating agencies, on balance, to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. These securities generally involve more credit risk than
securities in higher-rating categories. Even securities rated "BBB" by S&P
or by Moody's ratings which are considered investment-grade, possess some
speculative characteristics.
General Investment Risks (Cont'd)
What follows is a general list of the types of risks (some of which are
described previously) that may apply to a given Fund and a table showing some of
the additional investment practices that each Fund may use and the risks
associated with them. Additional information about these practices is available
in the Statement of Additional Information.
Counter-Party Risk--The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk--The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Currency Risk-- The risk that a change in the exchange rate between U.S. dollars
and a foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency.
Diplomatic Risk--The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value of
liquidity of investments in either country.
Emerging Market Risk--The risk that the emerging market, as defined in the
glossary, may be more sensitive to certain economic changes. For example,
emerging market countries are often dependent on international trade and are
therefore often vulnerable to recessions in other countries. They may have
obsolete financial systems, have volatile currencies and may be more sensitive
than more mature markets to a variety of economic factors. Emerging market
securities may also be less liquid than securities of more developed countries
and could be difficult to sell, particularly during a market downturn.
Experience Risk--The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Extension Risk--The risk that when interest rates rise, prepayments of the
underlying obligations slow, thereby lengthening the duration and potentially
reducing the value of these securities.
Information Risk--The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk--The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk--The risk that a practice, such as lending portfolio securities or
engaging in forward commitment or when-issued securities transactions, may
increase a Fund's exposure to market risk, interest rate risk or other risks by,
in effect, increasing assets available for investment.
Liquidity Risk--The risk that a security cannot be sold at the time desired, 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.
General Investment Risks (Cont'd)
Prepayment Risk--The risk that consumers will accelerate their prepayment of
mortgage loans or other receivables, which can shorten the maturity of
mortgage-backed or other asset-backed securities, and reduce a portfolio's rate
of return.
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--The Funds' principal service providers have advised the Funds
that they are working on the necessary changes to their computer systems to
avoid any system failure based on an inability to distinguish the year 2000 from
the year 1900, and that they expect their systems to be adapted in time. There
can, of course, be no assurance of success. In addition, the companies or
entities in which the Funds invest also could be adversely impacted by the Year
2000 issue, especially foreign entities, which may be less prepared for Year
2000. The extent of such impact cannot be predicted.
In addition to the general risks discussed above, you should carefully consider
and evaluate any special risks that may apply to investing in a particular Fund.
See the "Important Risk Factors" in the summary for each Fund. You should also
see the Statement of Additional Information for additional information about the
investment practices and risks particular to each Fund.
<PAGE>
General Investment Risks (Cont'd)
Investment Practice/Risk
The following table lists some of the additional investment practices of the
Funds, including some not disclosed in the Investment Objective and Investment
Strategies sections of the Prospectus. The risks indicated after the description
of the practice are NOT the only potential risks associated with that practice,
but are among the more prominent. Market risk is assumed for each. See the
Investment Objective and Investment Strategies for each Fund or the Statement of
Additional Information for more information on these practices.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters of its
objective.
Remember, each Fund is designed to meet different investment needs and
objectives.
---- --- ---- ---- ---
INVESTMENT PRACTICE: RISK:
- ------------------------------------------------------------- ----------------------------
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Borrowing Policies
The ability to borrow from banks for temporary Leverage Risk o o o o o
purposes to meet shareholder redemptions.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Floating and Variable Rate Debt
Instruments with interest rates that are adjusted either Interest Rate and o o o o o
on a schedule or when an index or benchmark changes. Credit Risk
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Foreign Securities
Debt of a foreign government or corporation or dollar- Information, Political, o o o
denominated debt obligations of foreign branches of Regulatory,
U.S. banks or U.S. branches of foreign banks. Diplomatic, Liquidity
and Currency Risk
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
---- --- ---- ---- ---
Forward Commitment, When-Issued and
Delayed Delivery Transactions Interest Rate, o o o o o
Securities bought or sold for delivery at a later date or Leverage, Credit and
bought or sold for a fixed price at a fixed date. Experience Risk
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
<PAGE>
General Investment Risks (Cont'd)
---- --- ---- ---- ---
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
High Yield Securities
Debt securities of lower quality that produce generally Interest Rate and o o
higher rates of return. These securities, also known as Credit Risk "junk
bonds", tend to be more sensitive to economic conditions and during sustained
periods of rising interest rates, may experience interest and/or principal
defaults.
----------------------------
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Illiquid Securities Liquidity Risk o o o o o
A security that cannot be readily sold, or cannot be
readily sold without negatively affecting its fair price.
Limited to 15% of total assets.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Loans of Portfolio Securities
The practice of loaning securities to brokers, dealers and Credit, Counter-Party o o o o o
financial institutions to increase return on those and Leverage Risk
securities. Loans may be made up to Investment Company Act of 1940 limits
(currently one-third of total assets including the value of the collateral
received).
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Loan Participations
Debt obligations that represent a portion of a larger Credit Risk o o
loan made by a bank. Generally sold without guarantee or recourse, some
participations sell at a discount because of the borrower's credit problems.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Mortgage- and Asset-Backed Securities
Securities consisting of an undivided fractional Interest Rate, Credit, o o o o o
interests in pools of consumer loans, such as mortgage Prepayment and
loans, car loans, credit card debt, or receivables held in Experience Risk
trust.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
<PAGE>
General Investment Risks (Cont'd)
---- --- ---- ---- ---
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Options
The right or obligation to receive or deliver a security Credit, Information o
or cash payment depending on the security's price or the and Liquidity Risk
performance of an index or benchmark. Types of
options used may include: options on securities,
options on a stock index, stock index futures and
options on stock index futures to protect liquidity and
portfolio value.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Other Mutual Funds
The temporary investment in shares of another mutual Market Risk o o o o o
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.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Privately Issued Securities
Securities that are not publicly traded but which may or Liquidity Risk o o
may not be resold in accordance with Rule 144A of the
Securities Act of 1933.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Repurchase Agreements
A transaction in which the seller of a security agrees to Credit and o o o o o
buy back a security at an agreed upon time and price, Counter-Party Risk
usually with interest.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
Stripped Obligations
Securities that give ownership to either future Interest Rate Risk o o o o
payments of interest or a future payment of principal, but not both. These
securities tend to have greater interest rate sensitivity than conventional
debt.
- ------------------------------------------------------------- ---------------------------- ---- --- ---- ---- ---
<PAGE>
Organization and Management of the Funds
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, lists the entities that perform different services,
and explains how these service providers are compensated. Further information is
available in the Statement of Additional Information for the Funds.
About Stagecoach
Each Fund is one of over 30 Funds of Stagecoach Funds, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a Maryland
Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below.
Except for the advisers, which require shareholder vote to change, if the Board
believes that it is in the best interests of the shareholders it may make a
change in one of these companies.
<PAGE>
Organization and Management of the Funds (Cont'd)
------------------------------------------------------------------------------------
BOARD OF DIRECTORS
------------------------------------------------------------------------------------
Supervises the Funds' activities
------------------------------------------------------------------------------------
------------------------------------------ -----------------------------------------
INVESTMENT ADVISOR CUSTODIAN
------------------------------------------ -----------------------------------------
Wells Fargo Bank, N.A. Norwest Bank Minnesota, N.A.
525 Market St., San Francisco, CA 6th St. & Marquette, Minneapolis, MN
Manages the Funds' investment Provides safekeeping for the Funds'
assets
activities
------------------------------------------ -----------------------------------------
------------------------------------------------------------------------------------
INVESTMENT SUB-ADVISOR
------------------------------------------------------------------------------------
Wells Capital Management Incorporated
525 Market St.
San Francisco, CA
Manages the investment activities of each Fund
------------------------------------------------------------------------------------
-------------------- ----------------------- ----------------------- ---------------
SHAREHOLDER
TRANSFER SERVICING
DISTRIBUTOR ADMINISTRATOR AGENT AGENTS
-------------------- ----------------------- ----------------------- ---------------
Stephens Inc. Wells Fargo Bank, N.A. Boston Financial Data Various Agents
111 Center St. 525 Market Street Services, Inc.
Little Rock, AR San Francisco, CA Two Heritage Dr.
Markets the Funds Manages the Quincy, MA Provide
and distributes Funds' business Maintains records services to
Fund shares activities of shares and customers
supervises the
payment of dividends
-------------------- ----------------------- ----------------------- ---------------
------------------------------------------------------------------------------------
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
------------------------------------------------------------------------------------
Advise current and prospective shareholders on their Fund investments
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SHAREHOLDERS
------------------------------------------------------------------------------------
<PAGE>
Organization and Management of the Funds (Cont'd)
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described.
The Investment Advisor
Wells Fargo Bank provides portfolio management and fundamental security analysis
services as the advisor for each of the Funds. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the largest
banks in the United States. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of June 30, 1999,
Wells Fargo Bank and its affiliates managed over $131 billion in assets. For
providing these services, Wells Fargo is entitled to receive fees as described
in the "Summary of Expenses" section at the front of this Prospectus.
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of June 30, 1999
WCM provided investment advice for assets aggregating in excess of $42 billion.
The Administrator
Wells Fargo Bank provides the Funds with administration services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Trust's Trustees and officers. Wells Fargo
Bank also furnishes office space and certain facilities to conduct each Fund's
business. For providing these services, Wells Fargo Bank is entitled to receive
a fee of 0.15% of the average annual net assets of each Fund.
Shareholder Servicing Plan
We have a shareholder servicing plan for each Fund. Under this plan, we have
engaged various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services. For these services, each Fund pays 0.25% of its average net assets.
The Transfer Agent
Boston Financial Data Services, Inc. ("BFDS") provides transfer agency and
dividend disbursing services to the Funds. For providing these services, BFDS
receives an annual fee, certain transaction-related fees, and is reimbursed for
out-of-pocket expenses incurred on behalf of the Funds.
<PAGE>
A Choice of Share Classes
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus: o
Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares. o Class B Shares - with a
contingent deferred sales charge ("CDSC") payable upon redemption that
diminishes over time, and higher on-going expenses than Class A shares.
o Class C Shares - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B or Class C shares. Please note that Class B shares convert
to Class A shares after seven years to avoid the higher on-going expenses
assessed against Class B shares.
Class B shares are available for all Funds except the Variable Rate Government
Fund. Class C shares are available for the Corporate Bond, U.S. Government
Income and Strategic Income Funds only. They are similar to Class B shares, with
some important differences. Unlike Class B shares, Class C shares do not convert
to Class A shares. The higher on-going expenses will be assessed as long as you
hold the shares. The choice between Class B and Class C shares may depend on how
long you intend to hold Fund shares before redeeming them.
Orders for Class B shares of more than $250,000 are either treated as orders for
Class A shares or they will be refused. For Class C shares, orders of $1,000,000
or more, including purchases made which because of a right of accumulation or
letter of intent would qualify for the purchase of Class A shares without an
initial sales charge, are also either treated as orders for Class A shares or
they will be refused.
Please see the expenses listed for each Fund and the following sales charge
schedules before making your decision. You should also review the "Reduced Sales
Charges" section of the Prospectus. You may wish to discuss this choice with
your financial consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
("POP") which is the NAV plus the applicable sales charge. Since sales charges
are reduced for Class A share purchases above certain dollar amounts, known as
"breakpoint levels", the POP is lower for these purchases.
- --------------------------------------------------------------------------
CLASS A SHARES LISTED IN THIS PROSPECTUS
HAVE THE FOLLOWING SALES CHARGE SCHEDULE:
- ----------------------------- ---------------------- ---------------------
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
AMOUNT OF PUBLIC OF AMOUNT
OF PURCHASE OFFERING PRICE INVESTED
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
Less than $50,000 4.50% 4.71%
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
$50,000 to $99,999 4.00% 4.17%
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
$100,000 to $249,999 3.50% 3.63%
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
$250,000 to $499,999 2.50% 2.56%
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
$500,000 to $999,999 2.00% 2.04%
- ----------------------------- ---------------------- ---------------------
- ----------------------------- ---------------------- ---------------------
$1,000,000 and over1 0.00% 0.00%
- ----------------------------- ---------------------- ---------------------
1We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC if
they are redeemed within one year from the date of purchase, unless the dealer
of record waived its commission with the Funds' approval. Charges are based on
the lower of the NAV on the date of purchase or the date of redemption.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B and
Class C Share CDSC Reductions" and "Waivers for Certain Parties"). The CDSC
schedule is as follows:
- ----------------------------------------------------------------------------------------
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE
THE FOLLOWING SALES CHARGE SCHEDULE:
- -------------- ------- -------- --------- --------- -------- --------- -------- --------
REDEMPTION 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS
WITHIN
- -------------- ------- -------- --------- --------- -------- --------- -------- --------
- -------------- ------- -------- --------- --------- -------- --------- -------- --------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% A
Shares
- -------------- ------- -------- --------- --------- -------- --------- -------- --------
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires. After shares are held for seven years, the Class B
shares are converted to Class A shares to reduce your future on-going expenses.
Class B shares that were purchased prior to March 3, 1997 are subject to a CDSC
if they are redeemed within four years of the original purchase. The CDSC
schedule for these shares is below:
- --------------------------------------------------------------------------------------
CLASS B SHARES PURCHASED PRIOR TO MARCH 3,
1997 HAVE THE FOLLOWING SALES CHARGE SCHEDULE:
- --------------------------------------------------------------------------------------
- ----------------- --------- --------- -------- --------- --------- --------- ---------
REDEMPTION 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS
WITHIN
- ----------------- --------- --------- -------- --------- --------- --------- ---------
- ----------------- --------- --------- -------- --------- --------- --------- ---------
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00% A Shares
- ----------------- --------- --------- -------- --------- --------- --------- ---------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of 1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale, and up to 1.00% annually thereafter.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
<PAGE>
Reduced Sales Charges
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of the potential
reductions when you are deciding which share class to buy.
Class A Share Reductions
o You pay no sales charges on Fund shares you buy with reinvested distributions.
o You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
o By signing a Letter of Intent ("LOI"), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
o Rights of Accumulation ("ROA") allow you to combine the amount you invest
with the total NAV of shares you own in other Stagecoach or Norwest
Advantage front-end load Funds in order to reach breakpoint levels for a
reduced load. We give you a discount on the entire amount of the investment
that puts you over the breakpoint level.
o If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have
120 days to reinvest the proceeds of that redemption with no sales charge
into a Fund that charges the same or a lower front-end sales charge. If you
use such a redemption to purchase shares of a Fund with a higher front-end
sales charge, you will have to pay the difference between the lower and
higher charge.
o You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for
which Wells Fargo Bank acts as trustee provided the distribution occurred
within the 30 days prior to your reinvestment.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
o a family unit, including children under the age of twenty-one or single trust estate;
o a trustee or fiduciary purchasing for a single fiduciary relationship; or
o the members of a "qualified group" which consists of a "company" (as
defined in the Investment Company Act of 1940, as amended ("1940 Act")),
and related parties of such a "Company," which has been in existence for at
least six months and which has a primary purpose other than acquiring Fund
shares at a discount.
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in a Wells Fargo Fund in
installments over the next year, by signing a letter of intent you would pay
only 3.50% sales load on the entire purchase. Otherwise, you might pay 4.50% on
the first $49,999, then 4.00% on the next $50,000!
Class B and Class C Share CDSC Reductions
o You pay no CDSC on Funds shares you purchase with reinvested distributions.
o We waive the CDSC for all redemptions made because of scheduled (Rule 72T
Withdrawal Schedule) or mandatory (withdrawals made after age 70 1/2
according to IRS guidelines) distributions for certain retirement plans.
(See your retirement plan disclosure for details.)
Reduced Sales Charges (Cont'd)
o We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability"
is defined by the Internal Revenue Code of 1986.)
o We waive the CDSC for redemptions made at the direction of Wells Fargo in
order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
o We waive Class C share CDSC for certain types of accounts.
For Class B shares purchased after July 17, 1999, no CDSC is imposed on
withdrawals that occur under the following circumstances: o withdrawals are made
by participating in the Systematic Withdrawal Plan; o withdrawals may not exceed
10% of your Fund assets (including "free" shares) annually based on your
anniversary date in the
Systematic Withdrawal Plan; and
o you must participate in the dividend and capital gain reinvestment program.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher ongoing expenses. The following people can buy Class A shares
at NAV:
o Current and retired employees, directors and officers of:
o Stagecoach Funds and its affiliates;
o Wells Fargo Bank, Norwest Bank and their affiliates;
o Stephens and its affiliates; and
o Broker-Dealers who act as selling agents.
o and the families of any of the above. Contact your selling agent for further information.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment "wrap accounts" with whom
Wells Fargo Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts." If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
Distribution Plan
We have adopted Distribution Plans ("Plans") pursuant to Rule 12b-1 under the
1940 Act for the Class A, Class B and Class C shares of the Funds. The Plans
authorize the payment of all or part of the cost of preparing and distributing
Prospectuses and distribution-related services for all Funds, including ongoing
compensation to selling agents for all Funds except the Short-Intermediate U.S.
Government and U.S. Government Income Funds, which include only reimbursement
expenses. The Plans also provide that, if and to the extent any shareholder
servicing payments are recharacterized as payments for distribution-related
services, they are approved and payable under the Plans. The fees paid under
these Plans are as follows:
<PAGE>
Reduced Sales Charges (Cont'd)
- ------------------------------------------------------------ -------------- -------------- --------------
FUND Class A Class B Class C
- ------------------------------------------------------------ -------------- -------------- --------------
- ------------------------------------------------------------ -------------- -------------- --------------
Corporate Bond Fund 0.05% 0.75% 0.75%
- ------------------------------------------------------------ -------------- -------------- --------------
- ------------------------------------------------------------ -------------- -------------- --------------
Short-Intermediate U.S. Government Income Fund 0.05% 0.75% N/A
- ------------------------------------------------------------ -------------- -------------- --------------
- ------------------------------------------------------------ -------------- -------------- --------------
Strategic Income Fund 0.00% 0.75% 0.75%
- ------------------------------------------------------------ -------------- -------------- --------------
- ------------------------------------------------------------ -------------- -------------- --------------
U.S. Government Income Fund 0.05% 0.75% 0.75%
- ------------------------------------------------------------ -------------- -------------- --------------
- ------------------------------------------------------------ -------------- -------------- --------------
Variable Rate Government Fund 0.25% N/A N/A
- ------------------------------------------------------------ -------------- -------------- --------------
These fees are paid out of the Funds' assets on an on-going basis. Over time,
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
<PAGE>
EXCHANGES
Exchanges between Wells Fargo Funds are two transactions: a sale of shares of
one Fund and the purchase of shares of another. In general, the same rules and
procedures that apply to sales and purchases apply to exchanges. There are,
however, additional factors you should keep in mind while making or considering
an exchange:
o You should carefully read the Prospectus for the Fund into which you wish to
exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes. o If you are making an
initial investment into a new Fund through an exchange, you must exchange at
least the minimum first
purchase amount of the Fund you are redeeming, unless your balance has fallen below that amount due to market conditions.
o Any exchange between Funds you already own must meet the minimum redemption and subsequent purchase amounts for the Funds
involved.
o Exchanges from any share class to a money market fund can only be re-exchanged
for the original share class. o In order to discourage excessive Fund
transaction expenses that must be borne by other shareholders, we reserve the
right to
limit or reject exchange orders. Generally, we will notify you 60 days in advance of any changes in your exchange privileges.
o You may make exchanges between like share classes. You may also exchange from Class A or Class C shares to any
non-institutional money market fund. Exchanges involving Class B or Class C
shares do not trigger the CDSC. The new shares will continue to age
according to the original schedule while in the new Fund and will be
charged the CDSC applicable to the original shares upon redemption.
<PAGE>
Your Account
This section tells you how Fund shares are priced, how to open an account and
how to buy and sell Fund shares once your account is open.
Pricing Fund Shares
o As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
o We determine the NAV of each class of the Funds' shares each business day
as of the close of regular trading on the NYSE. We determine the NAV by
subtracting the Fund class's liabilities from its total assets, and then
dividing the result by the total number of outstanding shares of that
class. Each Fund's assets are generally valued at current market prices.
See the Statement of Additional Information for further disclosure.
o We process requests to buy or sell shares of the Funds each business day as
of the close of regular trading on the New York Stock Exchange ("NYSE"),
which is usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central time). If the
markets close early, the Funds may close early and may value their shares
at earlier times under these circumstances. Any request we receive in
proper form before these times is processed the same day. Requests we
receive after the cutoff times are processed the next business day.
o The funds are open for business on each day the NYSE is open for business.
NYSE holidays include New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. When any holiday falls on a weekend,
the NYSE typically is closed on the weekday immediately before or after
such holiday.
You Can Buy Fund Shares
o By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds Application with proper payment); o Through a brokerage account
with an approved selling agent; or o Through certain retirement, benefits and
pension plans, or through certain packaged investment products (please see the
providers of the plan for instructions).
Minimum Investments
o $1,000 per Fund minimum initial investment;1 or o $100 per Fund if you use the
Systematic Purchase Program; and o $100 per Fund for all investments after your
first.
1 Purchases of Class B shares in amounts of $250,000 or more require the prior approval of your selling agent.
We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and Applications for the program through which
you intend to invest.
<PAGE>
Your Account (Cont'd)
HOW TO BUY SHARES
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your Selling Agent.
BY MAIL
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
o Complete a Stagecoach Funds Application. Be sure to indicate the Fund name
and the share class into which you intend to invest. Failure to complete an
Application properly may result in a delay in processing your request.
o Enclose a check for at least $1,000 made out in the full name and share
class of the Fund. For example, "Corporate Bond Fund, Class B."
o You may start your account with $100 if you elect the Systematic Purchase
plan option on the Application.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
IF YOU ARE BUYING ADDITIONAL SHARES:
o Make a check payable to the full name and share class of your Fund for at
least $100. Be sure to write your account number on the check as well.
o Enclose the payment stub/card from your statement if available.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
<PAGE>
Your Account (Cont'd)
BY WIRE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
o If you do not currently have an account, complete a Wells Fargo Funds
Application. You must wire at least $1,000. Be sure to indicate the Fund
name and the share class into which you intend to invest.
o Mail the completed Application.
o You must first call BFDS at 1-800-222-8222 to notify them of an incoming wire
trade.
o Mail Application to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
o Wire money to: Stagecoach Funds Attention:
c/o State Street Bank & Trust Stagecoach Funds (Name
Boston, MA of Fund and Share Class)
Bank Routing Number: Account Name:
ABA 011 000028 (Registration Name Indicated
on Application)
Wire Purchase Account Number:
9905-437-1
IF YOU ARE BUYING ADDITIONAL SHARES:
o Instruct your wiring bank to transmit at least $100 according to the
instructions given to the right. Be sure to have the wiring bank include
your current account number and the name your account is registered in.
o Wire money to: Stagecoach Funds Attention:
c/o State Street Bank & Trust Stagecoach Funds (Name
Boston, MA of Fund and Share Class)
Bank Routing Number: Account Name:
ABA 011 000028 (Registration Name Indicated
on Application)
Wire Purchase Account Number:
9905-437-1
<PAGE>
Your Account (Cont'd)
BY PHONE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
You can only make your first purchase of a Fund by phone if you already have an
existing Stagecoach Funds Account. o Call Shareholder Services and instruct the
representative to either:
o transfer at least $1,000 from a linked settlement account, or
o exchange at least $1,000 worth of shares from an existing Stagecoach Fund. Please see the "Exchanges" section for special
rules.
o Call: 1-800-222-8222
IF YOU ARE BUYING ADDITIONAL SHARES:
o Call Shareholder Services and instruct the representative to either:
o transfer at least $100 from a linked settlement account, or
o exchange at least $100 worth of shares from another Stagecoach Fund.
o Call: 1-800-222-8222
HOW TO SELL SHARES
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Fund shares held through
brokerage and other types of accounts, please consult your Selling Agent.
BY MAIL
IF YOU ARE SELLING SHARES FOR THE FIRST TIME:
o Write a letter stating your account registration, your account number, the
Fund you wish to redeem and the dollar amount ($100 or more) of the
redemption you wish to receive (or write "Full Redemption").
o Make sure all the account owners sign the request.
o You may request that redemption proceeds be sent to you by check, by ACH
transfer into a bank account, or by wire. Please call Shareholder Services
regarding requirements for linking bank accounts or for wiring funds. We
reserve the right to charge a fee for wiring funds although it is not
currently our practice to do so.
o Signature Guarantees are required for mailed redemption requests over
$50,000, or if the address on your account was changed within the last 60
days. You can get a signature guarantee at financial institutions such as a
bank or brokerage house. We do not accept notarized signatures.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
<PAGE>
Your Account (Cont'd)
BY PHONE
o Call Shareholder Services to request a redemption of at least $100. Be
prepared to provide your account number and Taxpayer Identification Number.
o Unless you have instructed us otherwise, only one account owner needs to
call in redemption requests.
o You may request that redemption proceeds be sent to you by check, by
transfer into an ACH-linked bank account, or by wire. Please call
Shareholder Services regarding requirements for linking bank accounts or
for wiring funds. We reserve the right to charge a fee for wiring funds
although it is not currently our practice to do so.
o Telephone privileges are automatically made available to you unless you
specifically decline them on your Application or subsequently in writing.
o Telephone privileges allow us to accept transaction instructions by anyone
representing themselves as the shareholder and who provides reasonable
confirmation of their identity, such as providing the Taxpayer
Identification Number on the account. We will not be liable for any losses
incurred if we follow telephone instructions we reasonably believe to be
genuine.
o We will not mail the proceeds of a telephone redemption request if the
address on your account was changed by phone in the last 30 days.
o Call: 1-800-222-8222
GENERAL NOTES FOR SELLING SHARES
o We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the cutoff
times are processed on the same business day.
o Your redemptions are net of any applicable CDSC.
o If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or
plan. There maybe special requirements that supersede the directions in
this Prospectus.
o We reserve the right to delay payment of a redemption 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.
o 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.
<PAGE>
Additional Services and Other Information
Automatic Programs:
These programs help you conveniently purchase and/or redeem shares each month.
Once you select a Plan, tell us the day of the month you would like the
transaction to occur. If you do not specify a date, we will process the
transaction on or about the 25th day of the month. Call Shareholder Services at
1-800-222-8222 for more information.
o Systematic Purchase Plan - With this program, you can regularly purchase
shares of a Wells Fargo Fund with money automatically transferred from a
linked bank account. Simply select the Fund you would like to purchase, and
specify an amount of at least $100.
o Systematic Exchange Plan - With this program, you can regularly exchange
shares of a Wells Fargo Fund you own for shares of another Wells Fargo
Fund. The exchange amount must be at least $100. See the "Exchanges"
section of this Prospectus for the conditions that apply to your shares.
This feature may not be available for certain types of accounts.
o Systematic Withdrawal Plan - With this program, you can regularly redeem
shares and receive the proceeds by check or by transfer to a linked bank
account. Simply specify an amount of at least $100. To participate in this
program, you:
o must have a Fund account valued at $10,000 or more; o must have your
distributions reinvested; and o may not simultaneously participate in the
Systematic Purchase Plan.
It generally takes about ten days to establish a plan once we have received your
instructions. It generally takes about five days to change or cancel
participation in a plan. We automatically cancel your program if the linked bank
account you specified is closed.
Dividend and Capital Gain Distributions
The Funds in this Prospectus pay any dividends monthly and make any capital
gains distributions annually.
We offer the following distribution options:
o Automatic Reinvestment Option - Lets you buy new shares of the same class
of the Fund that generated the distributions. The new shares are purchased
at NAV generally on the day the income is paid. This option is
automatically assigned to your account unless you specify another plan.
o 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.
o Bank Account Payment Option - Allows you to receive distributions directly
in a checking or savings account through ACH. The bank account must be
linked to your Wells Fargo Fund account. In order to establish a new linked
bank account, you must sent a written signature guaranteed instruction
along with a copy of a voided check or deposits slip. Any distribution
returned to us due to an invalid banking instruction will be sent to your
address of record by check at the earliest date possible, and future
distributions will be automatically re-invested.
<PAGE>
Additional Services and Other Information (Cont'd)
o Directed Distribution Purchase Option - Lets you buy shares of a different
Wells Fargo Fund of the same share class. The new shares are purchased at
NAV generally on the day the income is paid. In order to establish this
option, you need to identify the Fund and account the distributions are
coming from, and the Fund and account to which the distributions are being
directed. You must meet any required minimum purchased in both Funds prior
to establishing this option.
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed.
Taxes
The following discussion regarding taxes is based on laws that were in effect
as of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder.
It is not intended as a substitute for careful tax planning. You should
consult your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
Dividends distributed from these and the other Funds attributable to their
income from other investments and net short-term capital gain (generally, the
excess of net short-term capital gains over net long-term capital losses) will
be taxable to you as ordinary income. Corporate shareholders may be able to
deduct a portion of their dividends when determining their taxable income.
We will pass on to you any net capital gain (generally the excess of net
long-term capital gains over net short-term capital losses) earned by a Fund
as a capital gain distribution. In general, these distributions will be
taxable to you as long-term capital gains which may qualify for taxation at
preferential rates in the hands of non-corporate shareholders. Any
distribution that is not from net investment income, short term capital gains,
or net capital gain may be characterized as a return of capital to
shareholders.
<PAGE>
Portfolio Managers
N. Graham Allen, FCMA, Managing Director of Global Fixed-income Investing, has
managed the Corporate Bond Fund since April 1998. Mr. Allen has been with Wells
Capital Management, Inc. ("WCM") since January 1998. Before joining WCM, Mr.
Allen managed international fixed-income portfolios for Bradford & Marzec, Inc.
for ten years. He has over thirteen years of investment management experience.
John W. (Jack) Burgess, has managed the Corporate Bond Fund since August 1998.
Mr. Burgess has been a portfolio manager with WCM since January 1998, and was an
independent financial advisor from 1995 until joining the firm. Before that, he
managed equity and fixed-income portfolios for Aurora National Life Assurance
Company and related entities since 1988. Mr. Burgess has over ten years of
investment management experience.
Jacqueline A. Flippin, has co-managed the Corporate Bond Fund since April 1998.
She has been with WCM since January 1998. Before joining the firm, Ms. Flippin
was a short-term debt securities trader and portfolio manager for McMorgan &
Company since 1994.
Ms. Flippin has over ten years of investment management experience.
Daniel J. Kokoszka, CFA, has co-managed the Corporate Bond Fund since August
1998. He has been with Wells Fargo since January 1998. Before joining WCM, Mr.
Kokoszka co-managed international fixed-income portfolios for Bradford & Marzec,
Inc. since 1993. Mr. Kokoszka has over twelve years of investment management
experience.
Paul C. Single, has managed the Short-Intermediate U.S. Government Income Fund
since February 1999. He has been with Wells Fargo/Wells Capital Management since
1989. Mr. Single has over 16 years of investment management experience.
Scott Smith, CFA, has co-managed the Corporate Bond Fund since April 1998. He
has been with Wells Fargo/WCM since 1987, specializing in corporate and
mortgage-backed securities investments. Mr. Smith has over eleven years of
investment management experience.
<PAGE>
Glossary
We provide the following definitions to assist you in reading this Prospectus.
For a more complete understanding of these terms you should consult your
financial advisor.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and perform
other tasks.
American Depositary Receipts ("ADRs")
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically held in bank vaults. The ADR's owner is entitled to
any capital gains or dividends. ADRs are one way of owning an equity interest in foreign companies.
Asset-Backed Securities
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
Below Investment-Grade
Securities rated BBB or lower by S&P or Baa or lower by Moody's Shareholder
Services, or that may be unrated securities or securities considered to be "high
risk."
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "total return."
Collateralized Mortgage Obligations ("CMOs")
Securities collateralized by portfolios of mortgage pass-through securities.
CMOs are structured into multiple classes, and are paid according to class
maturity, shortest maturities paid first.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See also "total return."
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage- and other
asset-backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund, as defined by the Investment Company Act of 1940, is one
that invests in cash, Government securities, other investment companies and no
more than 5% of its total assets in a single issuer. These policies must apply
to 75% of the Funds' total assets.
Glossary (Cont'd)
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S. dollars.
Dollar Rolls
Similar to a reverse Repurchase Agreement, dollar rolls are simultaneous
agreements to sell a security held in a portfolio and to purchase a similar
security at a future date at an agreed-upon price.
Emerging Markets
Markets associated with a country that is considered by international financial
organizations, such as the International Finance Corporation and the
International Bank for Reconstruction and Development, and the international
financial community to have an "emerging" stock market. Such markets may be
under-capitalized, have less-developed legal and financial systems or may have
less stable currencies than markets in the developed world.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" are issued by the Federal National
Mortgage Association, and FHLMC securities as "Freddie Mac" and are issued by
the Federal Home Loan Mortgage Corporation.
Gateway Fund
A Fund that invests its assets in one or more core portfolios, instead of
directly in securities, to achieve its investment objective. Gateway funds
investing in the same core portfolio can enhance their investment opportunities
and reduce their expense ratios through sharing the costs and benefits of
managing a large pool of assets.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Government National Mortgage Association.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Investment-Grade Securities
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at a fair price.
Glossary (Cont'd)
Money Market Instruments
High-quality short-term instruments meeting the requirements of Rule 2a-7 of the
1940 Act, such as bankers' acceptances, commercial paper, repurchase agreements
and government obligations. In a money market fund, average portfolio maturity
does not exceed 90 days, and all investments have maturities of 397 days or less
at the time of purchase.
Moody's
A nationally recognized ratings organization.
Net Asset Value ("NAV")
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting accrued expenses and other liabilities, then dividing
by the total number of shares.
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price ("POP") The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Funds' distributors that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
S&P, S&P 500 Index
Standard and Poors, a nationally recognized ratings organization. S&P's also publishes various indexes or lists of companies
representative of sectors of the U.S. economy.
Statement of Additional Information
A document that supplements the disclosure made in the Prospectus.
Stripped Treasury Securities
Debt obligations in which the interest payments and the repayment of principal
are separated and sold as securities.
Glossary (Cont'd)
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Funds.
U.S. Government obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
Zero Coupon Securities
Bonds that make no periodic interest payments and which are usually sold at a
discount of their face value. Zero coupon bonds are subject to interest rate and
credit risk.
<PAGE>
STAGECOACH FUNDS
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
Provides certain financial and other important information including a
discussion of the market conditions and investment strategies that significantly
affected Fund performance, for the most recent reporting period.
These documents are available free of charge:
Call 1-800-222-8222, or
Write to:
Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
Visit the SEC's web site:
http://www.sec.gov, or
Request copies for a fee by writing to:
SEC Public Reference Room, Washington, DC 20549-6009
(call: 1-800-SEC-0330 for details)
--------------------------------------------------
ICA Reg. No. 811-6419 NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE SFI IP (11/99)
--------------------------------------------------
<PAGE>
November 1, 1999
Stagecoach Income Funds
Prospectus
Short-Intermediate Please read this Prospectus and keep it for
U.S. Government future reference. It is designed to provide you
Income Fund with important information and to help you
decide if a Fund's goals match your own.
U.S. Government
Income Fund Federal law requires us to update this
Prospectus annually. Federal law does not
allow us to satisfy Prospectus delivery
Institutional Class requirements by sending one Prospectus for all
accounts and people within a household. Therefore, if
you own the same Fund in more than one account or if
several people in your household own the same Fund,
you will receive multiple Prospectuses.
These securities have not been approved or
disapproved by the U.S. Securities and Exchange
Commission ("SEC") nor has the SEC passed upon the
accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
Fund shares are NOT deposits or other obligations of,
or issued, endorsed or guaranteed by Wells Fargo
Bank, N.A. ("Wells Fargo Bank") or any of its
affiliates. Fund shares are NOT insured or guaranteed
by the U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental
agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Table of Contents
Overview Objectives, Principal
Strategies and Fund Specific Risks
This section contains Summary of Important Risks
important summary Performance History
information about the Summary of Expenses
Funds. Key Information
The Funds Short-Intermediate U.S. Government Income Fund
This section contains U.S. Government Income Fund
important information
about the individual General Investment Risks
Funds. Organization and Management of the Funds
Your Investment Account
Turn to this section for Your Account
information on how to How to Buy Shares
open an account and how How to Sell Shares
to buy, sell and exchange Exchanges
Fund shares.
Reference Other Information
Portfolio Managers
Look here for Glossary
additional information
and term definitions.
<PAGE>
Stagecoach Income Funds Overview
Short-Intermediate U.S. Government Income Fund
Objective
Seeks current income, while preserving capital.
Principal Strategy
We invest in short- to intermediate-term U.S. Government obligations. Under
ordinary circumstances, we expect to maintain a dollar weighted-average maturity
of between 2 and 5 years. However, we may invest in securities of any maturity.
We seek to preserve capital by shortening average maturity when we expect
interest rates to increase and to increase total return by lengthening maturity
when we expect interest rates to fall.
Fund Specific Risks
The U.S. Government does not guarantee the market value or current yield of its
obligations. Not all U.S. Government obligations are backed by the full faith
and credit of the U.S. Government. Mortgage-backed securities are subject to
prepayment risk and to extension risk, either of which can reduce the rate of
return on the portfolio. Asset-backed securities are subject to risk of default
on the underlying assets, particularly during periods of economic downturn.
Securities of U.S. branches of foreign banks and foreign branches of U.S. banks
are subject to additional risks, such as political turmoil, the imposition of
foreign withholding taxes, and the establishment of exchange controls or the
adoption of other foreign governmental restrictions that may affect the payment
of principal and/or interest on these securities.
<PAGE>
U.S. Government Income Fund
Objective
Seeks a high level of current income while preserving capital.
Principal Strategy
We invest primarily in U.S. Government mortgage pass-through securities. Under
normal circumstances, we invest at least 65% of our total assets in mortgage
pass-through securities. We target the average portfolio duration in a range
based on the average duration of 5 year U.S. Treasury securities.
Fund Specific Risks
The U.S. Government does not guarantee the market value or current yield of its
obligations. Not all U.S. Government obligations are backed by the full faith
and credit of the U.S. Government. Mortgage-backed securities are subject to
prepayment risk and to extension risk, either of which can reduce the rate of
return on the portfolio. The U.S. Government does not directly or indirectly
insure or guarantee the performance of the Fund. Mortgage-backed securities are
subject to the risk that homeowners may refinance existing mortgages to take
advantage of lower rates. Such "prepayments" result in an early return of
principal that is then reinvested at what is likely to be a lower yield.
<PAGE>
Summary of Important Risks
This section summarizes important risks that are common to all of the Funds
described in this Prospectus, and important risks that relate specifically to
particular Funds. Both are important to your investment choice. Additional
information about these and other risks is included in:
o the individual Fund Descriptions later in this Prospectus; o under the
"General Investment Risks" section beginning on page 16; and o in the Funds'
Statement of Additional Information.
An investment in a Fund is not a deposit of Wells Fargo Bank and is not insured
or guaranteed by the FDIC or any other government agency. It is possible to lose
money by investing in a Fund.
Common Risks for the Funds
Debt Securities. The Funds invest in debt securities, such as notes and bonds,
which are subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of an instrument will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate
risk is the risk that interest rates may increase, which will reduce the resale
value of instruments in a Fund's portfolio, including U.S. Government
obligations. Debt securities with longer maturities are generally more sensitive
to interest rate changes than those with shorter maturities. Changes in market
interest rates do not affect the rate payable on debt securities held in a Fund,
unless the instrument has adjustable or variable rate features, which can reduce
interest rate risk. Changes in market interest rates may also extend or shorten
the duration of certain types of instruments, such as asset-backed securities,
thereby affecting their value and the return on your investment.
<PAGE>
Performance History
The information on the following pages shows you how each Fund has performed and
illustrates the variability of a Fund's returns over time. Each Fund's average
annual returns from inception, and for one-, five- and ten-year periods (as
applicable) are compared to the performance of an appropriate broad-based index.
Please remember that past performance is no guarantee of future results.
Performance History
Short-Intermediate U.S. Government Income Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1994 -1.42
1995 12.67
1996 3.55
1997 7.68
1998 7.72
Best Qtr.: Q3 '98: 4.81% Worst Qtr.: Q3 '94: -0.67%
* The Fund's year-to-date performance through September 30, 1999 was -0.32%.
Average annual total return (%)
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Institutional Class (Incept. 9/6/96)1 7.72 5.94 5.84
LB 1-3 Year Gov't. Bond Index2 6.97 5.96 5.85
1 Performance shown for periods prior to the inception of the Institutional Class reflects the performance of the Class A shares.
2 Lehman Brothers 1-3 Year Government Bond Index.
<PAGE>
U.S. Government Income Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1989 14.82
1990 10.17
1991 18.08
1992 6.27
1993 10.67
1994 -4.81
1995 19.32
1996 -0.11
1997 8.69
1998 7.39
Best Qtr.: Q2 '89: 8.09% Worst Qtr.: Q1 '96: -3.75%
* The Fund's year-to-date performance through September 30, 1999 was -0.82%.
Average annual total return (%)
for the period ended 12/31/98 1 Year 5 Years 10 Years
Institutional Class (Incept. 11/11/94)1 7.39 5.73 8.78
Lehman Brothers U.S. Government 13.41 9.35 11.54
Long Bond Index
1 Performance shown for periods prior to the inception of the Institutional Class reflects the performance of the Class A shares.
<PAGE>
Summary of Expenses
These tables are intended to help you understand the various costs and
expenses you will pay as a shareholder in a Fund. These tables do not reflect
charges that may be imposed in connection with an account through which you
hold Fund shares.
- -------------------------------------- ---------------
Shareholder Fees All Funds
Institutional
Class
- -------------------------------------- ---------------
Maximum sales charge (load)
imposed on purchases (as a
percentage of
offering price) None
- -------------------------------------- ---------------
Maximum deferred sales charge (load)
(as a percentage of the lower of None
the net asset value ("NAV") at
purchase or the NAV at redemption)
- -------------------------------------- ---------------
Annual Fund Operating Expenses (Expenses that are deducted from
Fund Assets)
- ----------------------- --------------------- ------------------------
Short-Intermediate
U.S. Government
Income Fund
U.S. Government Income
Fund
--------------------- ------------------------
--------------------- ------------------------
Institutional Class Institutional Class
- -----------------------
--------------------- ------------------------
Management Fees 0.50% 0.50%
- ----------------------- --------------------- ------------------------
- ----------------------- --------------------- ------------------------
Other Expenses 0.58% 0.85%
- ----------------------- --------------------- ------------------------
TOTAL ANNUAL FUND
OPERATING
EXPENSES1 1.08% 1.35%
- ----------------------- --------------------- ------------------------
1 Expense information in the table has been restated to reflect current fees.
The actual expenses incurred by the Funds will be lower than the contract
amounts shown above in certain instances as a result of voluntary fee waivers.
The Funds' actual expenses after waivers are currently as follows:
Short-Intermediate U.S. Government Income Fund -- 0.91%; U.S. Government
Income Fund -- 0.91%. Fee waivers are voluntary and may be discontinued or
modified at any time.
<PAGE>
Summary of Expenses (Cont'd)
Example of Expenses
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume a fixed
rate of return and that fund operating expenses remain the same. Your actual
costs may be higher or lower than those shown.
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you redeem your shares at the end of each period:
- --------------- ------------------------ ----------------------
Short-Intermediate Term U.S. Government
U.S. Government Income Income Fund
Fund
------------------------ ----------------------
------------------------ ----------------------
Institutional Class Institutional Class
- ---------------
------------------------ ----------------------
1 YEAR $110 $137
- --------------- ------------------------ ----------------------
3 YEARS $343 $428
- --------------- ------------------------ ----------------------
5 YEARS $595 $739
- --------------- ------------------------ ----------------------
10 YEARS $1,317 $1,624
- --------------- ------------------------ ----------------------
<PAGE>
Key Information
Important information you should look for as you decide to invest in a Fund:
The summary information on the previous pages is designed to provide you with an
overview of each Fund. The sections that follow provide more detailed
information about the investments and management of each Fund.
Investment Objective and Investment Strategies
The investment objective of each Fund in this Prospectus is fundamental, that
is, it can be changed only by a vote of the shareholders. The objectives and
strategies descriptions for each Fund tell you:
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes a Fund different from the other Funds offered in this Prospectus.
Permitted Investments
A summary of the Fund's key permitted investments and practices.
Important Risk Factors
Describes the key risk factors for the Fund, and includes risks described in the
"Summary of Important Risks" and "General Investment Risks" sections.
Words appearing in italicized print are defined in the Glossary.
<PAGE>
Short-Intermediate U.S. Government Income Fund
Portfolio Managers: Paul C. Single
Jacqueline A. Flippin
Investment Objective
The Short-Intermediate U.S. Government Income Fund seeks current income, while preserving capital.
Investment Strategies
We seek current income by actively managing a diversified portfolio consisting
primarily of short- to intermediate-term U.S. Government obligations. We may
invest in securities of any maturity. Under ordinary circumstances, we expect to
maintain a dollar-weighted average maturity of between 2 and 5 years. We seek to
preserve capital by shortening average maturity when we expect interest rates to
increase and to increase total return by lengthening maturity when we expect
interest rates to fall.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in short to intermediate term U.S. Government obligations or repurchase agreements
collateralized by U.S. Government obligations;
o in investment grade corporate debt securities including asset-backed securities;
o no more than 5% of our total assets in securities downgraded below
investment-grade after we acquired them; o up to 25% of assets in
dollar-denominated debt of U.S. branches of foreign banks or foreign branches of
U.S. banks; and o in stripped Treasury securities, adjustable-rate mortgage
securities, and adjustable portions of collateralized mortgage
obligations ("CMOs").
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interests
of shareholders to do so. During these periods, the Fund may not achieve its
objective of current income and capital preservation.
Important Risk Factors
Mortgage- and asset-backed securities and CMOs may not be guaranteed by the U.S.
Treasury. Mortgage- and asset-backed securities and CMOs are subject to
prepayment acceleration and extension risk, either of which can reduce the rate
of return on the portfolio. Asset-backed securities are subject to risk of
default on the underlying assets, particularly during periods of economic
downturn. Securities of U.S. branches of foreign banks and foreign branches of
U.S. banks are subject to additional risks, such as political turmoil, the
imposition of foreign withholding taxes, and the establishment of exchange
controls or the adoption of other foreign governmental restrictions that may
affect the payment of principal and/or interest on these securities.
Stripped Treasury securities have greater interest rate risk than traditional
government securities with identical credit ratings and like maturities because
interest payments and the repayment of principal are separated and sold as
securities.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 16; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Short-Intermediate U.S. Government Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON SEPTEMBER 6, 1996
----------------------- -------------------- -------
June 30, 1999 June 30, 19981
----------------------- -------------------- -------
For the period ended:
Net asset value, beginning of period $9.78 $9.76
Income from investment operations:
Net investment income (loss) 0.56 0.13
Net realized and unrealized gain (loss)
on investments (0.23) 0.02
Total from investment operations 0.33 0.15
Less distributions:
Dividends from net investment income (0.56) (0.13)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.56) (0.13)
Net asset value, end of period $9.55 $9.78
Total return (not annualized) 3.38% 1.56%
Ratios/supplemental data:
Net assets, end of period (000s) $79,789 $90,146
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.91% 0.91%
Ratio of net investment income (loss) to
average net assets 5.72% 5.44%
Portfolio turnover 116% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.08% 1.08%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 5.55% 5.27%
- ------------------------------------------------------- ----------------------- -------------------- -------
1 The Fund changed its fiscal year-end from March 31 to June 30. 2 The Fund
changed its fiscal year-end from September 30 to March 31.
<PAGE>
INSTITUTIONAL CLASS SHARES--COMMENCED
ON SEPTEMBER 6, 1996
----------------------- ---------------------- ----------------------
March 31, 1998 March 31, 19972 Sept. 30, 1996
----------------------- ---------------------- ----------------------
For the period ended:
Net asset value, beginning of period $9.45 $9.54 $9.46
Income from investment operations:
Net investment income (loss) 0.51 0.34 0.03
Net realized and unrealized gain (loss)
on investments 0.31 (0.09) 0.08
Total from investment operations 0.82 0.25 0.11
Less distributions:
Dividends from net investment income (0.51) (0.34) (0.03)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.51) (0.34) (0.03)
Net asset value, end of period $9.76 $9.45 $9.54
Total return (not annualized) 8.85% 2.58% 1.08%
Ratios/supplemental data:
Net assets, end of period (000s) $51,973 $60,150 $73,637
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.69% 0.65% 0.59%
Ratio of net investment income (loss) to
average net assets 5.28% 7.01% 5.14%
Portfolio turnover 48% 52% 389%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.07% 1.02% 0.84%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.90% 6.64% 4.89%
- ------------------------------------------------------- ----------------------- ---------------------- ----------------------
1 The Fund changed its fiscal year-end from March 31 to June 30. 2 The Fund
changed its fiscal year-end from September 30 to March 31.
<PAGE>
U.S. Government Income Fund
Portfolio Managers: Scott Smith
Paul Single
Investment Objective
The U.S. Government Income Fund seeks a long-term total rate of return through
preserving capital and earning high interest income by investing principally in
a portfolio of U.S. Government mortgage pass-through securities, consisting
primarily of securities issued by GNMA, FNMA and FHLMC.
Investment Strategies
We actively manage a diversified portfolio of U.S. Government mortgage
pass-through securities (including those issued by GNMA, FNMA and FHLMC), U.S.
Treasury securities and repurchase agreements collateralized by U.S. Government
obligations.
Permitted Investments
Under normal market conditions, we invest:
o at least 65% of total Fund assets in U.S. Government mortgage pass-through
securities; and o in Treasury securities and repurchase agreements
collateralized by U.S. Government obligations.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments, either to maintain liquidity
or for short-term defensive purposes when we believe it is in the best interest
of shareholders to do so.
Important Risk Factors
You should consider both the General Investment Risks beginning on page 16 and
the specific risks listed below. They are equally important to your investment
choice.
The U.S. Government guarantees the timely payment of interest and principal of
GNMA and Treasury securities with its full faith and credit. FNMA and FHLMC
securities, however, are guaranteed by the issuing agencies and not by the U.S.
Government. There is no guarantee that the U.S. Government will support FNMA and
FHLMC securities if they are unable to meet their obligations.
The U.S. Government does not directly or indirectly insure or guarantee the
performance of the Fund. Mortgage-backed securities are subject to the risk that
homeowners may refinance existing mortgages to take advantage of lower rates.
Such "prepayments" result in an early return of principal that is then
reinvested at what is likely to be a lower yield.
<PAGE>
U.S. Government Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON DECEMBER 15, 1997
----------------------- ---------------------- ----------------------
June 30, 1999 June 30, 19981 Dec. 31, 1997
----------------------- ---------------------- ----------------------
For the period ended:
Net asset value, beginning of period $15.79 $15.71 $15.73
Income from investment operations:
Net investment income (loss) 0.86 0.43 0.05
Net realized and unrealized gain (loss)
on investments (0.46) 0.08 (0.02)
Total from investment operations 0.40 0.51 0.03
Less distributions:
Dividends from net investment income (0.86) (0.43) (0.05)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.86) (0.43) (0.05)
Net asset value, end of period $15.33 $15.79 $15.71
Total return (not annualized) 2.49% 3.32% 0.18%
Ratios/supplemental data:
Net assets, end of period (000s) $7,499 $8,307 $7,255
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.90% 0.83% 0.77%
Ratio of net investment income (loss) to
average net assets 5.42% 5.56% 6.58%
Portfolio turnover 57% 245% 306%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.35% 1.18% 1.16%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.97% 5.21% 6.19%
- ------------------------------------------------------- ----------------------- ---------------------- ----------------------
1 The Fund changed its fiscal year-end from December 31 to June 30.
<PAGE>
General Investment Risks
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider the risks common to investing in all mutual funds,
including the Wells Fargo Funds. Certain common risks are identified in the
"Summary of Important Risks" section on page 5. Other risks of mutual fund
investing include the following:
o Unlike bank deposits such as CDs or savings accounts, mutual funds are not insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a Fund, nor can we assure you that the market value of your investment will not
decline. We will not "make good" any investment loss you may suffer, nor
can anyone we contract with to provide certain services, such as selling
agents or investment advisors, offer or promise to make good any such
losses.
o Share prices -- and therefore the value of your investment -- will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as price volatility.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
o The Funds that invest in smaller companies, foreign companies (including
investments made through ADRs and similar instruments) and in emerging
markets are subject to additional risks, including less liquidity and
greater price volatility. A Fund's investment in foreign and emerging
markets may also be subject to special risks associated with international
trade, including currency, political, regulatory and diplomatic risk.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
o The Funds invest a portion of their assets in U.S. Government obligations,
such as securities issued or guaranteed by the Government National Mortgage
Association ("GNMAs"), the Federal National Mortgage Association ("FNMAs")
and the Federal Home Loan Mortgage Corporation ("FHLMCs"). Each are
mortgage-backed securities representing partial ownership of a pool of
residential mortgage loans. A "pool" or group of such mortgages is
assembled and, after being approved by the issuing or guaranteeing entity,
is offered to investors through securities dealers. Mortgage-backed
securities are subject to prepayment and extension risk, which can alter
the maturity of the securities and also reduce the rate of return on the
portfolio. It is important to recognize that the U.S. Government does not
guarantee the market value or current yield of those obligations. Not all
U.S. Government obligations are backed by the full faith and credit of the
U.S. Treasury, and the U.S. Government's guarantee does not extend to the
Funds themselves. Collateralized mortgage obligations ("CMOs") typically
represent principal-only and interest-only portions of such securities and
are subject to increased interest-rate and credit risk.
<PAGE>
General Investment Risks (Cont'd)
What follows is a general list of the types of risks (some of which are
described previously) that may apply to a given Fund and a table showing some of
the additional investment practices that each Fund may use and the risks
associated with them. Additional information about these practices is available
in the Statement of Additional Information.
Counter-Party Risk--The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk--The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Currency Risk-- The risk that a change in the exchange rate between U.S. dollars
and a foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency.
Diplomatic Risk--The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value of
liquidity of investments in either country.
Emerging Market Risk--The risk that the emerging market, as defined in the
glossary, may be more sensitive to certain economic changes. For example,
emerging market countries are often dependent on international trade and are
therefore often vulnerable to recessions in other countries. They may have
obsolete financial systems, have volatile currencies and may be more sensitive
than more mature markets to a variety of economic factors. Emerging market
securities may also be less liquid than securities of more developed countries
and could be difficult to sell, particularly during a market downturn.
Experience Risk--The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Extension Risk--The risk that when interest rates rise, prepayments of the
underlying obligations slow, thereby lengthening the duration and potentially
reducing the value of these securities.
Information Risk--The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk--The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk--The risk that a practice, such as lending portfolio securities or
engaging in forward commitment or when-issued securities transactions, may
increase a Fund's exposure to market risk, interest rate risk or other risks by,
in effect, increasing assets available for investment.
Liquidity Risk--The risk that a security cannot be sold at the time desired, 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.
General Investment Risks (Cont'd)
Prepayment Risk--The risk that consumers will accelerate their prepayment of
mortgage loans or other receivables, which can shorten the maturity of
mortgage-backed or other asset-backed securities, and reduce a portfolio's rate
of return.
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--The Funds' principal service providers have advised the Funds
that they are working on the necessary changes to their computer systems to
avoid any system failure based on an inability to distinguish the year 2000 from
the year 1900, and that they expect their systems to be adapted in time. There
can, of course, be no assurance of success. In addition, the companies or
entities in which the Funds invest also could be adversely impacted by the Year
2000 issue, especially foreign entities, which may be less prepared for Year
2000. The extent of such impact cannot be predicted.
In addition to the general risks discussed above, you should carefully consider
and evaluate any special risks that may apply to investing in a particular Fund.
See the "Important Risk Factors" in the summary for each Fund. You should also
see the Statement of Additional Information for additional information about the
investment practices and risks particular to each Fund.
<PAGE>
General Investment Risks (Cont'd)
Investment Practice/Risk
The following table lists some of the additional investment practices of the
Funds, including some not disclosed in the Investment Objective and Investment
Strategies sections of the Prospectus. The risks indicated after the description
of the practice are NOT the only potential risks associated with that practice,
but are among the more prominent. Market risk is assumed for each. See the
Investment Objective and Investment Strategies for each Fund or the Statement of
Additional Information for more information on these practices.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters of its
objective.
Remember, each Fund is designed to meet different investment needs and
objectives.
---- ----
- ------------------------------------------------------------- ---------------------------- ---- ----
INVESTMENT PRACTICE: RISK:
- ------------------------------------------------------------- ----------------------------
- ------------------------------------------------------------- ---------------------------- ---- ----
Borrowing Policies
The ability to borrow from banks for temporary Leverage Risk o o purposes to
meet shareholder redemptions.
- ------------------------------------------------------------- ---------------------------- ---- ----
Floating and Variable Rate Debt
Instruments with interest rates that are adjusted either Interest Rate and o o
on a schedule or when an index or benchmark changes. Credit Risk
- ------------------------------------------------------------- ---------------------------- ---- ----
Foreign Securities
Debt of a foreign government or corporation or dollar- Information, Political, o
denominated debt obligations of foreign branches of Regulatory,
U.S. banks or U.S. branches of foreign banks. Diplomatic, Liquidity
and Currency Risk
- ------------------------------------------------------------- ---------------------------- ---- ----
---- ----
Forward Commitment, When-Issued and
Delayed Delivery Transactions Interest Rate, o o
Securities bought or sold for delivery at a later date or Leverage, Credit and
bought or sold for a fixed price at a fixed date. Experience Risk
- ------------------------------------------------------------- ---------------------------- ---- ----
<PAGE>
General Investment Risks (Cont'd)
---- ----
- ------------------------------------------------------------- ---------------------------- ---- ----
Illiquid Securities Liquidity Risk o o
A security that cannot be readily sold, or cannot be
readily sold without negatively affecting its fair price.
Limited to 15% of total assets.
- ------------------------------------------------------------- ---------------------------- ---- ----
Loans of Portfolio Securities
The practice of loaning securities to brokers, dealers and Credit, Counter-Party o o
financial institutions to increase return on those and Leverage Risk
securities. Loans may be made up to Investment Company Act of 1940 limits
(currently one-third of total assets including the value of the collateral
received).
- ------------------------------------------------------------- ---------------------------- ---- ----
Mortgage- and Asset-Backed Securities
Securities consisting of an undivided fractional Interest Rate, Credit, o o
interests in pools of consumer loans, such as mortgage Prepayment and
loans, car loans, credit card debt, or receivables held in Experience Risk
trust.
- ------------------------------------------------------------- ---------------------------- ---- ----
- ------------------------------------------------------------- ---------------------------- ---- ----
Other Mutual Funds
The temporary investment in shares of another mutual Market Risk o o
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.
- ------------------------------------------------------------- ---------------------------- ---- ----
Repurchase Agreements
A transaction in which the seller of a security agrees to Credit and o o
buy back a security at an agreed upon time and price, Counter-Party Risk
usually with interest.
- ------------------------------------------------------------- ---------------------------- ---- ----
Stripped Obligations
Securities that give ownership to either future Interest Rate Risk o o
payments of interest or a future payment of principal, but not both. These
securities tend to have greater interest rate sensitivity than conventional
debt.
- ------------------------------------------------------------- ---------------------------- ---- ----
<PAGE>
Organization and Management of the Funds
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, lists the entities that perform different services,
and explains how these service providers are compensated. Further information is
available in the Statement of Additional Information for the Funds.
About Stagecoach
Each Fund is one of over 30 Funds of Stagecoach Funds, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a Maryland
Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below.
Except for the advisers, which require shareholder vote to change, if the Board
believes that it is in the best interests of the shareholders it may make a
change in one of these companies.
<PAGE>
Organization and Management of the Funds (Cont'd)
------------------------------------------------------------------------------------
BOARD OF DIRECTORS
------------------------------------------------------------------------------------
Supervises the Funds' activities
------------------------------------------------------------------------------------
------------------------------------------ -----------------------------------------
INVESTMENT ADVISOR CUSTODIAN
------------------------------------------ -----------------------------------------
Wells Fargo Bank, N.A. Norwest Bank Minnesota, N.A.
525 Market St., San Francisco, CA 6th St. & Marquette, Minneapolis, MN
Manages the Funds' investment Provides safekeeping for the Funds'
assets
activities
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INVESTMENT SUB-ADVISOR
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Wells Capital Management Incorporated
525 Market St.
San Francisco, CA
Manages the investment activities of each Fund
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SHAREHOLDER
TRANSFER SERVICING
DISTRIBUTOR ADMINISTRATOR AGENT AGENTS
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Stephens Inc. Wells Fargo Bank, N.A. Boston Financial Data Various Agents
111 Center St. 525 Market Street Services, Inc.
Little Rock, AR San Francisco, CA Two Heritage Dr.
Markets the Funds Manages the Quincy, MA Provide
and distributes Funds' business Maintains records services to
Fund shares activities of shares and customers
supervises the
payment of dividends
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FINANCIAL SERVICES FIRMS AND SELLING AGENTS
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Advise current and prospective shareholders on their Fund investments
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SHAREHOLDERS
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Organization and Management of the Funds (Cont'd)
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described.
The Investment Advisor
Wells Fargo Bank provides portfolio management and fundamental security analysis
services as the advisor for each of the Funds. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the largest
banks in the United States. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of June 30, 1999,
Wells Fargo Bank and its affiliates managed over $131 billion in assets. For
providing these services, Wells Fargo is entitled to receive fees as described
in the "Summary of Expenses" section at the front of this Prospectus.
The Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, is the sub-advisor for each of the Funds. As of June 30, 1999
WCM provided investment advice for assets aggregating in excess of $42 billion.
The Administrator
Wells Fargo Bank provides the Funds with administration services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Trust's Trustees and officers. Wells Fargo
Bank also furnishes office space and certain facilities to conduct each Fund's
business. For providing these services, Wells Fargo Bank is entitled to receive
a fee of 0.15% of the average annual net assets of each Fund.
Shareholder Servicing Plan
We have a shareholder servicing plan for each Fund. Under this plan, we have
engaged various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services. For these services, each Fund pays 0.25% of its average net assets.
The Transfer Agent
Boston Financial Data Services, Inc. ("BFDS") provides transfer agency and
dividend disbursing services to the Funds. For providing these services, BFDS
receives an annual fee, certain transaction-related fees, and is reimbursed for
out-of-pocket expenses incurred on behalf of the Funds.
<PAGE>
Your Account
This section tells you how Fund shares are priced, how to open an account and
how to buy and sell Fund shares once your account is open.
Pricing Fund Shares
o As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
o We determine the NAV of each class of the Funds' shares each business day
as of the close of regular trading on the NYSE. We determine the NAV by
subtracting the Fund class's liabilities from its total assets, and then
dividing the result by the total number of outstanding shares of that
class. Each Fund's assets are generally valued at current market prices.
See the Statement of Additional Information for further disclosure.
o We process requests to buy or sell shares of the Funds each business day as
of the close of regular trading on the New York Stock Exchange ("NYSE"),
which is usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central time). If the
markets close early, the Funds may close early and may value their shares
at earlier times under these circumstances. Any request we receive in
proper form before these times is processed the same day. Requests we
receive after the cutoff times are processed the next business day.
o The funds are open for business on each day the NYSE is open for business.
NYSE holidays include New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. When any holiday falls on a weekend,
the NYSE typically is closed on the weekday immediately before or after
such holiday.
Typically, Institutional Class shares are bought and held on your behalf by the
Institution through which you are investing. Check with your customer account
representative or your customer account agreement for the rules governing your
investment.
Minimum Investments
Institutions are required to make a minimum initial investment of $2,000,000 per
Fund. There are no minimum subsequent investment requirements so long as your
Institution maintains account balances at or above the minimum initial
investment amount. Minimum initial investment requirements may be waived for
certain Institutions.
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Your Account (Cont'd)
HOW TO BUY SHARES
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
o Share purchases are made through a Customer Account at an Institution in
accordance with the terms of the Customer Account involved;
o Institutions are usually the holders of record of Institutional shares held
through Customer Accounts and maintain records reflecting their customer's
beneficial ownership of the shares;
o Institutions are responsible for transmitting their customers' purchase and
redemption orders to the Funds and for delivering required payment on a
timely basis;
o The exercise of voting rights and the delivery of shareholder
communications from the Fund is governed by the terms of the Customer
Account involved; and
o Institutions may charge their customers account fees and may receive fees
from us with respect to investments their customers have made with the
Funds.
<PAGE>
Your Account (Cont'd)
HOW TO SELL SHARES
Institutional shares must be redeemed in accordance with the account agreement
governing your Customer Account at the Institution. Please read the Customer
Account agreement with your Institution for rules governing selling shares.
General Notes for Selling Shares
o We process requests we receive from an Institution in proper form before
the close of the NYSE usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central
time), at the NAV determined on the same business day. Requests we receive
after this time are processed on the next business day.
o Redemption proceeds are usually wired to the redeeming Institution the
following business day.
o If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product plan.
There may be special requirements that supersede the directions in this
Prospectus.
o We reserve the right to delay payment of a redemption so that we may be
reasonably certain that investments made by check or through ACH have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the SEC in order to protect remaining
shareholders. Payments of redemptions also may be delayed up to seven days
under normal circumstances, although it is not our policy to delay such
payments.
o 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 a ninety-day period. If a request for a redemption
is over these limits, it may be to the detriment of existing shareholders.
Therefore, we may pay the redemption in part or in whole in securities of
equal value.
EXCHANGES
Exchanges between Wells Fargo Funds are two transactions: a sale of shares of
one Fund and the purchase of shares of another. In general, the same rules and
procedures that apply to sales and purchases apply to exchanges. There are,
however, additional factors you should keep in mind while making or considering
an exchange:
o You should carefully read the Prospectus for the Fund into which you wish to
exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes. o In order to discourage
excessive Fund transaction expenses that must be borne by other shareholders, we
reserve the right to
limit or reject exchange orders. Generally, we will notify you 60 days in advance of any changes in your exchange privileges.
o You may make exchanges between like share classes.
Contact your account representative for further details.
<PAGE>
Other Information
Dividend and Capital Gain Distributions
The Funds in this Prospectus pay any dividends monthly and make any capital
gains distributions at least annually. Contact your Institution for distribution
options.
Taxes
The following discussion regarding taxes is based on laws that were in effect
as of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder.
It is not intended as a substitute for careful tax planning. You should
consult your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
Dividends distributed from these and the other Funds attributable to their
income from other investments and net short-term capital gain (generally, the
excess of net short-term capital gains over net long-term capital losses) will
be taxable to you as ordinary income. Corporate shareholders may be able to
deduct a portion of their dividends when determining their taxable income.
We will pass on to you any net capital gain (generally the excess of net
long-term capital gains over net short-term capital losses) earned by a Fund
as a capital gain distribution. In general, these distributions will be
taxable to you as long-term capital gains which may qualify for taxation at
preferential rates in the hands of non-corporate shareholders. Any
distribution that is not from net investment income, short term capital gains,
or net capital gain may be characterized as a return of capital to
shareholders.
<PAGE>
Portfolio Managers
Jacqueline A. Flippin, has co-managed the Short-Intermediate U.S. Government
Income Fund since February 1999. She has been a portfolio manager with WCM since
January 1998. Before joining the firm, Ms. Flippin was a short-term debt
securities trader and portfolio manager for McMorgan & Company since 1994. Ms.
Flippin has over ten years of investment management experience.
Paul C. Single, has managed the Short-Intermediate U.S. Government Income Fund
since February 1999 and has managed the U.S. Government Income Fund since May
1995. He has been with Wells Fargo/Wells Capital Management since 1989. Mr.
Single has over 16 years of fixed-income investment management experience.
Scott Smith, CFA, has co-managed the U.S. Government Income Fund since December
1997. He has been with Wells Fargo/WCM since 1987, specializing in corporate and
mortgage-backed securities investments. Mr. Smith has over eleven years of
investment management experience.
<PAGE>
Glossary
We provide the following definitions to assist you in reading this Prospectus.
For a more complete understanding of these terms you should consult your
financial advisor.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and perform
other tasks.
American Depositary Receipts ("ADRs")
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically held in bank vaults. The ADR's owner is entitled to
any capital gains or dividends. ADRs are one way of owning an equity interest in foreign companies.
Asset-Backed Securities
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
Below Investment-Grade
Securities rated BBB or lower by S&P or Baa or lower by Moody's Shareholder
Services, or that may be unrated securities or securities considered to be "high
risk."
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "total return."
Collateralized Mortgage Obligations ("CMOs")
Securities collateralized by portfolios of mortgage pass-through securities.
CMOs are structured into multiple classes, and are paid according to class
maturity, shortest maturities paid first.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See also "total return."
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage- and other
asset-backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund, as defined by the Investment Company Act of 1940, is one
that invests in cash, Government securities, other investment companies and no
more than 5% of its total assets in a single issuer. These policies must apply
to 75% of the Funds' total assets.
Glossary (Cont'd)
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S. dollars.
Dollar Rolls
Similar to a reverse Repurchase Agreement, dollar rolls are simultaneous
agreements to sell a security held in a portfolio and to purchase a similar
security at a future date at an agreed-upon price.
Emerging Markets
Markets associated with a country that is considered by international financial
organizations, such as the International Finance Corporation and the
International Bank for Reconstruction and Development, and the international
financial community to have an "emerging" stock market. Such markets may be
under-capitalized, have less-developed legal and financial systems or may have
less stable currencies than markets in the developed world.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" are issued by the Federal National
Mortgage Association, and FHLMC securities as "Freddie Mac" and are issued by
the Federal Home Loan Mortgage Corporation.
Gateway Fund
A Fund that invests its assets in one or more core portfolios, instead of
directly in securities, to achieve its investment objective. Gateway funds
investing in the same core portfolio can enhance their investment opportunities
and reduce their expense ratios through sharing the costs and benefits of
managing a large pool of assets.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Government National Mortgage Association.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Investment-Grade Securities
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at a fair price.
Glossary (Cont'd)
Money Market Instruments
High-quality short-term instruments meeting the requirements of Rule 2a-7 of the
1940 Act, such as bankers' acceptances, commercial paper, repurchase agreements
and government obligations. In a money market fund, average portfolio maturity
does not exceed 90 days, and all investments have maturities of 397 days or less
at the time of purchase.
Moody's
A nationally recognized ratings organization.
Net Asset Value ("NAV")
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting accrued expenses and other liabilities, then dividing
by the total number of shares.
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price ("POP") The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Funds' distributors that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
S&P, S&P 500 Index
Standard and Poors, a nationally recognized ratings organization. S&P's also publishes various indexes or lists of companies
representative of sectors of the U.S. economy.
Statement of Additional Information
A document that supplements the disclosure made in the Prospectus.
Stripped Treasury Securities
Debt obligations in which the interest payments and the repayment of principal
are separated and sold as securities.
Glossary (Cont'd)
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Funds.
U.S. Government obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
Zero Coupon Securities
Bonds that make no periodic interest payments and which are usually sold at a
discount of their face value. Zero coupon bonds are subject to interest rate and
credit risk.
<PAGE>
STAGECOACH FUNDS
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
Provides certain financial and other important information including a
discussion of the market conditions and investment strategies that significantly
affected Fund performance, for the most recent reporting period.
These documents are available free of charge:
Call 1-800-222-8222, or
Write to:
Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
Visit the SEC's web site:
http://www.sec.gov, or
Request copies for a fee by writing to:
SEC Public Reference Room, Washington, DC 20549-6009
(call: 1-800-SEC-0330 for details)
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ICA Reg. No. 811-6419 NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE SFI IPI (11/99)
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<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 1, 1999
CORPORATE BOND FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT INCOME FUND
VARIABLE RATE GOVERNMENT FUND
Class A, Class B, Class C and Institutional Class
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about five funds in the Stagecoach Family of Funds (each,
a "Fund" and collectively, the "Funds") -- the Corporate Bond,
Short-Intermediate U.S. Government Income, Strategic Income, U.S. Government
Income and Variable Rate Government Funds. Each Fund is considered diversified
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Variable Rate Government Fund offers only Class A shares, the Short-Intermediate
U.S. Government Income Fund offers Class A and Class B shares. Each of the other
Funds offers Class A, Class B and Class C shares. The Short-Intermediate U.S.
Government Income and U.S. Government Income Fund also offer Institutional Class
shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 1, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained free of charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
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TABLE OF CONTENTS
Page
Historical Fund Information.................................................................................1
Investment Restrictions ....................................................................................1
Additional Permitted Investment Activities .................................................................6
Investment by Federal Credit Unions in the Variable Rate Government Fund ..................................21
Risk Factors ..............................................................................................21
Management ................................................................................................26
Performance Calculations...................................................................................39
Determination of Net Asset Value...........................................................................47
Additional Purchase and Redemption Information.............................................................48
Portfolio Transactions.....................................................................................48
Fund Expenses..............................................................................................50
Federal Income Taxes.......................................................................................50
Capital Stock..............................................................................................55
Other......................................................................................................58
Counsel....................................................................................................58
Independent Auditors.......................................................................................58
Financial Information......................................................................................58
Appendix..................................................................................................A-1
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dc-175837v3 36
419
dc-175837v3 1
419
HISTORICAL FUND INFORMATION
The Corporate Bond Fund commenced operations on April 1, 1998, as a
Fund of the Company.
The Short-Intermediate U.S. Government Income Fund commenced operations
on October 27, 1993, as a Fund of the Company. The Institutional Class shares of
the Fund commenced operations on September 6, 1996.
The Strategic Income Fund commenced operations on July 13, 1998, as a
Fund of the Company.
The U.S. Government Income Fund commenced operations as a portfolio of
Overland Express Funds, Inc. ("Overland") on January 1, 1992, as the successor
to the Ginnie Mae Fund of the Wells Fargo Investment Trust for Retirement
Programs, which commenced operations on January 3, 1991. The Institutional Class
shares of the U.S. Government Income Fund commenced operations on September 6,
1996. On December 12, 1997, as part of the consolidation of Overland into
Stagecoach Funds, Inc., the U.S. Government Income Fund of Overland was
reorganized with and into the Company's U.S. Government Income Fund. For
accounting purposes, the Overland Fund is considered the survivor of the
Consolidation. The Class A shares of the predecessor trust portfolio commenced
operations on April 7, 1988. The Class D shares of the Overland Fund commenced
operations on July 1, 1993, and are now known as the Class C shares. The
Overland Fund did not offer Class B shares and for accounting purposes the Class
B shares are considered to have commenced operations on December 12, 1997. The
Overland Fund is sometimes referred to throughout this SAI as the "predecessor
portfolio" to the Company's U.S. Government Income Fund. Prior to December 12,
1997, the U.S. Government Income Fund was known as the "Ginnie Mae Fund."
The Variable Rate Government Fund commenced operations on November 1, 1990,
as the Variable Rate Government Fund of Overland. On July 23, 1997, the
Boards of Directors of the Company and Overland approved an Agreement and
Plan of Consolidation providing for, among other things, the transfer of the
assets and stated liabilities of the predecessor Overland portfolio to the
Fund. Prior to December 12, 1997, the effective date of the consolidation,
the Fund had only nominal assets. On December 12, 1997, the Class A and D
shareholders of the predecessor Overland portfolio became the Class A and C
shareholders, respectively, of the Company's Variable Rate Government Fund.
On July 10, 1998, Class C shareholders of the Variable Rate Government Fund
became Class A shareholders of the Fund. The Variable Rate Government Fund no
longer offers Class C shares.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
Each Fund has adopted the following investment restrictions, all of
which are fundamental policies; that is, they may not be changed without
approval by the vote of the holders of a majority (as defined in the 1940 Act)
of the outstanding voting securities of such Fund.
The Corporate Bond and Strategic Income Funds may not:
(1) purchase or sell commodity contracts or invest in oil, gas or mineral
exploration or development programs, except that the Funds, to the extent
appropriate to its investment objective, may purchase publicly traded
securities of companies engaging in whole or in part in such activities, and
provided that the Funds may enter into futures contracts and related options;
(2) purchase or sell real estate, except that the Funds may purchase
securities of issuers that deal in real estate and may purchase securities
that are secured by interests in real estate;
(3) purchase securities of companies for the purpose of exercising control;
(4) act as an underwriter of securities within the meaning of the Securities
Act of 1933 (the "1933 Act") except insofar as the Funds might be deemed to
be an underwriter upon disposition of portfolio securities acquired within
the limitation on purchases of restricted securities and except to the extent
that the purchase of obligations directly from the issuer thereof in
accordance with the Funds' investment objective, policies and limitations may
be deemed to be underwriting;
(5) borrow money or issue senior securities, except that the Funds may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of the Funds' total assets
at the time of such borrowing. The Funds will not purchase securities while
their borrowings (including reverse repurchase agreements) in excess of 5% of
their total assets are outstanding. Securities held in escrow or separate
accounts in connection with the Funds' investment practices described in this
SAI or in its Prospectus are not deemed to be pledged for purposes of this
limitation;
(6) purchase any securities that would cause 25% or more of the Funds' total
assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) wholly owned finance companies will be considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry;
(7) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Funds' investment program may be deemed to be an
underwriting.
The Short-Intermediate U.S. Government Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in U.S. Government
Obligations;
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) borrow money or issue senior securities, as defined in the 1940 Act,
except that the Fund may borrow from banks up to 10% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 10% of the current
value of its net assets (but investments may not be purchased while any such
outstanding borrowings exceed 5% of its net assets), and except that the Fund
may issue multiple Classes of shares in accordance with applicable laws,
rules, regulations or orders;
(9) write, purchase or sell straddles, spreads, warrants, or any combination
thereof;
(10) purchase securities of any issuer (except U.S. Government Obligations)
if, as a result, with respect to 75% of its total assets, more than 5% of the
value of the Fund's total assets would be invested in the securities of any
one issuer or, with respect to 100% of its total assets the Fund's ownership
would be more than 10% of the outstanding voting securities of such issuer;
nor
(11) make loans, except that the Fund may purchase or hold debt instruments
or lend its portfolio securities in accordance with its investment policies,
and may enter into repurchase agreements.
The U.S. Government Income Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in obligations of the U.S.
Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in
connection with options, futures and options on futures) or make short sales
of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except that the Fund may borrow up to 20% of the
current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20%
of the current value of the Fund's net assets (but investments may not be
purchased by such Fund while any the outstanding borrowings exceed 5% of the
Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof; nor
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer.
The Fund may make loans in accordance with its investment policies.
The Variable Rate Government Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Fund's investments in that industry would
exceed 25% of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in securities issued or
guaranteed by the U.S.
Government, its agencies or instrumentalities;
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein), commodities or commodity contracts or
interests, in oil, gas, or other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) invest more than 10% of the current value of its net assets in repurchase
agreements maturing in more than seven days, restricted securities, which are
securities that must be registered under the 1933 Act before they may be
offered or sold to the public, and illiquid securities;
(6) make investments for the purpose of exercising control or management;
(7) purchase puts, calls, straddles, spreads, or any combination thereof,
except that the Fund may purchase securities with put rights in order to
maintain liquidity;
(8) issue senior securities, except that the Fund may borrow from banks up to
10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge
of up to 10% of the current value of its net assets (but investments may not
be purchased by the Fund while any such outstanding borrowing exists);
(9) invest more than 10% of the current value of its net assets in fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as
a result, with respect to 75% of the total assets of the Fund, more than 5%
of the value of the Fund's total assets would be invested in the securities
of any one issuer or, with respect to 100% of the Fund's total assets, the
Fund would own more than 10% of the outstanding voting securities of such
issuer; nor
(11) lend its portfolio securities having a value that exceeds 50% of the
current value of its total assets, provided that, for purposes of this
restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
With respect to fundamental investment restriction (5), the Fund does
not intend to invest, during the coming year, in repurchase agreements maturing
in more than seven days, restricted securities, which are securities that must
be registered under the 1933 Act before they may be offered or sold to the
public, or illiquid securities. With respect to fundamental investment
restriction (7), the Fund does not intend to purchase, during the coming year,
puts, calls, straddles, spreads, or purchase securities with put rights in order
to maintain liquidity. With respect to fundamental investment restriction (9),
the Fund does not intend to invest, during the coming year, in fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days.
Non-Fundamental Investment Policies
Each Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any
time and without approval of such Fund's shareholders.
(1) Each Fund may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Currently, under the 1940 Act, a Fund's investment in such securities is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) Each Fund may not invest or hold more than 15% (10% for the Variable Rate
Government Fund) of its net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are illiquid by
virtue of the absence of a readily available market, or legal or contractual
restrictions on resale, (b) fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, and (c) repurchase
agreements not terminable within seven days.
(3) Each Fund may invest up to 25% of its net assets in securities of foreign
governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) Each Fund may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets except for the Variable Rate Government Fund, which may
lend up to 50% of its total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Funds will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total assets.
Asset-Backed Securities
The Funds may invest in various types of asset-backed securities.
Asset-backed securities are securities that represent an interest in an
underlying security. The asset-backed securities in which the Funds invest may
consist of undivided fractional interests in pools of consumer loans or
receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a monthly
or other periodic basis to certificate holders and are typically supported by
some form of credit enhancement, such as a surety bond, limited guaranty, or
subordination. The extent of credit enhancement varies, but usually amounts to
only a fraction of the asset-backed security's par value until exhausted.
Ultimately, asset-backed securities are dependent upon payment of the consumer
loans or receivables by individuals, and the certificate holder frequently has
no recourse to the entity that originated the loans or receivables. The actual
maturity and realized yield will vary based upon the prepayment experience of
the underlying asset pool and prevailing interest rates at the time of
prepayment. Asset-backed securities are relatively new instruments and may be
subject to greater risk of default during periods of economic downturn than
other instruments. Also, the secondary market for certain asset-backed
securities may not be as liquid as the market for other types of securities,
which could result in a Fund experiencing difficulty in valuing or liquidating
such securities. The Corporate Bond and Strategic Income Funds may also invest
in securities backed by pools of mortgages. The investments are described under
the heading "Mortgage-Related Securities."
Bank Obligations
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Bonds
Certain of the debt instruments purchased by the Funds may be bonds.
The Corporate Bond Fund invests no more than 25% in bonds that are below
investment grade. A bond is an interest-bearing security issued by a company or
governmental unit. The issuer of a bond has a contractual obligation to pay
interest at a stated rate on specific dates and to repay principal (the bond's
face value) periodically or on a specified maturity date. An issuer may have the
right to redeem or "call" a bond before maturity, in which case the investor may
have to reinvest the proceeds at lower market rates. Most bonds bear interest
income at a "coupon" rate that is fixed for the life of the bond. The value of a
fixed rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Accordingly, a fixed rate bond's yield (income as a
percent of the bond's current value) may differ from its coupon rate as its
value rises or falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).
Commercial Paper
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance
not exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a
commercial bank acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the outstanding indebtedness on
the notes. Investments by the Funds in commercial paper (including variable
rate demand notes and variable rate master demand notes issued by domestic
and foreign bank holding companies, corporations and financial institutions,
as well as similar instruments issued by government agencies and
instrumentalities) will consist of issues that are rated in one of the two
highest rating categories by a Nationally Recognized Statistical Ratings
Organization ("NRSRO"). Commercial paper may include variable- and
floating-rate instruments.
Custodial Receipts for Treasury Securities
The Corporate Bond and Strategic Income Funds may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATS) or other obligations where the trust participations evidence ownership in
either the future interest payments or the future principal payments on the
obligations. These participations are normally issued at a discount to their
"face value," and can exhibit greater price volatility than ordinary debt
securities because of the way in which their principal and interest are returned
to investors. Investments by the Funds in such participations will not exceed 5%
of the value of the Funds' total assets.
Derivative Securities
The Corporate Bond, Short-Intermediate U.S. Government Income and
Strategic Income Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices or financial reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. These Funds may also hold derivative
instruments that have interest rates that re-set inversely to changing current
market rates and/or have embedded interest rate floors and caps that require the
issuer to pay an adjusted interest rate if market rates fall below or rise above
a specified rate. These instruments represent relatively recent innovations in
the bond markets, and the trading market for these instruments is less developed
than the markets for traditional types of debt instruments. It is uncertain how
these instruments will perform under different economic and interest rate
scenarios. Because certain of these instruments are leveraged, their market
values may be more volatile than other types of bonds and may present greater
potential for capital gain or loss. The embedded option features of other
derivative instruments could limit the amount of appreciation a Fund can realize
on its investment, could cause a Fund to hold a security it might otherwise sell
or could force the sale of a security at inopportune times or for prices that do
not reflect current market value. The possibility of default by the issuer or
the issuer's credit provider may be greater for these structured and derivative
instruments than for other types of instruments. In some cases, it may be
difficult to determine the fair value of a structured or derivative instrument
because of a lack of reliable objective information and an established secondary
market for some instruments may not exist. As new types of derivative securities
are developed and offered to investors, the advisor will, consistent with the
Funds' investment objective, policies and quality standards, consider making
investments in such new types of derivative securities.
Floating- and Variable-Rate Obligations
The Funds may purchase floating- and variable-rate obligations, demand
notes and bonds. Variable-rate demand notes include master demand notes that are
obligations that permit the Funds to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Funds,
as lender, and the borrower. The interest rates on these notes may fluctuate
from time to time. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, a
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Fund may invest. Wells Fargo Bank, on behalf of each Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. No Fund will invest
more than 15% (10% for the U.S. Government Income and Variable Rate Government
Funds) of the value of its total net assets in floating- or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations may be treated as liquid, provided that an active secondary market
exists.
Foreign Obligations
Each Fund may invest up to 25% of its assets in high-quality,
short-term debt obligations of foreign branches of U.S. banks, U.S. branches of
foreign banks and short-term debt obligations of foreign governmental agencies
that are denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not subject to the same uniform accounting, auditing and financial
reporting standards or governmental supervision as domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign tax laws, and there is a possibility of expropriation
or confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Investment in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not generally subject to uniform
accounting, auditing and financial reporting standards or governmental
supervision comparable to those applicable to domestic issuers. In addition,
with respect to certain foreign countries, taxes may be withheld at the source
under foreign income tax laws, and there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Foreign Securities
The Corporate Bond and Strategic Income Funds may invest in securities
denominated in currencies other than the U.S. dollar and may temporarily hold
funds in bank deposits or other money market investments denominated in foreign
currencies. Therefore, the Funds may be affected favorably or unfavorably by
exchange control regulations or changes in the exchange rate between such
currencies and the dollar. Changes in foreign currency exchange rates influence
values within a Fund from the perspective of U.S. investors. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities, and any net
investment income and gains to be distributed to shareholders by a Fund. The
rate of exchange between the U.S. dollar and other currencies is determined by
the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
Investments in foreign securities also involve certain inherent risks,
such as political or economic instability of the issuer or the country of issue,
the difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Investments in foreign securities and forward
contracts may also be subject to withholding and other taxes imposed by foreign
governments. With respect to certain foreign countries, there is also a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investments in those countries.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued,
delayed-delivery or forward commitment basis involve a risk of loss if the
value of the security to be purchased declines, or the value of the security
to be sold increases, before the settlement date. Although each Fund will
generally purchase securities with the intention of acquiring them, a Fund
may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate by the
advisor.
The Funds will establish a segregated account in which they will
maintain cash, U.S. Government obligations or other high-quality debt
instruments in an amount at least equal in value to each such Fund's commitments
to purchase when-issued securities. If the value of these assets declines, a
Fund will place additional liquid assets in the account on a daily basis so that
the value of the assets in the account is equal to the amount of such
commitments.
Forward Currency Exchange Contracts
The Corporate Bond and Strategic Income Funds may enter into forward
currency exchange contracts ("forward contracts") to attempt to minimize the
risk to the Funds from adverse changes in the relationship between currencies or
to enhance income. A forward contract is an obligation to buy or sell a specific
currency for an agreed price at a future date which is individually negotiated
and is privately traded by currency traders and their customers. The Funds will
either cover a position in such a transaction or maintain, in a segregated
account with their custodian bank, cash or high-grade marketable money market
securities having an aggregate value equal to the amount of any such commitment
until payment is made.
Illiquid Securities
The Funds may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because
such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to a Fund. Each Fund may
invest up to 15% (10% for the U.S. Government Income and Variable Rate
Government Funds) of its net assets in illiquid securities.
Loans of Portfolio Securities
Each Fund may lend its portfolio securities pursuant to guidelines
approved by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
A Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested subject to the investment
objectives, principal investment strategies and policies of the Fund. In
connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral. In either case, a Fund could experience delays in recovering
securities or collateral or could lose all or part of the value of the loaned
securities. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur. A Fund may pay a portion of the
interest or fees earned from securities lending to a borrower or securities
lending agent.
Mortgage-Related Securities
The Funds may invest in mortgage-related securities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgages in which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities). The
stated maturities of pass-through obligations may be shortened by unscheduled
prepayments of principal on the underlying mortgages. Therefore, it is not
possible to predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through obligations will affect
the yield of the Fund. Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, in the event of prepayment the value of the premium would be lost. Like
other fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. Payment of principal and
interest on some mortgage pass-through securities (but not the market value of
the securities themselves) may be guaranteed by the full faith and credit of the
U.S. Government or its agencies or instrumentalities. Mortgage pass-through
securities created by non- government issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
The Funds may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs"). CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or Federal
National Mortgage Association ("FNMA"). CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes
receive principal only after the first class has been retired. As new types
of mortgage-related securities are developed and offered to investors, the
Advisor will, consistent with the Fund's investment objective, policies and
quality standards, consider making investments in such new types of
mortgage-related securities.
Adjustable Rate Mortgages ("ARMs") and Collateralized Mortgage
Obligations ("CMOs"). The Corporate Bond Fund, Short-Intermediate U.S.
Government Income Fund, Strategic Income Fund and the Variable Rate Government
Fund each may invest in ARMs issued or guaranteed by the GNMA, FNMA or the
FHLMC. The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered to
be high quality investments that present minimal credit risks. The yields
provided by these ARMs have historically exceeded the yields on other types of
U.S. Government securities with comparable maturities, although there can be no
assurance that this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured
or guaranteed by the Federal Housing Administration, the Veterans Administration
or the Farmers Home Administration, while those underlying ARMs issued by FNMA
or FHLMC are typically conventional residential mortgages which are not so
insured or guaranteed, but which conform to specific underwriting, size and
maturity standards.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specified coupon rate and has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages may be allocated
among the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages are applied to the
classes in the order of their respective stated maturities or final distribution
dates, so that no payment of principal is made on CMOs of a class until all CMOs
of other classes having earlier stated maturities or final distribution dates
have been paid in full. One or more classes of CMOs may have coupon rates that
reset periodically based on an index, such as the London Interbank Offered Rate
("LIBOR").
The interest rates on the mortgages underlying the ARMs and some of the
CMOs in which the Short-Intermediate Government Income and Variable Rate
Government Funds may invest generally are readjusted at periodic intervals
ranging from one year or less to several years in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
Treasury note rates, the three-month Treasury bill rate, the 180-day Treasury
bill rate, rates on longer-term Treasury securities, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year LIBOR, a published
prime rate or commercial paper rates. Certain of these indices follow overall
market interest rates more closely than others.
Adjustable rate mortgages, a common form of residential financing,
generally have a specified maturity date. Most provide for amortization of
principal in a manner similar to fixed-rate mortgages, but have interest rates
that change in response to changes in a specified interest rate index. The rate
of interest due on such a mortgage is calculated by adding an agreed-upon
"margin" to the specified index, although there generally are limitations or
"caps" on interest rate movements in any given period or over the life of the
mortgage. To the extent that the interest rates on adjustable rate mortgages
cannot be adjusted in response to interest rate changes because of interest rate
caps, the ARMs or CMOs backed by such mortgages are likely to respond to changes
in market rates more like fixed rate securities. In other words, interest rate
increases in excess of such caps can be expected to cause CMOs or ARMs backed by
mortgages that have such caps to decline in value to a greater extent than would
be the case in the absence of such caps. Conversely, interest rate decreases
below interest rate floors can be expected to cause the CMOs or ARMs backed by
mortgages that have such floors to increase in value to a greater extent than
would be the case in the absence of such floors.
These adjustable rate features should reduce, but will not eliminate,
price fluctuations in such securities, particularly when market interest rates
fluctuate. Since the interest rates on mortgages typically are reset at most
annually and generally are subject to caps, it can be expected that the prices
of ARMs and CMOs backed by such mortgages will fluctuate to the extent
prevailing market interest rates are not reflected in the interest rates payable
on the underlying ARMs. In this regard, the net asset value of a Funds' shares
could fluctuate to the extent interest rates on underlying mortgages differ from
prevailing market interest rates during interim periods between interest rate
reset dates. Accordingly, investors could experience some principal loss or less
gain than might otherwise be achieved if they redeem their shares of a Fund or
if the Funds sells these portfolio securities before the interest rates on the
underlying mortgages are adjusted to reflect prevailing market interest rates.
The holder of ARMs and certain CMOs receives not only monthly scheduled
payments of principal and interest, but also may receive unscheduled principal
payments representing prepayments on the underlying mortgages. Changes in market
interest rates and interest rate indexes can affect these prepayment rates,
thereby shortening or lengthening their duration, the holder therefore, may have
to reinvest the periodic payments and any unscheduled prepayments of principal
it receives at a rate of interest which is lower than the rate on the ARMs and
CMOs held by it.
CMOs backed by fixed rate mortgages share many of the rate, duration
and investment risks described above because of their contractual and investment
features and because of factors such as the prepayment rates on the underlying
fixed rate mortgages.
The Funds will not invest in CMOs that, at the time of purchase, are
"high-risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities (the "FFIEC Policy Statement"). Under the FFIEC Policy Statement, a
CMO qualifies as a "high-risk mortgage security" if it meets an Average Life
Test, an Average Life Sensitivity Test, or a Price Sensitivity Test. A CMO meets
the Average Life Test if it has an expected weighted average life greater than
10 years. A CMO meets the Average Life Sensitivity Test if the expected weighted
average life of the CMO either (i) extends by more than 4 years, assuming an
immediate and sustained parallel shift in the yield curve of plus 300 basis
points, or (ii) shortens by more than 6 years, assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points. A CMO
meets the Price Sensitivity Test if an immediate and sustained parallel shift in
the yield curve of plus or minus 300 basis points would result in an estimated
change in the price of the CMO of more than 17 percent. Under the FFIEC Policy
Statement, a CMO floating-rate debt class, i.e., a CMO the rate of which adjusts
at least annually on a one-for-one basis with a conventional, widely used market
interest rate index (such as the London Interbank Offered Rate), will not be
subject to the Average Life and Average Life Sensitivity Tests if it bears a
rate that is below the contractual cap on the instrument.
Mortgage Participation Certificates. The U.S. Government Income Fund
also may invest in the following types of FHLMC mortgage pass-through
securities. FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool of mortgages. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semiannually and return
principal once a year in guaranteed minimum payments. These mortgage
pass-through securities differ from bonds in that principal is paid back by the
borrower over the length of the loan rather than returned in a lump sum at
maturity. They are called "pass-through" securities because both interest and
principal payments, including prepayments, are passed through to the holder of
the security.
The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such prepayments
are made at the option of the mortgagors for a wide variety of reasons
reflecting their individual circumstances. For example, mortgagors may speed up
the rate at which they prepay their mortgages when interest rates decline
sufficiently to encourage refinancing. The Fund, when such prepayments are
passed through to it, may be able to reinvest them only at a lower rate of
interest. As a result, if the Fund purchases such securities at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the Fund purchased such
securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. Accelerated
prepayments on securities purchased by the Fund at a premium also impose a risk
of loss of principal because the premium may not have been fully amortized at
the time the principal is repaid in full. In choosing specific issues, Wells
Fargo Bank, as investment Advisor, will have made assumptions about the likely
speed of prepayment. Actual experience may vary from this assumption resulting
in a higher or lower investment return than anticipated.
Other Investment Companies
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses, such as investment advisory and administration fees,
that would be in addition to those charged by the Funds.
Stripped Securities
The Funds may purchase Treasury receipts and other "stripped"
securities that evidence ownership in either the future interest payments or the
future principal payments on U.S. Government and other obligations. The stripped
securities the Funds may purchase are issued by the U.S. Government (or a U.S.
Government agency or instrumentality) or by private issuers such as banks,
corporations and other institutions at a discount to their face value. The Funds
will not purchase stripped mortgage-backed securities ("SMBS"). The stripped
securities purchased by the Funds generally are structured to make a lump-sum
payment at maturity and do not make periodic payments of principal or interest.
Hence, the duration of these securities tends to be longer and they are
therefore more sensitive to interest rate fluctuations than similar securities
that offer periodic payments over time. The stripped securities purchased by the
Funds are not subject to prepayment or extension risk.
Temporary Investments
The Funds may hold a certain portion of its assets in cash or
short-term investments in order to maintain adequate liquidity for redemption
requests or other cash management needs or for temporary defensive purposes
during periods of unusual market volatility. The short-term investments that the
Funds may purchase include, among other things, U.S. government obligations,
shares of other mutual funds, repurchase agreements, obligations of domestic
banks and short-term obligations of foreign banks, corporations and other
entities. Some of these short-term investments are described below.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of such Fund
may be used for letter of credit-backed investments.
Repurchase Agreements. Each Fund may enter into repurchase agreements,
wherein the seller of a security to a Fund agrees to repurchase that security
from a Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by such Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, a Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Funds' disposition of the security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of
more than seven days, if, as a result, more than 15% (10% for the U.S.
Government Income and Variable Rate Government Funds) of the market value of
such Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. A Fund will only enter into repurchase agreements with primary
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors and that are not affiliated with the investment advisor. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Borrowing and Reverse Repurchase Agreements
The Corporate Bond and Strategic Income Funds intend to limit their
borrowings (including reverse repurchase agreements) during the current fiscal
year to not more than 10% of net assets. At the time a Fund enters into a
reverse repurchase agreement (an agreement under which a Fund sells their
portfolio securities and agrees to repurchase them at an agreed-upon date and
price), it will place in a segregated custodial account liquid assets such as
U.S. Government securities or other liquid high-grade debt securities having a
value equal to or greater than the repurchase price (including accrued
interest)and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Funds may decline below the price at which the
Funds are obligated to repurchase the securities. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act.
Lower Rated Securities
The Corporate Bond and Strategic Income Funds may invest up to 100% of
its net assets in non-investment grade bonds. These are commonly known as "junk
bonds." Their default and other risks are greater than those of higher rated
securities. You should carefully consider these risks before investing in a
Fund.
Various investment services publish ratings of some of the types of
securities in which the Fund may invest. Higher yields are ordinarily available
from securities in the lower rating categories, such as securities rated Ba or
lower Moody's Investors Service, Inc. ("Moody's) or BB or lower by Standard &
Poor's Ratings Group ("S&P"), or from unrated securities deemed by advisors to
be of comparable quality. These ratings represent the opinions of the rating
services with respect to the issuer's ability to pay interest and repay
principal. They do not purport to reflect the risk of fluctuations in market
value and are not absolute standards of quality. These ratings will be
considered in connection with the investment of the Fund's assets but will not
be a determining or limiting factor.
The Funds may invest in securities regardless of their rating or in
securities that are unrated, including up to 5% of their assets in securities
that are in default at the time of purchase. As an operating policy, however,
the Funds will generally invest in securities that are rated at least Caa by
Moody's or CCC by S&P, except for defaulted securities as noted below, or that
are unrated but of comparable quality as determined by the Advisor. Unrated debt
securities are not necessarily of lower quality than rated securities but they
may not be attractive to as many buyers.
The Funds may also buy debt securities of issuers that are not
currently paying interest, as well as issuers who are in default, and may keep
an issue that has defaulted. The Funds will buy defaulted debt securities if, in
the opinion of advisors, they may present an opportunity for later price
recovery, the issuer may resume interest payments, or other advantageous
developments appear likely in the near future. In general, securities that
default lose much of their value before the actual default so that the security,
and thus the net asset value of the Funds would be impacted before the default.
Defaulted debt securities may be illiquid and, as such, will be part of the 15%
limit discussed under "Illiquid Investments."
If the rating on an issue held in a Fund's portfolio is changed by the
rating service or the security goes into default, this event will be considered
by the Fund in its evaluation of the overall investment merits of that security
but will not generally result in an automatic sale of the security.
Rather than relying principally on the ratings assigned by rating
services, the investment analysis of securities being considered for the Income
Fund's portfolio may also include, among other things, consideration of relative
values based on such factors as anticipated cash flow, interest or dividend
coverage, asset coverage, earnings prospects, the experience and managerial
strength of the issuer, responsiveness to changes in interest rates and business
conditions, debt maturity schedules and borrowing requirements, and the issuer's
changing financial condition and the public recognition of such change.
Certain of the high yielding, fixed-income securities in which the
Funds may invest may be purchased at a discount. When held to maturity or
retired, these securities may include an element of capital gain. Capital losses
may be realized when securities purchased at a premium, that is, in excess of
their stated or par value, are held to maturity or are called or redeemed at a
price lower than their purchase price. Capital gains or losses also may be
realized upon the sale of securities.
Convertible Securities
The Corporate Bond and Strategic Income Funds may invest in convertible
securities. A convertible security is generally a debt obligation or preferred
stock that may be converted within a specified period of time into a certain
amount of common stock of the same or a different user. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when interest
rates decline and decrease in value when interest rates rise. Like a common
stock, the value of a convertible security also tends to increase as the market
value of the underlying stock rises, and it tends to decrease as the market
value of the underlying stock declines. Because its value can be influenced by
both interest rate and market movements, a convertible security is not as
sensitive to interest rats as a similar fixed-income security, nor is it as
sensitive to changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company
or by an investment bank. When issued by an operating company, a convertible
security tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining
the security's true value. This is because the holder of a convertible security
will have recourse only to the issuer. In addition, a convertible security may
be subject to redemption by the issuer, but only after a specified date and
under circumstances established at the time the security is issued.
While the Strategic Income Fund uses the same criteria to rate a
convertible debt security that it uses to rate a more conventional debt
security, a convertible preferred stock is treated like a preferred stock for
the Fund's financial reporting, credit rating, and investment limitation
purposes. A preferred stock is subordinated to all debt obligations in the event
of insolvency, and an issuer's failure to make a dividend payment is generally
not an event of default entitling the preferred shareholder to take action. A
preferred stock generally has no maturity date, so that its market value is
dependent on the issuer's business prospects for an indefinite period of time.
In addition, distributions from preferred stock are dividends, rather than
interest payments, and are usually treated as such for corporate tax purposes.
Unrated Investments
The Funds may purchase instruments that are not rated if, in the
opinion of Wells Fargo Bank, such obligations are of investment quality
comparable to other rated investments that are permitted to be purchased by such
Fund. After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by such Fund. To the extent the
ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard and
Poor's Ratings Group ("S&P") may change as a result of changes in such
organizations or their rating systems, each Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in its Prospectus and in this SAI. The ratings of Moody's and S&P are
more fully described in the Appendix.
U.S. Government Obligations
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Nationally Recognized Statistical Ratings Organizations
The ratings of Moody's, S&P, Division of McGraw Hill, Duff & Phelps
Credit Rating Co., Fitch Investors Service, Inc. Thomson Bank Watch and IBCA
Inc. represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the Intermediate Bond Fund, an issue of debt securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Advisor will consider such an event in determining
whether the Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by
the Fund depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be, noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to "industrial development
bonds" which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
INVESTMENT BY FEDERAL CREDIT UNIONS
IN THE VARIABLE RATE GOVERNMENT FUND
The Variable Rate Government Fund will invest only in investments that
are permissible for federal credit unions under the regulations of the National
Credit Union Administration ("NCUA"). Federal credit unions may invest in CMOs
that do constitute "high-risk mortgage securities" for purposes of the FFIEC
Policy Statement. The Fund will enter into repurchase transactions and cash
forward agreements (i.e., "when-issued" securities) only to the extent
permissible for federal credit unions. Specifically, the Fund will enter into
repurchase transactions only where the purchase price of the security obtained
in the transaction will be at or below the market price and either: (1) the
repurchase transaction will be with another financial institution or (2) the
Fund will take physical possession of the security or receive written
confirmation of the purchase and a custodial or safekeeping receipt from a third
party under a written bailment for hire contract, or be recorded as the owner of
the security through the Federal Reserve Book-Entry System. In addition, the
Fund will enter into a cash forward agreement to purchase a security only where:
(1) the period from the trade date to the settlement date does not exceed 120
days; (2) the Fund has written cash flow projections evidencing its ability to
purchase the security; and (3) the cash forward agreement is settled on a cash
basis at the settlement date.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells
Fargo Bank, are not insured by the FDIC and are not insured against loss of
principal. When the value of the securities that a Fund owns declines, so does
the value of your Fund shares. You should be prepared to accept some risk with
the money you invest in a Fund.
The portfolio debt instruments of a Fund may be subject to credit risk.
Credit risk is the risk that the issuers of securities in which a Fund invests
may default in the payment of principal and/or interest. Interest rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which a Fund invests and hence the value of your
investment in a Fund.
The market value of a Fund's investments in fixed-income securities
will change in response to various factors, such as changes in market interest
rates and the relative financial strength of an issuer. During periods of
falling interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater price
fluctuation than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities can be reduced, but not eliminated, by variable
rate or floating rate features. In addition, some of the asset-backed securities
in which the Funds invest are subject to extension risk. This is the risk that
when interest rates rise, prepayments of the underlying obligations slow,
thereby lengthening the duration and potentially reducing the value of these
securities.
Although some of the Funds' portfolio securities are guaranteed by the
U.S. Government, its agencies or instrumentalities, such securities are subject
to interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value are based, will fluctuate. No assurance can be
given that the U.S. Government would provide financial support to its agencies
or instrumentalities where it is not obligated to do so.
Although GNMA securities are guaranteed by the U.S. Government as to
timely payment of principal and interest and ARMs are guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises as noted above), the market value of these securities, upon which
the Funds' daily net asset value is based, will fluctuate. The Funds are subject
to interest-rate risk, that is, the risk that increases in interest rates may
adversely affect the value of the securities in which the Funds invest, and
hence the value of your investment in the Funds. The value of the securities in
which a Fund invests generally changes inversely to changes in interest rates.
However, the adjustable-rate feature of the mortgages underlying the ARMs and
the CMOs in which a Fund may invest should reduce, but will not eliminate, price
fluctuations in such securities, particularly during periods of extreme
fluctuations in market interest rates.
The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the U.S. Government. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are considered by some
investors to be high-quality investments that present minimal credit risks. The
yields provided by these ARMs have historically exceeded the yields on other
types of U.S. Government securities with comparable maturities. Of course, there
can be no assurance that this historical performance will continue or that
either Fund, which are diversified funds, will meet its investment objective.
Moreover, no assurance can be given that the U.S. Government would
supply financial support to U.S. Government-sponsored enterprises such as FNMA
and FHLMC in the event of a default in payment on the underlying mortgages which
the government- sponsored enterprise is unable to make good. Principal on the
mortgages underlying the mortgage pass-through securities in which the Funds may
invest may be prepaid in advance of maturity. Such prepayments tend to increase
when interest rates decline and may present a Fund with more principal to invest
at lower rates. The converse also tends to be the case.
S&P and Moody's assign ratings based upon their judgment of the risk of
default (i.e., the risk that the issuer or guarantor may default in the payment
of principal and/or interest) of the securities underlying the CMOs. However,
investors should understand that most of the risk of these securities comes from
interest-rate risk (i.e., the risk that market interest rates may adversely
affect the value of the securities in which a Fund invests) and not from the
risk of default. CMOs may have significantly greater interest rate risk than
traditional government securities with identical ratings. The adjustable-rate
portions of CMOs have significantly less interest rate risk.
The Funds may invest in illiquid securities which may include certain
restricted securities. Illiquid securities may be difficult to sell promptly
at an acceptable price. Certain restricted securities may be subject to legal
restrictions on resale. Delay or difficulty in selling securities may result
in a loss or be costly to a Fund.
Wells Fargo Bank may use certain derivative investments or techniques,
such as investments in floating- and variable-rate instruments, structured notes
and certain U.S. Government obligations, to adjust the risk and return
characteristics of a Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If Wells Fargo Bank judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of Wells Fargo Bank's intent in using the derivatives.
The Funds may invest up to 25% of their assets in "Yankee Bonds."
Yankee Bonds are U.S. dollar-denominated debt obligations issued in the U.S. by
foreign banks and corporations. Such investments may involve special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political
instability which could affect U.S. investments in foreign countries.
Additionally, dispositions of foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility. A
Fund's investments may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.
Concentration. As market conditions change, it is conceivable that all
of the assets of the Strategic Income Fund could be invested in common stocks
or, conversely, in debt securities. It is a fundamental policy of the Fund that
concentration of investment in a single industry may not exceed 25% of the
Fund's total assets.
High Yielding, Fixed-Income Securities. Because of the Corporate Bond
and Strategic Income Funds' policy of investing in higher yielding, higher risk
securities, an investment in a Fund is accompanied by a higher degree of risk
than is present with an investment in higher rated, lower yielding securities.
Accordingly, an investment in a Fund should not be considered a complete
investment program and should be carefully evaluated for its appropriateness in
light of your overall investment needs and goals. If you are on a fixed income
or retired, you should also consider the increased risk of loss to principal
that is present with an investment in higher risk securities such as those in
which the Funds invest.
The market value of lower rated, fixed-income securities and unrated
securities of comparable quality, commonly known as junk bonds, tends to reflect
individual developments affecting the issuer to a greater extent than the market
value of higher rated securities, which react primarily to fluctuations in the
general level of interest rates. Lower rated securities also tend to be more
sensitive to economic conditions than higher rated securities. These lower rated
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated triple B by S&P or by Moody's, ratings which
are considered investment grade, possess some speculative characteristics.
Issuers of high yielding, fixed-income securities are often highly
leveraged and may not have more traditional methods of financing available to
them. Therefore, the risk associated with acquiring the securities of these
issuers is generally greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yielding securities may experience
financial stress. During these periods, these issuers may not have sufficient
cash flow to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
developments affecting the issuer, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. The
risk of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because the securities are generally
unsecured and are often subordinated to other creditors of the issuer. Current
prices for defaulted bonds are generally significantly lower than their purchase
price, and a Fund may have unrealized losses on defaulted securities that are
reflected in the price of a Fund's shares. In general, securities that default
lose much of their value in the time period before the actual default so that
the Fund's net assets are impacted prior to the default. The Funds may retain an
issue that has defaulted because the issue may present an opportunity for
subsequent price recovery.
High yielding, fixed-income securities frequently have call or buy-back
features that permit an issuer to call or repurchase the securities from a Fund.
Although these securities are typically not callable for a period from three to
five years after their issuance, if a call was exercised by the issuer during
periods of declining interest rates, Advisors may find it necessary to replace
the securities with lower yielding securities, which could result in less net
investment income to a Fund. The premature disposition of a high yielding
security due to a call or buy-back feature, the deterioration of the issuer's
creditworthiness, or a default may also make it more difficult for a Fund to
manage the timing of its receipt of income, which may have tax implications. A
Fund may be required under the Code and U.S. Treasury regulations to accrue
income for income tax purposes on any defaulted obligations and to distribute
the income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on these obligations. In order to
generate cash to satisfy any or all of these distribution requirements, a Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
the Fund shares.
The Corporate Bond and Strategic Income Funds may have difficulty
disposing of certain high yielding securities because there may be a thin
trading market for a particular security at any given time. The market for lower
rated, fixed-income securities generally tends to be concentrated among a
smaller number of dealers than is the case for securities that trade in a
broader secondary retail market. Generally, buyers of these securities are
predominantly dealers and other institutional buyers, rather than individuals.
To the extent the secondary trading market for a particular high yielding,
fixed-income security does exist, it is generally not as liquid as the secondary
market for higher rated securities. Reduced liquidity in the secondary market
may have an adverse impact on market price and the Fund's ability to dispose of
particular issues, when necessary, to meet the Fund's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer. Reduced liquidity in the secondary market for
certain securities may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
Current values for these high yield issues are obtained from pricing services
and/or a limited number of dealers and may be based upon factors other that
actual sales.
The Corporate Bond and Strategic Income Funds are authorized to acquire
high yielding, fixed-income securities that are sold without registration under
the federal securities laws and therefore carry restrictions on resale. While
many high yielding securities have been sold with registration rights, covenants
and penalty provisions for delayed registration, if a Fund is required to sell
restricted securities before the securities have been registered, it may be
deemed an underwriter of the securities under the 1933 Act, which entails
special responsibilities and liabilities. The Funds may incur special costs in
disposing of restricted securities; however, the Funds will generally incur no
costs when the issuer is responsible for registering the securities.
The Corporate Bond and Strategic Income Funds may acquire high
yielding, fixed-income securities during an initial underwriting. These
securities involve special risks because they are new issues. The advisor will
carefully review their credit and other characteristics.
The high yield securities market is relatively new and much of its
growth prior to 1990 paralleled a long economic expansion. The recession that
began in 1990 disrupted the market for high yielding securities and adversely
affected the value of outstanding securities and the ability of issuers of such
securities to meet their obligations. Although the economy has improved
considerably and high yielding securities have performed more consistently since
that time, there is no assurance that the adverse effects previously experienced
will not reoccur. For example, the highly publicized defaults of some high yield
issuers during 1989 and 1990 and concerns regarding a sluggish economy that
continued into 1993, depressed the prices for many of these securities. While
market prices may be temporarily depressed due to these factors, the ultimate
price of any security will generally reflect the true operating results of the
issuer. Factors adversely impacting the market value of high yielding securities
will adversely impact a Fund's NAV. In addition, a Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings. Each Fund will rely
on the advisors' judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the advisor will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
There is, of course, no assurance that a Fund will achieve its
investment objective or be successful in preventing or minimizing the risk of
loss that is inherent in investing in particular types of investment products.
MANAGEMENT
The following information supplements, and should be read in
conjunction with, the section in the Prospectus entitled "Organization and
Management of the Funds." The principal occupations during the past five years
of the Directors and principal executive Officer of the Company are listed
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School of
321 Beechcliff Court Business and Accounting at Wake Forest University
Winston-Salem, NC 27104 since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser Water
Crystal Geyser Water Co. Company and President of Crystal Geyser Roxane
55 Francisco Street Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College since
75 Grasslands Road 1971; Adjunct Professor of Columbia University
Valhalla, NY 10595 Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman of
Charleston, SC 29401 Renaissance Properties Ltd.; President of Morse
Investment Corporation; and Co-Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director of
Secretary and Capo Inc.
Treasurer
Compensation Table
12-Month Ended June 30, 1999
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Wells Fargo Fund Complex
Jack S. Euphrat $15,850 $20,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $15,850 $20,750
Director
Peter G. Gordon $15,850 $20,750
Director
Joseph N. Hankin $15,350 $19,750
Director
W. Rodney Hughes $15,350 $19,750
Director
J. Tucker Morse $15,350 $19,750
Director
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are
considered to be members of the same fund complex as such term is defined in
Form N-1A under the 1940 Act (the "Wells Fargo Fund Complex"). Barclays
Global Investors Funds, Inc. and Master Investment Portfolio together form a
separate fund complex (the "BGFA Fund Complex"). Each of the Directors and
Officers of the Company serves in the identical capacity as directors and
officers or as trustees and/or officers of each registered open-end
management investment company in both the Wells Fargo and BGFA Fund Complex,
except for Joseph N. Hankin and Peter G. Gordon, who only serve the
aforementioned members of the Wells Fargo Fund Complex. The Directors are
compensated by other companies and trusts within a fund complex for their
services as directors/trustees to such companies and trusts. Currently the
Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Advisor. Wells Fargo Bank provides investment advisory
services to the Funds. As investment advisor, Wells Fargo Bank furnishes
investment guidance and policy direction in connection with the daily portfolio
management of the Funds. Wells Fargo Bank furnishes to the Company's Board of
Directors periodic reports on the investment strategy and performance of each
Fund. Wells Fargo Bank provides the Funds with, among other things, money market
security and fixed-income research, analysis and statistical and economic data
and information concerning interest rate and securities markets trends,
portfolio composition, and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled
to receive a monthly fee at the annual rates indicated below of each Fund's
average daily net assets:
Annual Rate
Fund (as percentage of net assets)
Corporate Bond 0.50%
Short-Intermediate U.S. Government 0.50%
Strategic Income 0.60%
U.S. Government Income 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
Variable Rate Government 0.50%
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Year Ended
6/30/99
Fund Fees Paid Fees Waived
Corporate Bond $ 23,084 $ 53,704
Short-Intermediate U.S. Government $459,093 $237,095
Strategic Income $ 59,858 $147,160
U.S. Government Income $550,182 $568,098
Variable Rate Government $204,891 $479,326
Three-Month Six-Month
Period Ended Year-Ended Period Ended
6/30/98 3/31/98 3/31/97
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- ----------- --------- -----------
Corporate Bond $ 2,427 $ 5,498 N/A N/A N/A N/A
Short-Intermediate U.S. Government $ 75,268 $ 36,209 $ 132,389 $309,195 $134,529 $121,235
Strategic Income N/A N/A N/A N/A N/A N/A
U.S. Government Income* $225,452 $368,203 $ 469,051 $ 0 N/A N/A
Variable Rate Government* $158,638 $315,545 $1,355,943 $294,181 N/A N/A
- ------------------------
*Amounts shown are for the six-month period ended June 30, 1998, the year ended
December 31, 1997, and the six-month period ended March 31, 1997, respectively.
Prior to December 12, 1997, these amounts reflect fees paid by the corresponding
Overland predecessor portfolio.
Short-Intermediate U.S. Government Income Fund. For the periods
indicated below, the Short-Intermediate U.S. Government Income Fund paid to
Wells Fargo Bank the following advisory fees and Wells Fargo Bank waived the
indicated amounts:
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
Fees Paid Fees Waived Fees Paid Fees Waived
$213,467 $0 $56,387 $60,241
U.S. Government Income Fund. As discussed herein under "Historical Fund
Information," on December 12, 1997 the Overland U.S. Government Income Fund was
consolidated with and into the Fund. For financial reporting purposes, the
Overland Fund is considered the accounting survivor of the Consolidation and the
Fund has adopted the financial statements of the Overland Fund. Therefore, the
information shown below concerning the dollar amount of advisory (and other)
fees paid shows the dollar amount of fees paid by the Overland Fund. Prior to
the Consolidation, Wells Fargo Bank served as the investment advisor to the
Overland Fund and was entitled to receive a monthly fee at the annual rate of
0.50% of the Fund's average daily net assets.
Variable Rate Government Fund. Wells Fargo Bank and Stephens have
agreed to waive ten basis points (0.10%) of the fees charged to the Fund in
connection with the settlement of certain litigation involving the Fund. Prior
to the Consolidation, Wells Fargo Bank served as investment advisor to the
Overland Fund and was entitled to receive a monthly fee at the annual rate of
0.50% of the Fund's average daily net assets. As discussed herein under
"Historical Fund Information," on December 12, 1997 the Overland Variable Rate
Government Fund transferred its assets to a shell fund of the Company created
for this purpose. For financial reporting purposes the Fund has adopted the
financial statements of the Overland Fund. Therefore, the information shown
below concerning the dollar amount of advisory (and other) fees paid shows the
dollar amount of fees paid by the Overland Fund.
For the periods indicated below, the predecessor portfolios to the U.S.
Government Income and Variable Rate Government Funds paid to Wells Fargo Bank
the following advisory fees and Wells Fargo Bank waived the indicated
amounts:
Year Ended Year Ended
12/31/96 12/31/95
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
U.S. Government Income $ 167,516 $ 46,101 $ 175,052 $ 13,667
Variable Rate Government $2,696,450 $ 0 $3,561,101 $554,480
General. Each Fund's Advisory Contract will continue in effect for more
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisor. Wells Fargo Bank has engaged Wells Capital
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Funds. WCM also furnishes such additional reports and information as Wells
Fargo Bank and the Company's Board of Directors and officers may reasonably
request.
As compensation for its sub-advisory services, WCM is entitled to
receive a monthly fee equal to an annual rate of 0.15% of the first $400 million
of the Funds' average daily net assets, 0.125% of the next $400 million of the
Funds' net assets, and 0.10% of net assets over $800 million. WCM receives a
minimum annual sub-advisory fee of $120,000 from each Fund. This minimum annual
fee payable to WCM does not increase the advisory fee paid by each Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
Portfolio Managers.
Mr. Graham Allen joined Wells Fargo Bank in January, 1998 and has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Corporate Bond Fund since April 1998. Mr. Allen also has been responsible, as a
portfolio co-manager, for the day-to-day management of the Strategic Income Fund
since its commencement of operations in July, 1998. Prior to January, 1998, Mr.
Allen had worked for Bradford & Marzec, Inc. as an International Portfolio
Manager since August 1988, and he had worked for Heron Financial Corp. as a High
Yield Portfolio Manager from June, 1985 to August, 1988. Educated in England,
Mr. Allen is a Fellow Chartered Accountant, a recognized UK Accounting body.
Ms. Jacqueline Flippin joined Wells Fargo Bank in January, 1998 and has
been responsible, as a portfolio co-manager, for the day-to-day management of
the Corporate Bond Fund since April, 1998. Ms. Flippin also has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Strategic Income Fund since its commencement of operations in July, 1998, and
for the Short-Intermediate U.S. Government Income Fund since February, 1999. Ms.
Flippin had worked for McMorgan & Co. as a Portfolio Manager from October, 1994
to January, 1998 and had worked for the Teachers Insurance Annuity Association,
College Retirement Equity Fund as a Portfolio Manager from August, 1986 to
October, 1994. Ms. Flippin received her B.A. from Northwestern University and
her M.B.A. from New York University.
Mr. Paul Single assumed responsibility for the day-to-day management of
the portfolio of the U.S. Government Income Fund on May 1, 1995. Mr. Single
assumed responsibility as co-manager for the day-to-day management of the
Variable Rate Government Fund in November, 1990, and of the Strategic Income
Fund in July, 1998, , and for the Short-Intermediate U.S. Government Income Fund
since February, 1999. Mr. Single has managed taxable bond portfolios for over a
decade, and has specific expertise in mortgage-backed securities. Prior to
joining Wells Fargo Bank, in early 1988, he was a senior portfolio manager for
Benham Capital Management Group.
Mr. Single received his B.S. from Springfield College.
Mr. Scott Smith has been responsible, as a portfolio co-manager, for
the day-to-day management of the Corporate Bond Fund since April, 1998. Mr.
Smith also has been responsible as a portfolio co-manager, for the day-to-day
management of the Strategic Income Fund since its commencement of operations in
July, 1998. Mr. Smith, as co-manager, has been responsible for the day-to-day
management of the portfolio of the U.S. Government Income Fund since May 1, 1995
and the Variable Rate Government Fund since October 1993. He joined Wells Fargo
Bank in 1988 as a taxable money market portfolio specialist. Currently, Mr.
Smith holds the position of liquidity management specialist/portfolio manager
with Wells Fargo Bank. His experience includes a position with a private money
management firm with mutual fund investment operations. Mr. Smith holds a B.A.
from the University of San Diego and is a chartered financial analyst.
Mr. Allen Wisniewski has been responsible, as co-manager, for the
day-to-day management of the portfolio of the Strategic Income Fund since it
commenced operations in July 1998. Mr. Wisniewski also is responsible for
managing equity and balanced accounts for high-net-worth individuals and
pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987 with the
acquisition of Bank of America's consumer trust services, where he was a
portfolio manager. He received his B.A. and M.B.A. in Economics and Finance from
the University of California at Los Angeles. He is a member of the Los Angeles
Society of Financial Analysis.
Mr. Daniel Kokoszka joined Wells Fargo Bank in February, 1998 and has been
responsible, as a portfolio co-manager for the day-to-day management of the
Corporate Bond and Strategic Income Funds since August 1, 1998. Prior to
February, 1998, Mr. Kokoszka had worked for Bradford & Marzec, Inc. on their
international portfolio management team for more than four years. Previously,
Mr. Kokoszka worked for Lockheed Corporation in the corporate finance, mergers
and acquisitions and venture capital areas. Mr. Kokoszka is a Chartered
Financial Analyst, a Certified Management Accountant and is Certified in
Financial Management. Mr. Kokoszka received his B.S. from Villanova University,
an M.S. from George Washington University, an M.S. from George Washington
University and his M.B.A. from the University of Rochester.
Mr. John Burgess joined Wells Fargo Bank in April, 1998 and has been
responsible, as a portfolio co-manager, for the day-to-day management of the
Corporate Bond and Strategic Income Funds since August 1, 1998. Prior to April,
1998, Mr. Burgess had worked as an independent financial advisor since August,
1995. Prior to that, Mr. Burgess had worked for Executive Life Insurance Co. and
associated Companies from 1998 to July, 1995. Previously, Mr. Burgess worked for
Bradford & Marzec, Inc. Mr. Burgess received his B.A. from Harvard College and a
J.D. from Harvard Law School.
Administrator. The Company has retained Wells Fargo Bank as
Administrator on behalf of each Fund. Under the Administration Agreement between
Wells Fargo Bank and the Company, Wells Fargo Bank shall provide as
administration services, among other things: (i) general supervision of the
Funds' operations, including coordination of the services performed by each
Fund's investment Advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for each Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank also furnishes office space and certain facilities required for
conducting the Funds' business together with ordinary clerical and bookkeeping
services. The Administrator is entitled to receive a fee of 0.15%, of the
average daily net assets on an annual basis of each Fund.
Prior to March 25, 1999, Wells Fargo Bank served as administrator and
Stephens Inc. ("Stephens") served as co-administrator for the Fund and each were
entitled to receive 0.03% and 0.04%, respectively, of each Fund's average daily
net assets on an annual basis. Prior to February 1, 1998, Wells Fargo Bank and
Stephens received monthly fees of 0.04% and 0.02%, respectively, of the average
daily net assets on an annual basis of each Fund. In connection with the change
in fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
For the periods indicated below, the Funds paid the following
administration fees:
Year-Ended
6/30/99
Fund Total Wells Fargo Stephens*
- ---- ----- ----------- --------
Corporate Bond $ 12,808 $ 5,507 $ 7,301
Short-Intermediate U.S. Government $112,334 $ 64,311 $48,023
Strategic Income $ 32,646 $ 14,038 $18,608
U.S. Government Income $179,769 $102,918 $76,851
Variable Rate Government $108,802 $ 62,295 $46,512
- ------------------------
* Reflects fees paid to Stephens as Co-Administrator prior to March 25, 1999.
Three-Month
Period Ended Year-Ended
6/30/98 3/31/98
Fund Total Wells Fargo Stephens Total Wells Fargo Stephens
- ---- ----- ----------- -------- ----- ----------- --------
Corporate Bond $ 1,107 $ 478 $ 629 N/A N/A N/A
Short-Intermediate U.S. Government $15,606 $ 6,711 $ 8,895 $ 54,262 $ 36,356 $17,906
Strategic Income N/A N/A N/A N/A N/A N/A
U.S. Government Income* $80,831 $34,757 $46,074 $ 66,992 $ 22,107 $44,885
Variable Rate Government* $64,485 $27,729 $36,756 $282,517 $189,286 $93,231
- ------------------------
*Amounts shown are for the six-month period ended June 30, 1998 and the year
ended December 31, 1997, respectively.
Except as described below, prior to February 1, 1997, Stephens served
as the sole Administrator and performed substantially the same services now
provided by Stephens and Wells Fargo Bank.
Short-Intermediate U.S. Government Income Fund. For the period indicated
below, the Fund paid to Wells Fargo Bank and Stephens the following dollar
amounts for administration and co-administration fees:
Six-Month
Period Ended
3/31/97
Fund Total Wells Fargo Stephens
Short-Intermediate U.S. Government Income $64,993 $27,947 $37,046
For the periods indicated below, the Short-Intermediate U.S. Government
Income Fund paid to Stephens the dollar amounts in administration fees indicated
below. Stephens, as sole Administrator for the year ended December 31, 1994, and
1995, and the nine-month period September 30, 1996, was entitled to receive a
fee, payable monthly, at the annual rate of 0.03% of the Short-Intermediate U.S.
Government Fund's average daily net assets.
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
$12,808 $ 6,998
- ------------------
Beginning February 1, 1997, these amounts include fees paid to Wells Fargo Bank.
U.S. Government Income and Variable Rate Government Funds. Prior to the
Consolidation of the Overland portfolios into the Stagecoach Funds on December
12, 1997, Wells Fargo Bank and Stephens served as Administrator and
Co-Administrator, respectively, to the U.S. Government Income and Variable Rate
Government predecessor portfolios under substantially similar terms to the
current Administration and Co-Administration Agreements with the Funds. Prior to
February 1, 1997, Stephens served as sole Administrator to the U.S. Government
Income and Variable Rate Government predecessor portfolios and provided the
predecessor portfolios with essentially the same services described above.
Stephens was entitled to receive a monthly fee from the Variable Rate Government
predecessor portfolio at the annual rate of 0.15% of each predecessor
portfolio's average daily net assets up to $200 million and 0.10% in excess of
$200 million. Stephens was entitled to receive a fee from the U.S. Government
Income Fund's predecessor portfolio at the annual rate of 0.10% of the average
daily net assets up to $200 million and 0.05% in excess of $200 million.
For the periods indicated below, the Funds paid to Stephens the dollar
amounts in administration fees indicated below. Prior to December 12, 1997,
these amounts reflect fees paid by the Overland predecessor portfolios.
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
U.S. Government Income $ 66,992 $ 51,898 $ 37,744
Variable Rate Government $282,517 $400,616 $923,116
Distributor. Stephens (the "Distributor"), located at 111 Center
Street, Little Rock, Arkansas 72201, serves as the Distributor for the Funds.
Each Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") for its shares. The
Institutional Class shares have no Plans. The Plans were adopted by the
Company's Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Funds and who had no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plans (the "Non-Interested Directors").
Under the Plans and pursuant to the related Distribution Agreement, the Funds
may pay Stephens the amounts listed below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net
assets attributable to each Class of the Funds.
<PAGE>
Fund Fee
Corporate Bond
Class A 0.05%
Class B 0.75%
Class C 0.75%
Short-Intermediate U.S. Government
Class B 0.75%
Institutional Class N/A
Strategic Income
Class A 0.05%
Class B 0.75%
Class C 0.75%
U.S. Government Income
Class B 0.70%
Class C 0.75%
Institutional Class N/A
Variable Rate Government
Class A 0.25%
The actual fee payable to the Distributor by the above-indicated Funds
and Classes is determined, within such limits, from time to time by mutual
agreement between the Company and the Distributor and will not exceed the
maximum sales charges payable by mutual funds sold by members of the National
Association of Securities Dealers, Inc. ("NASD") under the Conduct Rules of the
NASD. The Distributor may enter into selling agreements with one or more selling
agents (which may include Wells Fargo Bank and its affiliates) under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable to
their customers. The Distributor may retain any portion of the total
distribution fee payable thereunder to compensate it for distribution-related
services provided by it or to reimburse it for other distribution-related
expenses.
Under the Plans in effect for the Class A shares of the
Short-Intermediate U.S. Government Income and the U.S. Government Income Fund,
each Fund may defray all or part of the cost of preparing and printing
prospectuses and other promotional materials and of delivering those
prospectuses and promotional materials to prospective shareholders by paying on
an annual basis up to 0.05% of the respective Fund's average daily net assets
attributable to Class A shares. The Plans for the Class A shares of these Funds
provide only for reimbursement of actual expenses.
General. Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Directors on not more than 60 days'
written notice. The Plans may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plans require that the Treasurer of the Company shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plans. The Rule
also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Funds' shares pursuant to selling agreements with Stephens authorized under
the Plans. As a selling agent, Wells Fargo Bank has an indirect financial
interest in the operation of the Plans. The Board of Directors has concluded
that the Plans are reasonably likely to benefit the Funds and their shareholders
because the Plans authorize the relationships with selling agents, including
Wells Fargo Bank, that have previously developed distribution channels and
relationships with the retail customers that the Funds are designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
Administrative Servicing Agent. The Variable Rate Government Fund has
adopted a Shareholder Administrative Servicing Plan (the "Administrative
Servicing Plan") on behalf of its Class A shares. Pursuant to the Administrative
Servicing Plan, the Fund may enter into Administrative Servicing Agreements with
administrative servicing agents (broker/dealers, banks and other financial
institutions, which may include Wells Fargo Bank and its affiliates) who are
dealers/holders of record, or that otherwise have a servicing relationship with
the beneficial owners of the Fund's Class A shares. Administrative servicing
agents agree to perform shareholder administrative and liaison services which
may include, among other things, maintaining an omnibus account with the Fund,
aggregating and transmitting purchase, exchange and redemption orders from its
customers, answering customer inquiries regarding a shareholder's accounts in
the Fund, and providing such other services as the Company or a customer may
reasonably request. Administrative servicing agents are entitled to a fee which
will not exceed 0.25%, on an annualized basis, of the average daily net assets
of the class of the Class A shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Class A
distribution plan while being sold pursuant to its Administrative Servicing
Plan.
The Administrative Servicing Plan will continue in effect from year to
year if such continuance is approved by a majority vote of the Directors of the
Company. Any form of Servicing Agreement related to the Plan also must be
approved by such vote of the Directors. Servicing Agreements will terminate
automatically if assigned, and may be terminated at any time, without payment of
any penalty, by a vote of a majority of the outstanding shares of the
appropriate class of the Fund. The Administrative Servicing Plan may not be
amended to increase materially the amount payable thereunder without the
approval of a majority of the outstanding shares of the appropriate class of the
Fund, and no other material amendment to the Plan or related Administrative
Servicing Agreements may be made except by a majority of the Directors.
The Administrative Servicing Plan requires that the Administrator shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under each of the
Plan.
Shareholder Servicing Agent. The Strategic Income (Class A, Class B and
Class C), Corporate Bond (Class A, Class B and Class C) and U.S. Government
Income (Class B and C) Funds have approved a Servicing Plan and have entered
into related shareholder servicing agreements with financial institutions,
including Wells Fargo Bank. The Short-Intermediate Government Income Fund and
U.S. Government Income (Class A) Funds have entered into shareholder servicing
agreements. The Funds have also approved a Servicing Plan and have entered into
related Shareholder Servicing Agreements with financial institutions, including
Wells Fargo Bank, on behalf of the Institutional Class shares. Under the
agreements, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee from the applicable Fund, on an annualized
basis, of the average daily net assets of the class of shares owned of record or
beneficially by the customers of the Servicing Agent during the period for which
payment is being made. The amounts payable under the Shareholder Servicing Plan
are shown below. The Servicing Plan and related forms of shareholder servicing
agreements were approved by the Company's Board of Directors and provide that a
Fund shall not be obligated to make any payments under such Plans or related
Agreements that exceed the maximum amounts payable under the Conduct Rules of
the NASD.
<PAGE>
Fund Fee
Corporate Bond
Class A 0.25%
Class B 0.25%
Class C 0.25%
Short-Intermediate U.S. Government Income
Class A 0.30%
Class B 0.25%
Institutional Class 0.25%
Strategic Income
Class A 0.25%
Class B 0.25%
Class C 0.25%
U.S. Government Income
Class A 0.30%
Class B 0.30%
Class C 0.25%
Institutional Class* 0.25%
Variable Rate Government
Class A 0.25%
--------------------
* The Overland predecessor portfolio did not offer Institutional Class
shares. Amounts shown reflect fees paid for the six-month period ended
6/30/98 and the period from December 14, 1997 through December 31,
1997, respectively.
General. The Servicing Plan will continue in effect from year to year
if such continuance is approved by a majority vote of the Directors of the
Company, including a majority of the Directors who are not "interested periods"
(as defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form
of Servicing Agreement related to the Servicing Plan also must be approved by
such vote of the Directors and Non-Interested Directors. Servicing Agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Board of Directors, including a majority of the Non-Interested
Directors. No material amendment to the Servicing Plan or related Servicing
Agreements may be made except by a majority of both the Directors of the Company
and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
6th & Marquette, Minneapolis, MN, acts as Custodian for each Fund. The
Custodian, among other things, maintains a custody account or accounts in the
name of each Fund, receives and delivers all assets for each Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of each Fund, and pays all expenses
of each Fund. For its services as Custodian, Norwest Bank is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Norwest Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, MA, acts as Transfer and
Dividend Disbursing Agent for the Funds. For providing such services, BFDS is
entitled to receive monthly payments at the annual rate of [0.04%] of each
Fund's average daily net assets and certain transaction-based fees.
Underwriting Commissions. Front-end sales loads and contingent deferred sales
charges are not assessed in connection with the purchase and redemption of
Institutional Class shares. Therefore, no underwriting commissions were paid
to Stephens as the Funds' Distributor for these shares.
For the year-ended June 30, 1999, the aggregate dollar amount of underwriting
commissions paid to Stephens as sales/redemptions of the Company's shares was
$6,388,031. Stephens retained $3,295,813 of such commissions.
For the three-month period ended June 30, 1998, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,546,670. Stephens retained $485,869 of such
commissions. WFSI an affiliated broker-dealer of the Company, retained
$1,068,673 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 and Stephens retained $939,892 of such
commissions. WFSI retained $5,348,626 of such commissions.
For the six-month period ended March 31, 1997, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,296,243. Stephens retained $241,806 of such commissions. WFSI and
its registered representatives received $1,719,000 and $335,437, respectively,
of such commissions.
For the nine-month period ended September 30, 1996, the aggregate
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,917,738. Stephens retained $198,664 of such commissions,
WFSI and its registered representatives received $2,583,027 and $136,047
respectively, of such commissions.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,251,311. Stephens retained $162,660 of such commissions. WFSI and
its registered representatives received $399,809 of such commissions.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or
prospective shareholders, these figures may also be compared to the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Class A shares of the
Stagecoach U.S. Government Income Fund for periods prior to December 12, 1997,
reflects performance of the Class A shares of the Overland U.S. Government
Income Fund (the accounting survivor of a merger of the funds on December 12,
1997). Performance shown or advertised for the Class B and Class C shares of the
Fund for the period from July 1, 1993 to December 12, 1997, reflects performance
of the Class D shares of the Overland Fund. For periods prior to July 1, 1993,
Class B share and Class C share performance reflects performance of the Class A
shares of the Overland Fund, adjusted to reflect the expenses of the Class B or
Class C shares, as applicable.
Performance shown or advertised for the Class A shares of the
Stagecoach Variable Rate Government Fund for periods prior to December 12, 1997,
reflects performance of the Class A shares of the Overland Express Variable Rate
Government Fund, a predecessor portfolio with the same investment objective and
policies as the Stagecoach Variable Rate Government Fund. Performance shown or
advertised for the Class C shares of the Stagecoach Fund for the period from
July 1, 1993 to December 12, 1997, reflects performance of the Class D shares of
the Overland Fund. For periods prior to July 1, 1993, Class C share performance
reflects performance of the Class A shares of the Overland Fund, adjusted to
reflect the expenses of the Class C shares.
Performance figures for the Corporate Bond and Strategic Income Funds
are not available for the periods shown.
Performance shown or advertised for the Institutional Class shares of
the Short-Intermediate U.S. Government Income Fund for periods prior to
September 6, 1996, reflects the performance of such Fund's Class A shares
(excluding sales charges).
Performance shown or advertised for the Institutional Class shares of
the U.S. Government Income Fund for periods prior to December 12, 1997, reflects
the performance of the Class A shares (excluding sales charges) of the Overland
predecessor portfolio.
Average Annual Total Return: The Funds may advertise certain total
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)n=ERV.
Average Annual Total Return for the Applicable
Period Ended June 30, 19991
Inception Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Charge Sales Charge Sales Sales Charge Sales Charge Sales Sales
------ ------ ------ ------
Fund Charge2 Charge Charge Charge
---- ------ ------ ------
Corporate Bond
Class A (0.17) 3.57 N/A N/A N/A N/A (2.13) 2.45
Class B (0.26) 2.81 N/A N/A N/A N/A (3.11) 1.68
Class C 2.77 2.77 N/A N/A N/A N/A 0.71 1.67
Short-Intermediate
U.S. Government
Income
Class A 4.51 5.07 5.13 5.77 4.87 5.94 0.26 3.37
Class B3 4.27 4.41 4.80 5.13 4.39 5.30 (2.23) 2.65
Institutional N/A 5.09 N/A 5.79 N/A 5.98 N/A 3.38
Class4
Strategic Income
Class A N/A N/A N/A N/A N/A N/A (2.10) 2.52
Class B N/A N/A N/A N/A N/A N/A (2.95) 1.87
Class C N/A N/A N/A N/A N/A N/A 0.90 1.87
U.S. Government
Income
Class A 7.50 7.94 5.49 6.47 4.57 6.19 (2.14) 2.52
Class B 7.24 7.24 5.39 5.69 4.49 5.39 (3.11) 1.75
Class C 7.25 7.25 5.71 5.71 5.42 5.42 0.87 1.85
Institutional N/A 7.94 N/A 6.47 N/A 6.19 N/A 2.49
Class4
Variable Rate
Government
Class A 4.03 4.39 3.23 3.86 3.15 4.22 (0.85) 2.17
- -------------------
1 Return calculations, except as indicated, reflect the inclusion of
front-end sales charges for Class A shares and the maximum applicable
contingent deferred sales charge ("CDSC") for Class B and Class C shares.
2 For purposes of showing performance information, the inception date of each
Fund and Class is as follows: Corporate Bond Fund - April 1, 1998,
Strategic Income Fund - July 13, 1998, U.S. Government Income Fund - April
7, 1988, Variable Rate Government-Fund - November 1, 1990 and
Short-Intermediate U.S. Government Income Fund - October 27, 1993. The
actual inception date of each class may differ from the inception date of
the corresponding Fund.
3 Class B shares commenced operations on June 15, 1998. Performance of the
Class B shares is calculated using Class A share performance adjusted to
reflect Class B share fees.
4 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the Institutional Class shares of such Fund's
predecessor portfolios. For periods prior to September 6, 1996, performance
figures for the Institutional Class shares of the Short-Intermediate U.S.
Government Income Fund reflect the performance of such Fund's Class A
shares. For periods prior to December 12, 1997, performance figures for the
Institutional Class shares of the U.S. Government Income Fund reflect the
performance of the Class A shares of the Overland predecessor portfolio.
Cumulative Total Return. In addition to the above performance
information, each Fund may also advertise the cumulative total return of the
Fund. Cumulative total return is based on the overall percentage change in value
of a hypothetical investment in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested, without reflecting the effect of any
sales charge that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended June 30, 19991
Inception Inception Five Year Five Year Three Year Three Year
With No With No With No
Sales Charge2 Sales Charge Sales Sales Charge Sales Sales Charge
Fund Charge Charge
Corporate Bond
Class A (0.21) 4.48 N/A N/A N/A N/A
Class B (0.33) 3.52 N/A N/A N/A N/A
Class C 3.48 3.48 N/A N/A N/A N/A
Short-Intermediate
U.S. Government
Income
Class A 28.37 32.35 28.42 32.38 15.35 18.91
Class B 26.76 27.73 26.41 28.41 13.77 16.77
Institutional N/A 32.48 N/A 32.52 N/A 19.03
Class3
Strategic Income
Class A (2.10) 2.52 N/A N/A N/A N/A
Class B 2.95 1.87 N/A N/A N/A N/A
Class C 0.90 1.87 N/A N/A N/A N/A
U.S. Government
Income
Class A 125.60 136.21 30.65 36.79 14.63 19.73
Class B 119.55 119.55 30.01 31.90 14.09 17.05
Class C 119.74 119.74 32.02 32.02 17.15 17.15
Institutional N/A 136.25 N/A 36.81 N/A 19.76
Class3
Variable Rate
Government
Class A 40.81 45.17 17.20 20.85 9.75 13.19
- -------------------
1 Return calculations, except as indicated, reflect the inclusion of front-end sales charges for Class A shares and the maximum
applicable CDSC for Class B and Class C shares.
2 For purposes of showing performance information, the inception date of each
Fund is as follows: U.S. Government Income Fund - April 7, 1988, Variable
Rate Government-Fund - November 1, 1990 and Short-Intermediate U.S.
Government Income Fund - October 27, 1993. The actual inception date of each
class may differ from the inception date of the corresponding Fund.
3 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the Short-Intermediate U.S. Government Income
Fund reflect the performance of such Fund's Class A shares. For periods
prior to December 12, 1997, performance figures for the Institutional Class
shares of the U.S. Government Income Fund reflect the performance of the
Class A shares of the Overland predecessor portfolio.
Yield Calculations: The Funds may, from time to time, include their
yields and effective yields in advertisements or reports to shareholders or
prospective investors. Quotations of yield for the Funds are based on the
investment income per share earned during a particular seven-day or thirty-day
period, less expenses accrued during a period ("net investment income") and are
computed by dividing net investment income by the offering price per share on
the last date of the period, according to the following formula:
YIELD = 2[(a - b + 1)6 - 1]
Cd
where a = dividends and interest earned during the period; b = expenses
accrued for the period (net of reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period.
Effective Yield: Effective yields for the Funds are based on the change
in the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Period Ended June 30, 19991
Thirty-Day Yield
Fund After Waiver Before Waiver
Corporate Bond
Class A 6.63 6.10
Class B 6.18 5.75
Class C 6.20 5.53
Short-Intermediate U.S. Government
Income
Class A 5.08 4.77
Class B 4.54 4.19
Institutional Class 5.30 5.06
Strategic Income
Class A 7.32 6.72
Class B 6.91 6.38
Class C 6.89 6.05
U.S. Government Income
Class A 5.53 5.18
Class B 5.08 4.71
Class C 5.09 4.66
Institutional Class 5.84 5.49
Variable Rate Government
Class A 4.64 4.21
- --------------------
1 The amounts shown above reflect all front-end sales charges and applicable
CDSCs. "After waiver" figures reflect any waived fees or reimbursed
expenses throughout the period.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future. In connection with communicating its yields or total return to
current or prospective shareholders, these figures may also be compared to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
The yields for each class of shares will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
a Fund or to a particular class of a Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of a Fund will affect the yield of the respective
class of shares for any specified period, and such changes should be considered
together with such class' yield in ascertaining such class' total return to
shareholders for the period. Yield information for each class of shares may be
useful in reviewing the performance of the class of shares and for providing a
basis for comparison with investment alternatives. The yield of each class of
shares, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
From time to time and only to the extent the comparison is appropriate
for a Fund or a Class of shares, the Company may quote the performance or
price-earning ratio of a Fund or a Class of in advertising and other types of
literature as compared with the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or a class also may be compared to that of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share of each
class at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions paid, at the end of
the period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare
past performance of the Funds or a class of shares with the performance of a
Fund's competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is appropriate
for each class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in each class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
each class of shares of a Fund or the general economic, business, investment, or
financial environment in which a Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of each class of shares of a Fund or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in each class of shares of the Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance or current or potential value of each class of shares of
a Fund with respect to the particular industry or sector.
The Company also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by an NRSRO, such as Standard
Poor's Corporation. Such rating would assess the creditworthiness of the
investments held by a Fund. The assigned rating would not be a recommendation to
purchase, sell or hold a Fund's shares since the rating would not comment on the
market price of a Fund's shares or the suitability of a Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to a Fund or its investments. The Company may compare the
performance of each class of shares of a Fund with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors who
wish to compare each class' past performance with other rated investments.
From time to time, a Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo Bank,
is listed in the top 100 by Institutional Investor magazine in its July 1997
survey "America's Top 300 Money Managers." This survey ranks money managers in
several asset categories. The Company also may disclose in advertising and other
types of sales literature the assets and categories of assets under management
by the Company's investment Advisor and the total amount of assets and mutual
fund assets managed by Wells Fargo Bank. As of August 1, 1998, Wells Fargo Bank
and its affiliates provided investment advisory services for approximately $63
billion of assets of individuals, trusts, estates and institutions and $32
billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as
of the close of regular trading (currently 1:00 p.m., Pacific time) on each day
the New York Stock Exchange ("NYSE") is open for business. Expenses and fees,
including advisory fees, are accrued daily and are taken into account for the
purpose of determining the net asset value of the Funds' shares.
Securities of a Fund for which market quotations are available are
valued at latest prices. Any security for which the primary market is an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the latest bid price quoted on
such day. In the case of other Fund securities, including U.S. Government
securities but excluding money market instruments and debt securities maturing
in 60 days or less, the valuations are based on latest quoted bid prices. Money
market instruments and debt securities maturing in 60 days or less are valued at
amortized cost. Futures contracts will be marked to market daily at their
respective settlement prices determined by the relevant exchange. Prices may be
furnished by a reputable independent pricing service approved by the Company's
Board of Directors. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Company's Board of Directors
and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in
the form of securities that are permissible investments for the Funds. For
further information about this form of payment please contact Stephens. In
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in accordance
with the pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Company's responsibilities under the 1940 Act. In addition,
the Company may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of a Fund as provided
from time to time in the Prospectus.
Investors in Norwest Advantage Funds. Class A shareholders of the
Norwest Advantage Funds who redeem shares at net asset value may use the
redemption proceeds to purchase Class A shares of the Stagecoach Funds at net
asset value (without a sales charge). A reciprocal sales load waiver is
available to the Class A shareholders of Stagecoach Funds, who may use
redemption proceeds to purchase Class A shares of the Norwest Advantage Funds at
net asset value.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Fund may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Directors.
Wells Fargo Bank, as Investment Advisor to the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
For the period ended [June 30, 1999], the Company paid [$__________] in
commissions to various broker/dealers in connection with such allocated
transactions.
Brokerage Commissions. The Funds have not paid any brokerage
commissions for at least the past three calendar years, and including through
the June 30, 1999 reporting period.
Securities of Regular Broker/Dealers. As of June 30, 1999, each Fund
owned securities (pooled repurchase agreements) of its "regular brokers or
dealers" as defined in the 1940 Act, or their parents, as follows:
Fund Brokers/Dealers Amount
---- --------------- ------
Corporate Bond Fund Goldman Sachs & Co. $ 577,000
Short-Intermediate U.S. Government Goldman Sachs & Co. $ 734,000
Income Fund
Strategic Income Fund Goldman Sachs & Co. $ 455,000
U.S. Government Income Fund Goldman Sachs & Co. $1,888,000
Variable Rate Government Fund Goldman Sachs & Co. $ 241,000
Portfolio Turnover. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Changes may be
made in the portfolios consistent with the investment objectives and policies of
the Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing Prospectuses (except the expense of printing and mailing
Prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the net asset value per share of a Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of a Fund's shares; pricing services, organizational expenses
and any extraordinary expenses. Expenses attributable to the Fund are charged
against Fund assets. General expenses of the Company are allocated among all
of the funds of the Company, including the Funds, in a manner proportionate
to the net assets of each Fund, on a transactional basis, or on such other
basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning federal income
taxes.
General. The Company intends to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), as long as such qualification is in the best interest of the
Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gain, net investment
income, and operating expenses will be determined separately for each Fund.
As a regulated investment company, each Fund will not be taxed on its income
and gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund (a) derive at least 90% of its annual
gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gains are
directly related to the regulated investment company's principal business of
investing in stock or securities) and other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited with
respect to any one issuer to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or in two or more issuers which the
Fund controls and which are determined to be engaged in the same or similar
trades or businesses.
The Funds also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gain and certain other items) 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 income and gains (if any) for each year.
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 income and 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 purchased by a Fund
at a market discount (generally at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder,
the Fund will realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of
the securities delivered in determining the amount of gain or loss on the
sale. If securities are purchased by a Fund pursuant to the exercise of a put
option written by it, such Fund will subtract the premium received from its
cost basis in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a regulated
futures contract will generally result in a realized capital gain or loss for
federal income tax purposes. Regulated futures contracts held at the end of
each fiscal year will be required to be "marked to market" for federal income
tax purposes pursuant to Section 1256 of the Code. In this regard, they will
be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as
short-term capital gain or loss. Transactions that qualify as designated
hedges are excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as
ordinary income or loss. The Funds will attempt to monitor Section 988
transactions, where applicable, to avoid adverse Federal income tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to
constitute "straddles." "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
Fund were treated as entering into "straddles" by engaging in certain
financial forward, futures or option contracts, such straddles could be
characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such straddles were governed by Section 1256 of the
Code. The Fund may make one or more elections with respect to "mixed
straddles." Depending upon which election is made, if any, the results with
respect to the Fund may differ. Generally, to the extent the straddle rules
apply to positions established by the Fund, losses realized by the Fund may
be deferred to the extent of unrealized gain in any offsetting positions.
Moreover, as a result of the straddle and the conversion transaction rules,
short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this
purpose, a constructive sale occurs when the Fund enters into one of the
following transactions with respect to the same or substantially identical
property: (i) a short sale; (ii) an offsetting notional principal contract;
or (iii) a futures or forward contract.
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 gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received
for the shares (or are deemed to be received in the case of an exchange) and
the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a
new purchase of shares of the Fund or a different regulated investment
company, the sales charge previously incurred in acquiring the Fund's shares
shall not be taken into account (to the extent such previous sales charges do
not exceed the reduction in sales charges on the new purchase) for the
purpose of determining the amount of gain or loss on the disposition, but
will be treated as having been incurred in the acquisition of such other
shares. Also, any loss realized on a redemption or exchange of shares of the
Fund will be disallowed to the extent that substantially identical shares are
acquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any
Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share
will be treated as a long-term capital loss to the extent of the designated
capital gain distribution. 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 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"),
usually a shareholder's social security or employer identification number,
provided is correct and that the shareholder is not subject to backup
withholding, or if the IRS notifies the Company that the shareholder's TIN is
incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder,
and may be claimed as a tax payment on the shareholder's federal income tax
return. An investor must provide a valid TIN upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could also subject the
investor to penalties imposed by the IRS.
Foreign Shareholders. Under the Code, distributions of net investment income
by the Funds to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court is able to exercise primary supervision over
administration of that trust and one or more U.S. persons have authority to
control substantial decisions of that trust), foreign estate (i.e., the
income of which is not subject to U.S. tax regardless of source), foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject
to U.S. withholding tax (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a distribution paid by the Fund to
a foreign shareholder is "effectively connected" with a U.S. trade or
business (or, if an income tax treaty applies, is attributable to a U.S.
permanent establishment of the foreign shareholder), in which case the
reporting and withholding requirements applicable to U.S. persons will apply.
Capital gain distributions generally are 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, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the
Funds to estimate the portion of their distributions qualifying as capital
gain distributions for purposes of determining the portion of such
distributions paid to foreign shareholders that will be subject to U.S.
income tax withholding. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
Tax-Deferred Plan. The shares of the Funds may be available for a variety of
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plans ("SEP-IRAs"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and
Education IRAs, which permit investors to defer some of their income from
taxes. Investors should contact their selling agents for details concerning
retirement plans.
Other Matters. Investors should be aware that the investments to be made by
the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such
noncash income could be recognized by the Funds, in which case the Funds may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to
consult his or her tax advisor regarding specific questions as to federal,
state, local or foreign taxes.
CAPITAL STOCK
The Funds are five of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991, and
currently offers shares of over thirty funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain
class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule
12b-1) that are allocated to a particular class. Please contact Shareholder
Services at 1-800-222-8222 if you would like additional information about other
funds or classes of shares offered.
With respect to matters affecting one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, all shares of a Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by a series is required
by law or where the matter involved only affects one series. For example, a
change in a Fund's fundamental investment policy affects only one series and
would be voted upon only by shareholders of the Fund involved. Additionally,
approval of an advisory contract, since it affects only one Fund, is a matter to
be determined separately by Series. Approval by the shareholders of one Series
is effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of the Class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company. The Company
may dispense with an annual meeting of shareholders in any year in which it is
not required to elect Directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
are entitled to receive the assets attributable to that Fund that are available
for distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Directors in their sole discretion may determine.
Set forth below, as of October 25, 1999, is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
5% Ownership as of OCTOBER 25, 1999
Percentage
Fund Name and Address of Class
CORPORATE BOND
Class A VIRG & CO. 16.45%
C/O Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
DIM & Co. 8.99%
ATTN: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
Class B N/A
Class C Dean Witter For The Benefit of 20.53%
Alladin Nursery & Florist Employ
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of 8.07%
Debashish Mukhapadhyay
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust for Harry 6.80%
C. Hardy
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of 5.63%
Gloria E. Hayes Trustee of the
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of 5.40%
Hiroko K. Okabe
PO Box 250 Church Street Station
New York, NY 10008-0250
STRATEGIC INCOME
Class A Dean Witter for the Benefit of Brian 5.32%
Herrera
PO Box 250 Church Street Station
New York, NY 10008-0250
Class B N/A
Class C Dean Witter for the Benefit of 12.07%
Junien R. Gallared Custodian FBC
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of 6.40%
Marlene Dellamore TTEE FBO
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Custodian for 6.14%
Jean Baker
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of 6.03%
Maestelle D. Edwards & Maelyn
PO Box 250 Church Street Station
New York, NY 10008-0250
SHORT-
INTERMEDIATE
U.S. GOVERNMENT
INCOME FUND
Class A Wells Fargo Bank 19.73%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Merrill Lynch Trust Company TTE 12.66%
FBO Qualified Retirement Plans
ATTN: John Sebulsky
265 Davidson Avenue, 4th Floor
Somerset, NJ 00873-4120
VIRG & Co. 8.58%
C/O Wells Fargo Bank
PO Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
MLPF&S For the Sole Benefit of Its 8.10%
Customers
ATTN: Mutual Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Class B N/A
Institutional Class EMSEG & CO 31.55%
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
HEP & CO 17.09%
ATTN: MF DEPT. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
VIRG & CO 15.00%
ATTN: MF DEPT. A88-4
P.O. Box 9800
Minneapolis, MN 55485-1450
EMSEG & CO 12.11%
Limited Term Gov't Income FD1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
DIM & CO 10.75%
ATTN: MF DEPT. A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
U.S. GOVERNMENT
INCOME
Class A INVESTOR SERVICES GROUP 26.80%
FBO Wells Fargo/Portfolio Advisor
Customer
211 South Gulf Road
King of Prussia, PA 19406
WELLS FARGO BANK 19.36%
P.O. Box 63015
San Francisco, CA 94163-0001
VIRG & CO. 9.87%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Class B N/A N/A
Class C MLPF&S FOR THE SOLE BENEFIT OF ITS 19.66%
CUSTOMERS
Attn: Mutual Funds Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
SISTERS OF ST. FRANCIS 5.13%
Attn: Sister Marijane Hvesko OSF
609 South Convent Rd.
Aston, PA 19014-1207
Institutional Class VIRG & CO. 43.44%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
DIM & CO.
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & CO.
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
VARIABLE RATE
GOVERNMENT
Class A APCO EMPLOYEES CREDIT UNION 18.11%
1608 7th Avenue North
Birmingham, AL 35203-1987
MLPF&S FOR THE SOLE BENEFIT 8.88%
OF ITS CUSTOMERS
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East - 3rd Floor
Jacksonville, FL 32246-6484
CITIZENS EQUITY 8.35%
P.O. Box 1715
ATTN: Pete Jain, VP
Peoria, IL 61656-1715
MID-ATLANTIC FCU 7.12%
P.O. Box 8990
Gaithersburg, MD 20898-8990
VISIONS FEDERAL CREDIT UNION 6.33%
24 McKinley Avenue
Endicott, NY 13760-5415
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder
of record of more than 25% of a class (or Fund) and has voting and/or
investment powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of
the U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion
as to certain legal matters regarding the due authorization and valid
issuance of the shares of beneficial interest being sold pursuant to the
Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected 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 portfolios of investments, audited financial statements and
independent auditors' report for the Funds for the year ended June 30, 1999 are
hereby incorporated by reference to the Annual Report as filed with the SEC on
September 1, 1999.
Annual and Semi-Annual Reports may be obtained by calling
1-800-222-8222.
<PAGE>
clvi
421
dc-175852v3
419
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned
by S&P and have "an extremely strong capacity" to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity" to pay interest and
repay principal and "differ from the highest rated obligations only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Commercial Paper
Moody's: The highest rating for commercial paper is "P-1" (Prime-1). Issuers
rated "P-1" have a "superior ability for repayment of senior short-term debt
obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
S&P: The "A-1" rating for commercial paper is rated "in the highest category"
by S&P and "the obligor's capacity to meet its financial commitment on the
obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2"
is "more susceptible" to the adverse effects of changes in economic
conditions or other circumstances than commercial paper rated in higher
rating categories.
<PAGE>
November 1, 1999
Stagecoach Tax-Free Income Funds
Prospectus
Arizona Tax-Free Fund Please read this Prospectus and keep it for
future reference. It is designed to provide you
California Tax-Free with important information and to help you Bond Fund decide
if a Fund's goals match your own.
California Tax-Free Federal law requires us to update this
Income Fund Prospectus annually. Federal law does not
allow us to satisfy Prospectus delivery
National Tax-Free requirements by sending one Prospectus
Fund for all accounts and people within a
household. Therefore, if you own the same
Oregon Tax-Free Fund Fund in more than one account or if
several people in your household own the same Fund,
you will receive multiple Prospectuses.
Class A, Class B and
Class C These securities have not been approved
or disapproved by the U.S. Securities and
Exchange Commission ("SEC"), nor has
the SEC passed upon the accuracy or
adequacy of this Prospectus. Any
representation to the contrary is a
criminal offense.
Fund shares are NOT deposits or other obligations of,
or issued, endorsed or guaranteed by Wells Fargo
Bank, N.A. ("Wells Fargo Bank") or any of its
affiliates. Fund shares are NOT insured or guaranteed
by the U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental
agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Table of Contents
Overview Objectives, Principal
Strategies and Fund Specific Risks
This section contains Summary of Important Risks
important summary Performance History
information about the Summary of Expenses
Funds. Key Information
The Funds Arizona Tax-Free Fund
California Tax-Free Bond Fund
This section contains California Tax-Free Income Fund
important information National Tax-Free Fund
about the individual Oregon Tax-Free Fund
Funds.
General Investment Risks
Organization and Management
of the Funds
Your Account
Turn to this section for A Choice of Share Classes
information on how to Reduced Sales Charges
open an account and Exchanges
how to buy, sell and Your Account
exchange Fund shares. How to Buy Shares
How to Sell Shares
Reference
Look here for additional Additional Services and
information and term Other Information
definitions. Portfolio Managers
Glossary
<PAGE>
Stagecoach Tax-Free Income Funds Overview
Arizona Tax-Free Fund
Objective
Seeks current income exempt from federal income tax and Arizona personal income
tax.
Principal Strategy
We invest primarily in investment grade Arizona municipal securities of varying
maturities.
Fund Specific Risks
Since we invest heavily in Arizona municipal securities, events in Arizona are
likely to affect the Fund's investments. The Arizona economy is based on
services, manufacturing, mining, tourism and the military. Adverse conditions
affecting these sectors could have a disproportionate impact on Arizona
municipal securities. Under its Constitution, Arizona is not permitted to issue
general obligation bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of Arizona are authorized to issue bonds secured
by revenues, and local governments are also authorized to incur indebtedness.
The Fund relies on the availability of such securities for investment. We may
invest up to 25% or more of our assets in Arizona municipal securities that are
related in such a way that political, economic or business developments
affecting one obligation would affect others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
California Tax-Free Bond Fund
Objective
Seeks current income exempt from federal income tax and California personal
income tax.
Principal Strategy
We invest primarily in medium- to long-term investment grade California
municipal securities.
Fund Specific Risks
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
California Tax-Free Income Fund
Objective
Seeks current income exempt from federal income tax and California personal
income tax.
Principal Strategy
We invest primarily in short- and intermediate-term investment grade California
municipal securities.
Fund Specific Risks
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
National Tax-Free Fund
Objective
Seeks current income exempt from federal income tax.
Principal Strategy
We invest primarily in investment grade municipal securities with average
maturities between 10 and 20 years.
Fund Specific Risks
Up to 25% or more of our assets invested in municipal securities may be related
in such a way that political, economic or business developments affecting one
obligation would affect the others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
Oregon Tax-Free Fund
Objective
Seeks current income exempt from federal income tax and Oregon personal income
tax.
Principal Strategy
We invest primarily in investment grade Oregon municipal securities of varying
maturities.
Fund Specific Risks
Since we invest heavily in Oregon municipal securities, events in Oregon are
likely to affect the Fund's investments. Oregon does not have a sales tax, and
state tax revenues, derived principally from corporate and personal income taxes
are particularly sensitive to economic recessions. In addition, we may invest up
to 25% or more of our assets in Oregon municipal securities that are related in
such a way that political, economic or business developments affecting one
obligation would affect others. For example, we may own different obligations
that pay interest based on the revenue of similar projects.
<PAGE>
Summary of Important Risks
This section summarizes important risks that are common to all of the Funds
described in this Prospectus, and important risks that relate specifically to
particular Funds. Both are important to your investment choice. Additional
information about these and other risks is included in:
o the individual Fund descriptions later in this Prospectus; o under the
"General Investment Risks" section beginning on page 44; and o in the Fund's
Statement of Additional Information.
An investment in a Fund is not a deposit of Wells Fargo Bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. It is possible to lose money by investing in a Fund.
Common Risks for the Funds
The Funds may invest in debt securities, such as notes and bonds, which are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of an instrument will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value. Interest rate risk is
the risk that interest rates may increase, which will reduce the resale value
of instruments in a Fund's portfolio, including U.S. Government obligations.
Debt securities with longer maturities are generally more sensitive to
interest rate changes than those with shorter maturities. Changes in market
interest rates do not affect the rate payable on debt securities held in a
Fund, unless the instrument has adjustable or variable rate features, which
can reduce interest rate risk. Changes in market interest rates may also
extend or shorten the duration of certain types of instruments, such as
asset-backed securities, thereby affecting their value and the return on your
investment.
The Funds invest in municipal securities that rely on the creditworthiness or
revenue production of their issuers or auxiliary credit enhancement features.
The Funds reserve the right to invest up to 35% of their assets in specific
types of municipal revenue bonds, such as housing revenue and essential
services (water and sewer, electricity) bonds, although the Funds generally
do not intend to do so and none of the Funds are so invested as of the date
of this Prospectus. Municipal securities may be difficult to obtain because
of limited supply, which may increase the cost of such securities and
effectively reduce the portfolio's yield. Typically, less information is
available about a municipal issuer than is available for other types of
securities issuers.
Although we strive to invest in municipal securities and other securities
with interest is exempt from federal personal income taxes, including the
federal AMT, some income earned by Fund investments may be subject to such
taxes.
Tax-Free Funds take advantage of tax laws that allow the income from certain
investments to be exempted from federal and, in some cases, state personal
income tax. Capital gains, whether declared by a Fund or realized by the
shareholder through the selling of Fund shares, are generally taxable.
Tax-Free Funds are generally considered non-diversified according to the
Investment Company Act of 1940, as amended ("1940 Act"). The majority of the
issuers of the securities in the Funds' portfolio are located within one
state. Non-diversified, geographically concentrated funds are riskier than
similar funds that are diversified or spread their investments over several
geographic areas. Default by a single security in the portfolio may have a
greater negative affect than a similar default in a diversified portfolio.
The National Tax-Free Fund is considered to be diversified. All other Funds
in this Prospectus are considered non-diversified.
<PAGE>
Performance History
The information on the following pages shows you how each Fund has performed
and illustrates the variability of a Fund's returns over time. Each Fund's
average annual returns from inception, and for one-, five- and ten-year
periods (as applicable) are compared to the performance of an appropriate
broad-based index.
Please remember that past performance is no guarantee of future results.
Arizona Tax-Free Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1993 10.55
1994 -3.30
1995 13.69
1996 3.44
1997 8.70
1998 5.02
Best Qtr.: Q1 '95: 5.51% Worst Qtr.: Q1 '94: 3.71%
* Returns do not reflect sales charges. If they did, returns would be
lower. The Fund's year-to-date performance through September 30, 1999 was
-4.39%.
Average annual total return (%)1
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Class A (Incept. 3/2/92) 0.30 4.39 5.87
Class B (Incept. 9/6/96)2 (0.62) 3.97 5.52
LB Muni Index3 6.54 6.24 7.59
1 Returns reflect applicable sales charges.
2 Performance shown for periods prior to the inception of this Class reflects the performance of the Class A shares adjusted to
reflect this Class's fees and expenses.
3 Lehman Brothers Municipal Bond Index.
<PAGE>
California Tax-Free Bond Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1989 10.73
1990 6.48
1991 11.62
1992 9.01
1993 12.98
1994 -4.32
1995 16.39
1996 4.03
1997 9.16
1998 6.81
Best Qtr.: Q2 '89: 6.71% Worst Qtr.: Q1 '94: -4.06%
* Returns do not reflect sales charges. If they did, returns would be
lower. The Fund's year-to-date performance through September 30, 1999 was
-2.18%.
Average annual total return (%)1
for the period ended 12/31/98 1 Year 5 Years 10 Years
Class A (Incept. 10/6/88) 2.03 5.19 7.64
Class B (Incept. 12/15/97)2 1.05 5.06 7.39
Class C (Incept. 7/1/93)2 5.05 5.38 7.39
LB Muni Index3 6.54 6.24 8.22
1 Returns reflect applicable sales charges.
2 Performance shown for periods prior to the inception of this Class reflects the performance of the Class A shares adjusted to
reflect this Class's fees and expenses.
3 Lehman Brothers Municipal Bond Index.
<PAGE>
California Tax-Free Income Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1993 7.10
1994 -1.10
1995 9.14
1996 3.85
1997 5.13
1998 5.46
Best Qtr.: Q1 '95: 3.41% Worst Qtr.: Q1 '94: -1.85%
* Returns do not reflect sales charges. If they did, returns would be
lower. The Fund's year-to-date performance through September 30, 1999 was
-0.17%.
Average annual total return (%)1
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Class A (Incept. 11/18/92) 2.32 3.81 4.40
LB 3 year Muni Index2 5.20 4.90 4.86
1 Returns reflect applicable sales charges.
2 Lehman Brothers Municipal Bond Index.
<PAGE>
National Tax-Free Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1994 -4.33
1995 14.53
1996 3.27
1997 8.96
1998 5.77
Best Qtr.: Q1 '95: 5.75% Worst Qtr.: Q1 '94: -4.18%
* Returns do not reflect sales charges. If they did, returns would be
lower. The Fund's year-to-date performance through September 30, 1999 was
-4.52%.
Average annual total return (%)1
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Class A (Incept. 1/15/93) 1.02 4.49 5.18
Class B (Incept. 9/6/96)2 0.14 4.02 4.82
Class C (Incept. 12/15/97) 4.05 4.34 4.93
LB Muni Index3 6.54 6.24 6.63
1 Returns reflect applicable sales charges.
2 Performance shown for periods prior to the inception of this Class reflects the performance of the Class A shares adjusted to
reflect this Class's fees and expenses.
3 Lehman Brothers Municipal Bond Index.
<PAGE>
Oregon Tax-Free Fund Class A Calendar Year Returns (%)*
[BAR CHART]
1989 8.25
1990 6.02
1991 10.57
1992 8.03
1993 12.38
1994 -6.49
1995 15.84
1996 3.30
1997 8.60
1998 5.44
Best Qtr.: Q1 '95: 6.90% Worst Qtr.: Q1 '94: -5.31%
* Returns do not reflect sales charges. If they did, returns would be
lower. The Fund's year-to-date performance through September 30, 1999 was
-3.22%.
Average annual total return (%)1
for the period ended 12/31/98 1 Year 5 Years 10 Years
Class A (Incept. 6/1/88) 0.67 4.12 6.54
Class B (Incept. 9/6/96)2 (0.55) 3.87 6.22
LB Muni Index3 6.54 6.24 8.22
1 Returns reflect applicable sales charges.
2 Performance shown for periods prior to the inception of this Class reflects the performance of the Class A shares adjusted to
reflect this Class's fees and expenses.
3 Lehman Brothers Municipal Bond Index.
<PAGE>
Summary of Expenses
These tables are intended to help you understand the various costs and
expenses you will pay as a shareholder in a Fund. These tables do not reflect
charges that may be imposed in connection with an account through which you
hold Fund shares.
- -------------------------------------- --------------- ---------------- -----------
Shareholder Fees All Funds All Funds All Funds
Class A Class B Class C
- -------------------------------------- --------------- ---------------- -----------
Maximum sales charge (load)
imposed on purchases (as a
percentage of
offering price) 4.50% None None
- -------------------------------------- --------------- ---------------- -----------
Maximum deferred sales charge (load)
(as a percentage of the lower of None1 5.00% 1.00%
the net asset value ("NAV") at
purchase or the NAV at redemption)
- -------------------------------------- --------------- ---------------- -----------
Annual Fund Operating Expenses (Expenses that are deducted from
Fund Assets)
- ----------------------- ------------------- ------------------------ ----------------
California Tax-Free California
Tax-Free
Arizona Tax-Free Bond Fund Income Fund
Fund
------------------- ------------------------ ----------------
--------- --------- -------- -------- ------ ----------------
Class Class Class Class Class Class
A B A B C A
- -----------------------
--------- --------- -------- -------- ------ ----------------
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
- ----------------------- --------- --------- -------- -------- ------ ----------------
- ----------------------- --------- --------- -------- -------- ------ ----------------
Distribution (12b-1) 0.05% 0.75% 0.05% 0.70% 0.75% 0.05%
Fees
- ----------------------- --------- --------- -------- -------- ------ ----------------
Other Expenses 1.06% 1.70% 0.55% 0.64% 0.56% 0.87%
- ----------------------- --------- --------- -------- -------- ------ ----------------
TOTAL ANNUAL FUND
OPERATING
EXPENSES2 1.61% 2.95% 1.10% 1.84% 1.81% 1.42%
- ----------------------- --------- --------- -------- -------- ------ ----------------
- ----------------------- ------------------------------------ -----------------------
National Tax-Free Fund Oregon Tax-Free Fund
------------------------------------ -----------------------
------------ ----------- ----------- ----------- -----------
Class Class Class Class Class
A B C A B
- -----------------------
------------ ----------- ----------- ----------- -----------
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50%
- ----------------------- ------------ ----------- ----------- ----------- -----------
- ----------------------- ------------ ----------- ----------- ----------- -----------
Distribution (12b-1) 0.05% 0.75% 0.75% 0.05% 0.75%
Fees
- ----------------------- ------------ ----------- ----------- ----------- -----------
Other Expenses 0.72% 1.27% 0.75% 0.77% 0.89%
- ----------------------- ------------ ----------- ----------- ----------- -----------
TOTAL ANNUAL FUND
OPERATING
EXPENSES2 1.27% 2.52% 2.00% 1.32% 2.14%
- ----------------------- ------------ ----------- ----------- ----------- -----------
- ------------------
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more will
be assessed a 1.00% CDSC if they are redeemed within one year from the date of
purchase. All other Class A shares will not have a CDSC.
2 Expense information in the table has been restated to reflect current fees.
The actual expenses incurred by the Funds will be lower than the contract
amounts shown above in certain instances as a result of voluntary fee waivers.
The Funds' actual expenses after waivers are currently as follows for the
share classes indicated: Arizona Tax-Free Fund -- Class A: 0.77%, Class B:
1.49%; California Tax-Free Bond Fund -- Class A: 0.77%, Class B: 1.47%, Class
C: 1.47%; California Tax-Free Income Fund -- Class A: 0.75%; National Tax-Free
Fund -- Class A: 0.81%, Class B: 1.41%, Class C: 1.41%; Oregon Tax-Free Fund
-- Class A: 0.77%, Class B: 1.61%. Voluntary fee waivers may end at any time.
<PAGE>
Summary of Expenses (Cont'd)
Example of Expenses
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume a fixed
rate of return and that fund operating expenses remain the same. Your actual
costs may be higher or lower than those shown.
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you redeem your shares at the end of each period:
- --------------- ---------------------- ---------------------------- ----------------
California Tax-Free California
Tax-Free
Arizona Tax-Free Fund Bond Fund Income Fund
---------------------- ---------------------------- ----------------
----------- ---------- --------- -------- --------- ----------------
Class Class Class Class Class Class
A B A B C A
- ---------------
----------- ---------- --------- -------- --------- ----------------
1 YEAR $ 606 $ 798 $ 557 $ 687 $ 284 $ 588
- --------------- ----------- ---------- --------- -------- --------- ----------------
3 YEARS $ 935 $1,213 $ 784 $ 879 $ 569 $ 879
- --------------- ----------- ---------- --------- -------- --------- ----------------
5 YEARS $1,287 $1,752 $1,029 $1,195 $ 980 $1,191
- --------------- ----------- ---------- --------- -------- --------- ----------------
10 YEARS $2,275 $2,805 $1,730 $1,874 $2,127 $2,075
- --------------- ----------- ---------- --------- -------- --------- ----------------
- --------------- ---------------------------- ---------------------------
National Tax-Free Fund Oregon Tax-Free Fund
---------------------------- ---------------------------
--------- -------- --------- ------------ --------------
Class Class Class Class Class
A B C A B
- ---------------
--------- -------- --------- ------------ --------------
1 YEAR $ 574 $ 755 $ 203 $ 578 $ 717
- --------------- --------- -------- --------- ------------ --------------
3 YEARS $ 835 $1,085 $ 627 $ 849 $ 970
- --------------- --------- -------- --------- ------------ --------------
5 YEARS $1,116 $1,540 $1,078 $1,141 $1,349
- --------------- --------- -------- --------- ------------ --------------
10 YEARS $1,915 $2,402 $2,327 $1,969 $2,166
- --------------- --------- -------- --------- ------------ --------------
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you do NOT redeem your shares at the end of the periods
shown:
- --------------- ---------------------- ------------------------- ----------------
California Tax-Free California
Tax-Free
Arizona Tax-Free Fund Bond Fund Income Fund
---------------------- ------------------------- ----------------
----------- ---------- ------- -------- -------- ----------------
Class Class Class Class Class Class
A B A B C A
- ---------------
----------- ---------- ------- -------- -------- ----------------
1 YEAR $ 606 $ 298 $ $ 187 $ 184 $ 588
557
- --------------- ----------- ---------- ------- -------- -------- ----------------
3 YEARS $ 935 $ 913 $ $ 579 $ 569 $ 879
784
- --------------- ----------- ---------- ------- -------- -------- ----------------
5 YEARS $1,287 $1,552 $1,029 $ 995 $ 980 $1,191
- --------------- ----------- ---------- ------- -------- -------- ----------------
10 YEARS $2,275 $2,805 $1,730 $1,874 $2,127 $2,075
- --------------- ----------- ---------- ------- -------- -------- ----------------
- --------------- ------------------------------ ---------------------
National Tax-Free Fund Oregon Tax-Free Fund
------------------------------ ---------------------
--------- ---------- --------- ---------- ----------
Class Class Class Class Class
A B C A B
- ---------------
--------- ---------- --------- ---------- ----------
1 YEAR $ 574 $ 255 $ 303 $ 578 $ 217
- --------------- --------- ---------- --------- ---------- ----------
3 YEARS $ 835 $ 785 $ 627 $ 849 $ 670
- --------------- --------- ---------- --------- ---------- ----------
5 YEARS $1,116 $1,340 $1,078 $1,141 $1,149
- --------------- --------- ---------- --------- ---------- ----------
10 YEARS $1,915 $2,402 $2,327 $1,969 $2,166
- --------------- --------- ---------- --------- ---------- ----------
<PAGE>
Key Information
Important information you should look for as you decide to invest in a Fund:
The summary information on the previous pages is designed to provide you with an
overview of each Fund. The sections that follow provide more detailed
information about the investments and management of each Fund.
Investment Objective and Investment Strategies
The investment objective of each Fund in this Prospectus is fundamental, that
is, it can be changed only by a vote of the shareholders. The objectives and
strategies descriptions for each Fund tell you:
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes a Fund different from the other Funds offered in this Prospectus.
Permitted Investments
A summary of the Fund's key permitted investments and practices.
Important Risk Factors
Describes the key risk factors for the Fund, and includes risks described in the
"Summary of Important Risks" and "General Investment Risks" sections.
Words appearing in italicized print are defined in the Glossary.
<PAGE>
Arizona Tax-Free Fund
Portfolio Managers: Mary Gail Walton
Stephen Galiani
Investment Objective
The Arizona Tax-Free Fund seeks to provide investors with current income exempt
from federal income tax and Arizona personal income tax.
Investment Strategies
We actively manage a portfolio of municipal securities and we buy municipal
securities of any maturity length. The portfolio's dollar-weighted average
maturity will vary depending on market conditions, economic conditions including
interest rates, the differences in yields between obligations of different
maturity lengths and other factors. Generally speaking, we will attempt to
capture greater total return by increasing maturity when we expect interest
rates to decline, and attempt to preserve capital by shortening maturity when
interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from Arizona personal income tax; and o in municipal
securities rated in the four highest credit categories by nationally recognized
rating organizations ("NRROs").
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of current income exempt from federal income tax and
Arizona personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the Fund's portfolio are located within
Arizona. Non-diversified, geographically concentrated funds are riskier than
similar funds that are diversified or spread their investments over several
geographic areas. Default by a single security in the portfolio may have a
greater negative affect than a similar default in a diversified portfolio.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 44; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Arizona Tax-Free Fund6 Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information for periods subsequent to September 30, 1995, which, along with
their report and the Fund's financial statements, is available upon request in
the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON MARCH 2, 1992
----------------- ------------------ ---------------- ------------------
June 30, 1999 June 30, 19982 Mar. 31, 1998 Mar. 31, 19973
----------------- ------------------ ---------------- ------------------
For the period ended:
Net asset value, beginning of period $10.79 $10.77 $10.44 $10.45
Income from investment operations:
Net investment income (loss) 0.46 0.12 0.46 0.24
Net realized and unrealized gain (loss)
on investments (0.38) 0.02 0.53 (0.01)
Total from investment operations 0.08 0.14 0.99 0.23
Less distributions:
Dividends from net investment income (0.46) (0.12) (0.46) (0.24)
Distributions from net realized gain (0.19) 0.00 (0.20) 0.00
Total from distributions (0.65) (0.12) (0.66) (0.24)
Net asset value, end of period $10.22 $10.79 $10.77 $10.44
Total return (not annualized)1 0.66% 1.27% 9.67% 2.18%
Ratios/supplemental data:
Net assets, end of period (000s) $5,219 $5,383 $5,467 $5,744
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.77% 0.73% 0.64% 0.60%
Ratio of net investment income (loss) to
average net assets 4.28% 4.31% 4.32% 4.54%
Portfolio turnover 56% 14% 127% 77%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.61% 1.68% 1.77% 1.58%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.44% 3.36% 3.19% 3.56%
- ------------------------------------------------------- ----------------- ------------------ ---------------- ------------------
<PAGE>
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON MARCH 2, 1992
------------------- ------------------ ------------------
Sept. 30, 19964 Sept. 30, 19953 May 31, 1995
------------------- ------------------ ------------------
For the period ended:
Net asset value, beginning of period $10.71 $10.68 $10.48
Income from investment operations:
Net investment income (loss) 0.48 0.17 0.51
Net realized and unrealized gain (loss)
on investments (0.09) 0.06 0.23
Total from investment operations 0.39 0.23 0.74
Less distributions:
Dividends from net investment income (0.48) (0.20) (0.53)
Distributions from net realized gain (0.17) 0.00 (0.01)
Total from distributions (0.65) (0.20) (0.54)
Net asset value, end of period $10.45 $10.71 $10.68
Total return (not annualized)1 3.60% 6.55% 7.35%
Ratios/supplemental data:
Net assets, end of period (000s) $7,331 $24,622 $24,581
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.78% 0.45% 0.40%
Ratio of net investment income (loss) to
average net assets 4.45% 4.73% 4.89%
Portfolio turnover 42% 62% 14%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.46% 1.35% 1.13%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.77% 3.83% 4.16%
- ------------------------------------------------------- ------------------- ------------------ ------------------
1 Total returns do not include any sales charges. 2 The Fund changed its fiscal
year-end from March 31 to June 30. 3 The Fund changed its fiscal year-end from
September 30 to March 31. 4 The Fund changed Investment Advisor during this
fiscal year. 5 The Fund changed its fiscal year-end from May 31 to September 30.
6 The Fund operated as the Arizona Intermediate Tax-Free Fund of Westcore
Trust and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on March 2, 1992 until it was reorganized as a
series of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Co. on April 1, 1996, FICM was renamed as Wells Fargo
Investment Management, Inc. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, Inc. on
September 6, 1996. In conjunction with the September 6, 1996 reorganization,
existing Investor shares were converted into Class A shares of the Fund and
WFB assumed investment advisory responsibilities.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 1996
------------------- ------------------ -------------------
June 30, 1999 June 30, 19982 March 31, 1998
------------------- ------------------ -------------------
For the period ended:
Net asset value, beginning of period $10.40 $10.39 $10.07
Income from investment operations:
Net investment income (loss) 0.37 0.09 0.37
Net realized and unrealized gain (loss)
on investments (0.35) 0.01 0.51
Total from investment operations 0.02 0.10 0.88
Less distributions:
Dividends from net investment income (0.37) (0.09) (0.37)
Distributions from net realized gain (0.19) 0.00 (0.19)
Total from distributions (0.56) (0.09) (0.56)
Net asset value, end of period $9.86 $10.40 $10.39
Total return (not annualized)1 0.00% 1.00% 8.90%
Ratios/supplemental data:
Net assets, end of period (000s) $1,582 $1,683 $1,546
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.49% 1.45% 1.37%
Ratio of net investment income (loss) to
average net assets 3.57% 3.59% 3.49%
Portfolio turnover 56% 14% 127%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.95% 2.62% 3.26%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 2.11% 2.42% 1.60%
- ------------------------------------------------------- ------------------- ------------------ -------------------
1 Total returns do not include any sales charges. 2 The Fund changed its fiscal
year-end from March 31 to June 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 1996
--------------------------- ------------------------------
March 31, 19973 Sept. 30, 19964
--------------------------- ------------------------------
For the period ended:
Net asset value, beginning of period $10.07 $10.00
Income from investment operations:
Net investment income (loss) 0.11 0.01
Net realized and unrealized gain (loss)
on investments 0.00 0.07
Total from investment operations 0.11 0.08
Less distributions:
Dividends from net investment income (0.11) (0.01)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.11) (0.01)
Net asset value, end of period $10.07 $10.07
Total return (not annualized)1 1.90% 0.76%
Ratios/supplemental data:
Net assets, end of period (000s) $182 $20
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.30% 1.16%
Ratio of net investment income (loss) to
average net assets 3.83% 3.59%
Portfolio turnover 77% 42%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.96% 1.81%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 2.17% 2.94%
- ------------------------------------------------------- --------------------------- ------------------------------
1 Total returns do not include any sales charges. 3 The Fund changed its fiscal
year-end from September 30 to March 31. 4 The Fund changed Investment Advisor
during this fiscal year.
<PAGE>
California Tax-Free Bond Fund
Portfolio Managers: Laura Milner
David Klug
Investment Objective
The California Tax-Free Bond Fund seeks to provide investors with a high level
of current income exempt from federal income tax and California personal income
tax, while preserving capital, by investing in medium- to long-term investment
grade municipal securities.
Investment Strategies
We actively manage a portfolio of investment grade municipal securities. We buy
municipal securities of any maturity length, but we invest substantially all of
our assets in securities with remaining maturities of 2 to 10 years (medium
term) or 10 years or longer (long term). We have some flexibility in setting the
portfolio's dollar-weighted average maturity. Generally speaking, we will
attempt to capture greater total return by increasing dollar-weighted average
maturity when we expect interest rates to decline, and attempt to preserve
capital by shortening maturity when interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from California personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and California personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within California.
Non-diversified, geographically concentrated funds are riskier than similar
funds that are diversified or spread their investments over several geographic
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 44; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
California Tax-Free Bond Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON OCTOBER 6, 19882
----------------- ------------------ ----------------
June 30, 1999 June 30, 19983 Dec. 31, 1997
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.38 $11.32 $10.97
Income from investment operations:
Net investment income (loss) 0.51 0.26 0.54
Net realized and unrealized gain (loss)
on investments (0.23) 0.06 0.42
Total from investment operations 0.28 0.32 0.96
Less distributions:
Dividends from net investment income (0.51) (0.26) (0.54)
Distributions from net realized gain (0.15) 0.00 (0.07)
Total from distributions (0.66) (0.26) (0.61)
Net asset value, end of period $11.00 $11.38 $11.32
Total return (not annualized)1 2.38% 2.86% 9.16%
Ratios/supplemental data:
Net assets, end of period (000s) $461,574 $499,720 $509,844
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.77% 0.75% 0.74%
Ratio of net investment income (loss) to
average net assets 4.45% 4.63% 4.84%
Portfolio turnover 17% 15% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.10% 1.11% 0.89%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.12% 4.27% 4.69%
- ------------------------------------------------------- ----------------- ------------------ ----------------
1 Total returns do not include any sales charges.
2 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express,
Inc. and Stagecoach Funds, Inc.
3 The Fund changed its fiscal year-end from December 31 to June 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON OCTOBER 6, 19882
----------------- ------------------ ----------------
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.34 $10.67 $12.00
Income from investment operations:
Net investment income (loss) 0.57 0.63 0.67
Net realized and unrealized gain (loss)
on investments (0.13) 1.08 (1.18)
Total from investment operations 0.44 1.71 (0.51)
Less distributions:
Dividends from net investment income (0.57) (0.63) (0.67)
Distributions from net realized gain (0.24) (0.41) (0.15)
Total from distributions (0.81) (1.04) (0.82)
Net asset value, end of period $10.97 $11.34 $10.67
Total return (not annualized)1 4.03% 16.38% (4.32%)
Ratios/supplemental data:
Net assets, end of period (000s) $239,703 $268,352 $237,105
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.71% 0.58% 0.50%
Ratio of net investment income (loss) to
average net assets 5.08% 5.59% 5.87%
Portfolio turnover 19% 38% 4%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 0.82% 0.78% 0.95%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.97% 5.39% 5.42%
- ------------------------------------------------------- ----------------- ------------------ ----------------
1 Total returns do not include any sales charges.
2 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express,
Inc. and Stagecoach Funds, Inc.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON DECEMBER 15, 19972
----------------- ------------------ ----------------
June 30, 1999 June 30, 19983 Dec. 31, 1997
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.60 $11.54 $11.51
Income from investment operations:
Net investment income (loss) 0.44 0.23 0.02
Net realized and unrealized gain (loss)
on investments (0.23) 0.06 0.03
Total from investment operations 0.21 0.29 0.05
Less distributions:
Dividends from net investment income (0.44) (0.23) (0.02)
Distributions from net realized gain (0.15) 0.00 0.00
Total from distributions (0.59) (0.23) (0.02)
Net asset value, end of period $11.22 $11.60 $11.54
Total return (not annualized)1 1.69% 2.49% 0.45%
Ratios/supplemental data:
Net assets, end of period (000s) $129,699 $99,784 $77,792
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.47% 1.45% 1.44%
Ratio of net investment income (loss) to
average net assets 3.74% 3.90% 3.95%
Portfolio turnover 17% 15% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.84% 1.82% 1.76%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.37% 3.53% 3.63%
- ------------------------------------------------------- ----------------- ------------------ ----------------
1 Total returns do not include any sales charges.
2 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express,
Inc. and Stagecoach Funds, Inc.
3 The Fund changed its fiscal year-end from December 31 to June 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS C SHARES--COMMENCED
ON JULY 1, 19932
----------------- ------------------ ----------------
June 30, 1999 June 30, 19983 Dec. 31, 19974
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.60 $11.54 $11.19
Income from investment operations:
Net investment income (loss) 0.44 0.23 0.47
Net realized and unrealized gain (loss)
on investments (0.23) 0.06 0.42
Total from investment operations 0.21 0.29 0.89
Less distributions:
Dividends from net investment income (0.44) (0.23) (0.47)
Distributions from net realized gain (0.15) 0.00 (0.07)
Total from distributions (0.59) (0.23) (0.54)
Net asset value, end of period $11.22 $11.60 $11.54
Total return (not annualized)1 1.69% 2.49% 8.11%
Ratios/supplemental data:
Net assets, end of period (000s) $22,251 $8,249 $5,860
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.47% 1.45% 1.48%
Ratio of net investment income (loss) to
average net assets 3.71% 3.90% 4.19%
Portfolio turnover 17% 15% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.81% 1.78% 1.63%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.37% 3.57% 4.04%
- ------------------------------------------------------- ----------------- ------------------ ----------------
1 Total returns do not include any sales charges.
2 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of the Overland Express,
Inc. and Stagecoach Funds, Inc.
3 The Fund changed its fiscal year-end from December 31 to June 30.
4 Periods prior to December 31, 1997 have been restated to give effect to the
conversion ratios applied in the consolidation of Overland Express Funds,
inc. and Stagecoach Funds, Inc. (0.95571302 for Class A shares and
1.22415291 for Class C shares).
<PAGE>
FOR A SHARE OUTSTANDING
CLASS C SHARES--COMMENCED
ON JULY 1, 19932
----------------- ------------------ ----------------
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.57 $10.88 $12.24
Income from investment operations:
Net investment income (loss) 0.49 0.56 0.60
Net realized and unrealized gain (loss)
on investments (0.13) 1.10 (1.20)
Total from investment operations 0.36 1.66 (0.60)
Less distributions:
Dividends from net investment income (0.49) (0.56) (0.60)
Distributions from net realized gain (0.25) (0.41) (0.16)
Total from distributions (0.74) (0.97) (0.76)
Net asset value, end of period $11.19 $11.57 $10.88
Total return (not annualized)1 3.24% 15.58% (5.00%)
Ratios/supplemental data:
Net assets, end of period (000s) $6,506 $7,063 $7,346
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.46% 1.30% 1.20%
Ratio of net investment income (loss) to
average net assets 4.33% 4.87% 5.15%
Portfolio turnover 19% 38% 4%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.59% 1.57% 1.82%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.20% 4.60% 4.53%
- ------------------------------------------------------- ----------------- ------------------ ----------------
<PAGE>
California Tax-Free Income Fund
Portfolio Managers: Laura Milner
David Klug
Investment Objective
The California Tax-Free Income Fund seeks to provide investors with a high level
of current income exempt from federal income tax and California personal income
tax, while preserving capital.
Investment Strategies
We actively manage a portfolio of municipal securities. We buy municipal
securities of any maturity length, but we primarily buy securities with
remaining maturities of less than 2 years (short-term) or 2 to 10 years
(medium-term). We have some flexibility in setting the portfolio's
dollar-weighted average maturity. Generally speaking, we will attempt to capture
greater total return by increasing dollar-weighted average maturity when we
expect interest rates to decline, and attempt to preserve capital by shortening
maturity when interest rates are expected to increase. Under normal market
conditions, the average expected duration of the Fund's portfolio securities
will be from 1 to 5 years.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from California personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
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 to maintain liquidity or for
short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and California personal income tax.
Important Risk Factors
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within California.
Non-diversified, geographically concentrated funds are riskier than similar
funds that are diversified or spread their investments over several geographical
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 44; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
California Tax-Free Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON NOVEMBER 18, 1992
----------------- ------------------ ---------------- ------------------
June 30, 1999 June 30, 19981 Mar. 31, 1998 Mar. 31, 19972
----------------- ------------------ ---------------- ------------------
For the period ended:
Net asset value, beginning of period $10.44 $10.44 $10.27 $10.26
Income from investment operations:
Net investment income (loss) 0.39 0.10 0.39 0.19
Net realized and unrealized gain (loss)
on investments (0.09) 0.00 0.20 0.01
Total from investment operations 0.30 0.10 0.59 0.20
Less distributions:
Dividends from net investment income (0.39) (0.10) (0.39) (0.19)
Distributions from net realized gain (0.12) 0.00 (0.03) 0.00
Total from distributions (0.51) (0.10) (0.42) (0.19)
Net asset value, end of period $10.23 $10.44 $10.44 $10.27
Total return (not annualized)4 2.84% 0.93% 5.92% 1.97%
Ratios/supplemental data:
Net assets, end of period (000s) $41,299 $54,169 $59,011 $67,647
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.75% 0.75% 0.68% 0.65%
Ratio of net investment income (loss) to
average net assets 3.70% 3.72% 3.78% 3.73%
Portfolio turnover 68% 2% 88% 14%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.42% 1.44% 1.29% 1.18%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.03% 3.03% 3.17% 3.20%
- ------------------------------------------------------- ----------------- ------------------ ---------------- ------------------
1 The Fund changed its fiscal year-end from March 31 to June 30. 2 The Fund
changed its fiscal year-end from September 30 to March 31. 3 The Fund changed
its fiscal year-end from December 31 to September 30. 4 Total returns do not
include any sales charges.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON NOVEMBER 18, 1992
------------------ ------------------ ----------------
Sept. 30, 19963 Dec. 31, 1995 Dec. 31, 1994
------------------ ------------------ ----------------
For the period ended:
Net asset value, beginning of period $10.35 $9.84 $10.36
Income from investment operations:
Net investment income (loss) 0.29 0.38 0.40
Net realized and unrealized gain (loss)
on investments (0.09) 0.51 (0.52)
Total from investment operations 0.20 0.89 (0.12)
Less distributions:
Dividends from net investment income (0.29) (0.38) (0.40)
Distributions from net realized gain 0.00 0.00 0.00
Total from distributions (0.29) (0.38) (0.40)
Net asset value, end of period $10.26 $10.35 $9.84
Total return (not annualized)4 2.01% 9.14% (1.10%)
Ratios/supplemental data:
Net assets, end of period (000s) $82,359 $77,965 $48,998
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.65% 0.65% 0.16%
Ratio of net investment income (loss) to
average net assets 3.83% 3.70% 4.03%
Portfolio turnover 48% 31% 33%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.14% 1.22% 1.21%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.34% 3.13% 2.98%
- ------------------------------------------------------- ------------------ ------------------ ----------------
<PAGE>
National Tax-Free Fund
Portfolio Manager: Stephen Galiani
Investment Objective
The National Tax-Free Fund seeks current income exempt from federal income
taxes.
Investment Strategies
We invest primarily in a portfolio of investment grade municipal securities. We
invest at least 80% of net assets in municipal securities paying interest exempt
from federal income taxes, including the federal AMT.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o up to 20% of net assets in securities whose income is
subject to federal income taxes, including the federal AMT; and o in municipal
securities rated in the four highest credit categories by NRROs.
The dollar-weighted average maturity of the Fund's assets normally will be
between 10 and 20 years, but may vary depending on market conditions. In
general, the longer the maturity of a municipal obligation, the higher the rate
of interest it pays. However, a longer maturity security is generally subject to
greater interest rate risk and price volatility. We emphasize investments in
municipal securities that produce interest income rather than stability of the
Fund's NAV.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During these periods, the Fund may not achieve its
objective of current income exempt from federal income taxes.
Important Risk Factors
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 44; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
National Tax-Free Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information for periods subsequent to September 30, 1995, which, along with
their report and the Fund's financial statements, is available upon request in
the Fund's annual report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON AUGUST 1, 19892
------------------ ------------------ -------------------
June 30, 1999 June 30, 1998 March 31, 1998
------------------ ------------------ -------------------
For the period ended:
Net asset value, beginning of period $15.97 $15.92 $15.17
Income from investment operations:
Net investment income (loss) 0.76 0.19 0.75
Net realized and unrealized gain (loss)
on investments (0.58) 0.05 0.81
Total from investment operations 0.18 0.24 1.56
Less distributions:
Dividends from net investment income (0.76) (0.19) (0.75)
Distributions from net realized gain 0.00 0.00 (0.06)
Total from distributions (0.76) (0.19) (0.81)
Net asset value, end of period $15.39 $15.97 $15.92
Total return (not annualized)1 1.03% 1.50% 10.44%
Ratios/supplemental data:
Net assets, end of period (000s) $35,645 $40,820 $42,316
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.81% 0.81% 0.71%
Ratio of net investment income (loss) to
average net assets 4.73% 4.72% 4.69%
Portfolio turnover 90% 30% 78%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.27% 1.37% 1.61%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.27% 4.16% 3.79%
- ------------------------------------------------------- ------------------ ------------------ -------------------
<PAGE>
1 Total returns do not include any sales charges.
2 The Fund operated as the Quality Tax-Exempt Income Fund of Westcore Trust
and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on January 15, 1993 until it was reorganized as a
series of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Co. on April 1, 1996, FICM was renamed as Wells Fargo
Investment Management, Inc. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, Inc. on
September 6, 1996.
3 The Fund changed its fiscal year-end from March 31 to June 30. 4 The Fund
changed its fiscal year-end from September 30 to March 31. 5 The Fund changed
its fiscal year-end from May 31 to September 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON AUGUST 1, 19892
------------------- ----------------- ----------------- -----------------
March 31, 19974 Sept. 30, 1996 Sept. 30, 19955 May 31, 1995
------------------- ----------------- ----------------- -----------------
For the period ended:
Net asset value, beginning of period $15.24 $15.34 $15.28 $14.98
Income from investment operations:
Net investment income (loss) 0.37 0.72 0.24 0.68
Net realized and unrealized gain (loss)
on investments (0.07) (0.10) 0.08 0.32
Total from investment operations 0.30 0.62 0.32 1.00
Less distributions:
Dividends from net investment income (0.37) (0.72) (0.26) (0.70)
Distributions from net realized gain 0.00 0.00 0.00 0.00
Total from distributions (0.37) (0.72) (0.26) (0.70)
Net asset value, end of period $15.17 $15.24 $15.34 $15.28
Total return (not annualized)1 1.95% 4.03% 6.53%6 6.97%
Ratios/supplemental data:
Net assets, end of period (000s) $4,526 $4,827 $14,305 $14,458
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.35% 0.42% 0.35% 0.35%
Ratio of net investment income (loss) to
average net assets 4.81% 4.69% 4.65% 4.59%
Portfolio turnover 86% 73% 86% 23%
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 2.11% 1.42% 1.85% 1.51%
(annualized)
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.05% 3.69% 3.15% 3.43%
- ---------------------------------------------------- ------------------- ----------------- ----------------- -----------------
6 Annualized.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 19962
------------------ ------------------ -------------------
June 30, 1999 June 30, 19983 March 31, 1998
------------------ ------------------ -------------------
For the period ended:
Net asset value, beginning of period $10.54 $10.50 $10.01
Income from investment operations:
Net investment income (loss) 0.44 0.11 0.42
Net realized and unrealized gain (loss)
on investments (0.39) 0.04 0.53
Total from investment operations 0.05 0.15 0.95
Less distributions:
Dividends from net investment income (0.44) (0.11) (0.42)
Distributions from net realized gain 0.00 0.00 (0.04)
Total from distributions (0.44) (0.11) (0.46)
Net asset value, end of period $10.15 $10.54 $10.50
Total return (not annualized)1 0.35% 1.41% 9.58%
Ratios/supplemental data:
Net assets, end of period (000s) $4,051 $1,841 $1,330
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.41% 1.41% 1.26%
Ratio of net investment income (loss) to
average net assets 4.12% 4.05% 3.88%
Portfolio turnover 90% 30% 78%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.52% 2.71% 5.74%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.01% 2.75% (0.60)%
- ------------------------------------------------------- ------------------ ------------------ -------------------
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 19962
------------------------ ---------------------
March 31, 19974 Sept. 30, 1996
------------------------ ---------------------
For the period ended:
Net asset value, beginning of period $10.06 $10.00
Income from investment operations:
Net investment income (loss) 0.06 0.00
Net realized and unrealized gain (loss)
on investments (0.05) 0.06
Total from investment operations 0.01 0.06
Less distributions:
Dividends from net investment income (0.06) 0.00
Distributions from net realized gain 0.00 0.00
Total from distributions (0.06) 0.00
Net asset value, end of period $10.01 $10.06
Total return (not annualized)1 0.10% 0.60%
Ratios/supplemental data:
Net assets, end of period (000s) $119 $0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.10% 0.00%
Ratio of net investment income (loss) to
average net assets 3.80% 1.83%
Portfolio turnover 86% 73%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 13.74% 0.00%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) (8.84)% 1.83%
- ------------------------------------------------------- ------------------------ ---------------------
1 Total returns do not include any sales charges.
2 The Fund operated as the Quality Tax-Exempt Income Fund of Westcore Trust
and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on January 15, 1993 until it was reorganized as a
series of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Co. on April 1, 1996, FICM was renamed as Wells Fargo
Investment Management, Inc. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, Inc. on
September 6, 1996.
4 The Fund changed its fiscal year-end from September 30 to March 31.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS C SHARES--COMMENCED
ON DECEMBER 15, 1997
------------------ ------------------ -------------------
June 30, 1999 June 30, 19983 March 31, 1998
------------------ ------------------ -------------------
For the period ended:
Net asset value, beginning of period $10.54 $10.51 $10.48
Income from investment operations:
Net investment income (loss) 0.44 0.11 0.13
Net realized and unrealized gain (loss)
on investments (0.39) 0.03 0.03
Total from investment operations 0.05 0.14 0.16
Less distributions:
Dividends from net investment income (0.44) (0.11) (0.13)
Distributions from net realized gain 0.00 0.00 (0.00)
Total from distributions (0.44) (0.11) (0.13)
Net asset value, end of period $10.15 $10.54 $10.51
Total return (not annualized)1 0.35% 1.32% 1.49%
Ratios/supplemental data:
Net assets, end of period (000s) $8,923 $7,312 $7,608
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.41% 1.41% 1.40%
Ratio of net investment income (loss) to
average net assets 4.13% 4.12% 4.09%
Portfolio turnover 90% 30% 78%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.00% 2.10% 2.28%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.54% 3.43% 3.21%
- ------------------------------------------------------- ------------------ ------------------ -------------------
1 Total returns do not include any sales charges. 3 The Fund changed its fiscal
year-end from March 31 to June 30.
<PAGE>
Oregon Tax-Free Fund
Portfolio Manager: Stephen Galiani
Investment Objective
The Oregon Tax-Free Fund seeks to provide investors with a high level of current
income exempt from federal income tax and Oregon personal income tax.
Investment Strategies
We actively manage a portfolio of investment grade municipal securities and we
buy municipal securities of any maturity length. The portfolio's dollar-weighted
average maturity will vary depending on market conditions, economic conditions
including interest rates, the differences in yields between obligations of
different maturity lengths and other factors. There is no required range for the
portfolio's dollar-weighted average maturity. Generally speaking, we will
attempt to capture greater total return by increasing maturity when we expect
interest rates to decline, and attempt to preserve capital by shortening
maturity when interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from Oregon personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
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. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and Oregon personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within Oregon.
Non-diversified, geographically concentrated Funds are riskier than similar
Funds that are diversified or spread their investments over several geographical
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 44; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Oregon Tax-Free Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information subsequent to September 30, 1995, which, along with their report and
the Fund's financial statements, is available upon request in the Fund's annual
report.
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON JUNE 1, 19882
----------------- ------------------ ---------------- ------------------
June 30, 1999 June 30, 19983 Mar. 31, 1998 Mar. 31, 19974
----------------- ------------------ ---------------- ------------------
For the period ended:
Net asset value, beginning of period $16.82 $16.81 $16.29 $16.42
Income from investment operations:
Net investment income (loss) 0.75 0.18 0.76 0.37
Net realized and unrealized gain (loss)
on investments (0.47) 0.01 0.81 (0.10)
Total from investment operations 0.28 0.19 1.57 0.27
Less distributions:
Dividends from net investment income (0.75) (0.18) (0.76) (0.37)
Distributions from net realized gain (0.25) 0.00 (0.29) (0.03)
Total from distributions (1.00) (0.18) (1.05) (0.40)
Net asset value, end of period $16.10 $16.82 $16.81 $16.29
Total return (not annualized)1 1.57% 1.16% 9.81% 1.65%
Ratios/supplemental data:
Net assets, end of period (000s) $24,924 $27,665 $27,837 $30,635
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.67% 0.67% 0.62% 0.60%
Ratio of net investment income (loss) to
average net assets 4.44% 4.41% 4.54% 4.52%
Portfolio turnover 54% 24% 82% 90%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.32% 1.29% 1.36% 1.31%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.79% 3.79% 3.80% 3.18%
- ------------------------------------------------------- ----------------- ------------------ ---------------- ------------------
<PAGE>
1 Total returns do not include any sales charges.
2 The Fund operated as the Oregon Tax-Exempt Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A. from its commencement of
operations until it was reorganized as a series of Pacifica Funds Trust on
October 1, 1995, when First Interstate Capital Management, Inc. ("FICM")
assumed investment advisory responsibilities. In connection with the merger
of First Interstate Bancorp into Wells Fargo & Co. on April 1, 1996, FICM
was renamed as Wells Fargo Investment Management, Inc. The Fund operated as
a series of Pacifica Funds Trust until it was reorganized as a series of
Stagecoach Funds, Inc. on September 6, 1996.
3 The Fund changed its fiscal year-end from March 31 to June 30. 4 The Fund
changed its fiscal year-end from September 30 to March 31. 5 The Fund changed
its fiscal year-end from May 31 to September 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS A SHARES--COMMENCED
ON JUNE 1, 19882
------------------ ------------------ ----------------
Sept. 30, 1996 Sept. 30, 19955 May 31, 1995
------------------ ------------------ ----------------
For the period ended:
Net asset value, beginning of period $16.38 $16.47 $16.17
Income from investment operations:
Net investment income (loss) 0.79 0.28 0.82
Net realized and unrealized gain (loss)
on investments 0.04 (0.08) 0.39
Total from investment operations 0.83 0.20 1.21
Less distributions:
Dividends from net investment income (0.79) (0.29) (0.87)
Distributions from net realized gain 0.00 0.00 (0.04)
Total from distributions (0.79) (0.29) (0.91)
Net asset value, end of period $16.42 $16.38 $16.47
Total return (not annualized)1 5.03% 3.67%6 7.92%
Ratios/supplemental data:
Net assets, end of period (000s) $33,676 $50,077 $52,245
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.85% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 4.87% 5.01% 5.19%
Portfolio turnover 27% 57% 15%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.15% 1.01% 0.90%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.57% 4.70% 4.99%
- ------------------------------------------------------- ------------------ ------------------ ----------------
1 Total returns do not include any sales charges.
2 The Fund operated as the Oregon Tax-Exempt Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A. from its commencement of
operations until it was reorganized as a series of Pacifica Funds Trust on
October 1, 1995, when First Interstate Capital Management, Inc. ("FICM")
assumed investment advisory responsibilities. In connection with the merger
of First Interstate Bancorp into Wells Fargo & Co. on April 1, 1996, FICM
was renamed as Wells Fargo Investment Management, Inc. The Fund operated as
a series of Pacifica Funds Trust until it was reorganized as a series of
Stagecoach Funds, Inc. on September 6, 1996.
5 The Fund changed its fiscal year-end from May 31 to September 30.
6 Annualized.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 1996
------------------ ------------------ -------------------
June 30, 1999 June 30, 19983 March 31, 1998
------------------ ------------------ -------------------
For the period ended:
Net asset value, beginning of period $10.31 $10.30 $10.00
Income from investment operations:
Net investment income (loss) 0.37 0.09 0.39
Net realized and unrealized gain (loss)
on investments (0.29) 0.01 0.47
Total from investment operations 0.08 0.10 0.86
Less distributions:
Dividends from net investment income (0.37) (0.09) (0.39)
Distributions from net realized gain (0.16) 0.00 (0.17)
Total from distributions (0.53) (0.09) (0.56)
Net asset value, end of period $9.86 $10.31 $10.30
Total return (not annualized)1 0.63% 0.98% 8.77%
Ratios/supplemental data:
Net assets, end of period (000s) $10,095 $5,956 $3,762
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.51% 1.51% 1.43%
Ratio of net investment income (loss) to
average net assets 3.59% 3.48% 3.56%
Portfolio turnover 54% 24% 82%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.14% 2.10% 2.39%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 2.96% 2.89% 2.60%
- ------------------------------------------------------- ------------------ ------------------ -------------------
1 Total returns do not include any sales charges. 3 The Fund changed its fiscal
year-end from March 31 to June 30.
<PAGE>
FOR A SHARE OUTSTANDING
CLASS B SHARES--COMMENCED
ON SEPTEMBER 6, 1996
--------------------------- ---------------------------
March 31, 19974 Sept. 30, 1996
--------------------------- ---------------------------
For the period ended:
Net asset value, beginning of period $10.07 $10.00
Income from investment operations:
Net investment income (loss) 0.17 0.00
Net realized and unrealized gain (loss)
on investments (0.05) 0.07
Total from investment operations 0.12 0.07
Less distributions:
Dividends from net investment income (0.17) 0.00
Distributions from net realized gain (0.02) 0.00
Total from distributions (0.19) 0.00
Net asset value, end of period $10.00 $10.07
Total return (not annualized)1 1.17% 0.70%
Ratios/supplemental data:
Net assets, end of period (000s) $287 $0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.30% 0.00%
Ratio of net investment income (loss) to
average net assets 3.23% 1.83%
Portfolio turnover 90% 27%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 2.15% 0.00%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 2.38% 1.83%
- ------------------------------------------------------- --------------------------- ---------------------------
1 Total returns do not include any sales charges. 4 The Fund changed its fiscal
year-end from September 30 to March 31.
<PAGE>
General Investment Risks
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider the risks common to investing in all mutual funds,
including the Stagecoach Funds Trust Funds. Certain common risks are identified
in the "Summary of Important Risks" section on page 5. Other risks of mutual
fund investing include the following:
o Unlike bank deposits, such as CDs or savings accounts, mutual funds are not insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a Fund, nor can we assure you that the market value of your investment will not
decline. We will not "make good" any investment loss you may suffer, nor
can anyone we contract with to provide certain services, such as selling
agents or investment advisors, offer or promise to make good any such
losses.
o Share prices -- and therefore the value of your investment -- will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as price volatility.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
o Each Fund may continue to hold debt-instruments that cease to be rated by a
NRROs or whose ratings fall below the levels generally permitted for such
Fund, provided Wells Fargo deems the instrument to be of comparable quality
to rated or higher-rated instruments. Unrated or downgraded instruments may
be more susceptible to credit and interest rate risks than investment grade
bonds.
o The Funds may invest a portion of their assets in U.S. Government
obligations such as securities issued or guaranteed by the Government
National Mortgage Association ("GNMAs"), the Federal National Mortgage
Association ("FNMAs") and the Federal Home Loan Mortgage Corporation
("FHLMCs"). Each are mortgage-backed securities representing partial
ownership of a pool of residential mortgage loans. A "pool" or group of
such mortgages is assembled and, after being approved by the issuing or
guaranteeing entity, is offered to investors through securities dealers.
Mortgage-backed securities are subject to prepayment and extension risk,
which can alter the maturity of the securities and also reduce the rate of
return on the portfolio. It is important to recognize that the U.S.
Government does not guarantee the market value or current yield of those
obligations. Not all U.S. Government obligations are backed by the full
faith and credit of the U.S. Treasury, and the U.S. Government's guarantee
does not extend to the Funds themselves.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
What follows is a general list of the types of risks (some of which are
described previously) that may apply to a given Fund and a table showing some of
the additional investment practices that each Fund may use and the risks
associated with them. Additional information about these practices is available
in the Statement of Additional Information.
Counter-Party Risk--The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
General Investment Risks (Cont'd)
Credit Risk--The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Experience Risk--The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Extension Risk--The risk that an interest rates rise, prepayments slow, thereby
lengthening the duration and potentially reducing the value of certain
asset-backed securities.
Information Risk--The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk--The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk--The risk that a practice, such as lending portfolio securities or
engaging in forward commitment or when-issued securities transactions, may
increase a Fund's exposure to market risk, interest rate risk or other risks by,
in effect, increasing assets available for investment.
Liquidity Risk--The risk that a security cannot be sold at the time desired, 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.
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--The Funds' principal service providers have advised the Funds
that they are working on the necessary changes to their computer systems to
avoid any system failure based on an inability to distinguish the year 2000 from
the year 1900, and that they expect their systems to be adapted in time. There
can, of course, be no assurance of success. In addition, the companies or
entities in which the Funds invest also could be adversely impacted by the Year
2000 issue, especially foreign entities, which may be less prepared for Year
2000. The extent of such impact cannot be predicted.
In addition to the general risks discussed above, you should carefully consider
and evaluate any special risks that may apply to investing in a particular Fund.
See the "Important Risk Factors" in the summary for each Fund. You should also
see the Statement of Additional Information for additional information about the
investment practices and risks particular to each Fund.
Investment Practice/Risk
The following table lists some of the additional investment practices of the
Funds, including some not disclosed in the Investment Objective and Investment
Strategies sections of the Prospectus. The risks indicated after the description
of the practice are NOT the only potential risks associated with that practice,
but are among the more prominent. Market risk is assumed for each. See the
Investment Objective and Investment Strategies for each Fund or the Statement of
Additional Information for more information on these practices.
General Investment Risks (Cont'd)
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters of its
objective.
Remember, each Fund is designed to meet different investment needs and
objectives.
--- ---- ---- ----- ---
ARIZCALIFCALIFNATIONOREGON-TAX-FREE
- ------------------------------------------------------------ ------------------------
--- ---- ---- ----- ---
Investment Practice Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Borrowing Policies
o o o o o
--- ---- ---- ----- ---
The ability to borrow from banks for temporary Leverage Risk
--- ---- ---- ----- ---
purposes to meet shareholder redemptions.
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Floating and Variable Rate Debt
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Instruments with interest rates that are adjusted either Interest Rate and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
on a schedule or when an index or benchmark changes. Credit Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Forward Commitment, When-Issued and
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Delayed Delivery Transactions Interest Rate,
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Securities bought or sold for delivery at a later date or Leverage, Credit and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
bought or sold for a fixed price at a fixed date. Experience Risk
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------
Illiquid Securities
o o o o o
--- ---- ---- ----- ---
A security that cannot be readily sold, or cannot be
--- ---- ---- ----- ---
readily sold without negatively affecting its fair price. Liquidity Risk
--- ---- ---- ----- ---
Limited to 15% of total assets.
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------
Loans of Portfolio Securities
o o o o o
The practice of loaning securities to brokers, dealers Credit, Counter-Party
and financial institutions to increase return on those and Leverage Risk
securities. Loans may be made up to Investment Company
Act of 1940 limits (currently one-third of total assets including the value of
collateral received).
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Mortgage- and Asset-Backed Securities
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Securities consisting of an undivided fractional Interest Rate, Credit,
--- ---- ---- ----- ---
--- ---- ---- ----- ---
interests in pools of consumer loans, such as mortgage Prepayment and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
loans, car loans, credit card debt, or receivables held in Experience Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
trust.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
<PAGE>
General Investment Risks (Cont'd)
--- ---- ---- ----- ---
ARIZCALIFCALIFNATIONOREGON-TAX-FREE
- ------------------------------------------------------------ ------------------------
--- ---- ---- ----- ---
Investment Practice Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Options
The right or obligation to receive or deliver a security Credit, Information o o o o o
or cash payment depending on the security's price or the and Liquidity Risk
performance of an index or benchmark. Types of options
used may include: options on securities, options on a
stock index, stock index futures and options on stock
index futures to protect liquidity and portfolio value.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Other Mutual Funds
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
The temporary investment in shares of another mutual
--- ---- ---- ----- ---
--- ---- ---- ----- ---
fund. A pro rata portion of the other fund's expenses, Market Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
in addition to the expenses paid by the Funds, will be
--- ---- ---- ----- ---
--- ---- ---- ----- ---
borne by Fund shareholders.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Private Activity Bonds
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Bonds that pay interest subject to the federal alternative Interest Rate, Credit
minimum tax. Limited to 20% of net assets. and Experience Risk
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Repurchase Agreements
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
A transaction in which the seller of a security agrees to Credit and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
buy back a security at an agreed upon time and price, Counter-Party Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
usually with interest.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
<PAGE>
Organization and Management of the Funds
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for the Funds.
About Stagecoach Funds Trust
Each Fund is one of over 30 Funds of Stagecoach Funds, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a Maryland
Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below.
Except for the advisers, which require shareholder vote to change, if the Board
believes that it is in the best interests of the shareholders it may make a
change in one of these companies.
<PAGE>
Organization and Management of the Funds (Cont'd)
------------------------------------------------------------------------------------
BOARD OF DIRECTORS
------------------------------------------------------------------------------------
Supervises the Funds' activities
------------------------------------------------------------------------------------
------------------------------------------ -----------------------------------------
INVESTMENT ADVISOR CUSTODIAN
------------------------------------------ -----------------------------------------
Wells Fargo Bank, N.A. Norwest Bank Minnesota, N.A.
525 Market St., San Francisco, CA 6th & Marquette, Minneapolis, MN
Manages the Funds' investment Provides safekeeping for the Funds'
assets
activities
------------------------------------------ -----------------------------------------
------------------------------------------------------------------------------------
INVESTMENT SUB-ADVISOR
------------------------------------------------------------------------------------
Wells Capital Management Incorporated
525 Market St.
San Francisco, CA
Manages the Funds' investment activities
------------------------------------------------------------------------------------
-------------------- ----------------------- ----------------------- ---------------
SHAREHOLDER
TRANSFER SERVICING
DISTRIBUTOR ADMINISTRATOR AGENT AGENTS
-------------------- ----------------------- ----------------------- ---------------
Stephens Inc. Wells Fargo Bank, N.A. Boston Financial Data Various Agents
111 Center St. 525 Market Street Services, Inc.
Little Rock, AR San Francisco, CA Two Heritage Drive
Markets the Funds Manages the Quincy, MA Provide
and distributes Funds' business Maintains records services to
Fund shares
activities of shares and customers
supervises the
payment of dividends
-------------------- ----------------------- ----------------------- ---------------
------------------------------------------------------------------------------------
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
------------------------------------------------------------------------------------
Advise current and prospective shareholders on their Fund investments
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SHAREHOLDERS
------------------------------------------------------------------------------------
<PAGE>
Organization and Management of the Funds (Cont'd)
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described.
The Investment Advisor
Wells Fargo Bank provides portfolio management and fundamental security analysis
services as the advisor for each of the Funds. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the largest
banks in the United States. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of June 30, 1999,
Wells Fargo Bank and its affiliates managed over $131 billion in assets. For
providing these services, Wells Fargo Bank is entitled to receive fees as
described in the "Summary of Expenses" section at the front of this Prospectus.
The Investment Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, N.A., is the sub-advisor for each of the Funds. As of June 30,
1999, WCM provided investment advice for assets in excess of $42 billion.
The Administrator
Wells Fargo Bank provides the Funds with administration services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Trust's Trustees and officers. Wells Fargo
Bank also furnishes office space and certain facilities to conduct each Fund's
business, and compensates the Trust's Trustees. For providing these services,
Wells Fargo Bank is entitled to receive a fee of up to 0.15% of the average
annual net assets of each Fund.
Shareholder Servicing Plan
We have a shareholder servicing plan for each 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, each Fund pays the following:
- --------------------------------------------------- -------------- --------------- --------------
Class A Class B Class C
- --------------------------------------------------- -------------- --------------- --------------
- --------------------------------------------------- -------------- --------------- --------------
Arizona Tax-Free Fund 0.25% 0.25% N/A
- --------------------------------------------------- -------------- --------------- --------------
- --------------------------------------------------- -------------- --------------- --------------
California Tax-Free Bond Fund 0.30% 0.30% 0.25%
- --------------------------------------------------- -------------- --------------- --------------
- --------------------------------------------------- -------------- --------------- --------------
California Tax-Free Income Fund 0.30% N/A N/A
- --------------------------------------------------- -------------- --------------- --------------
- --------------------------------------------------- -------------- --------------- --------------
National Tax-Free Fund 0.25% 0.25% 0.25%
- --------------------------------------------------- -------------- --------------- --------------
- --------------------------------------------------- -------------- --------------- --------------
Oregon Tax-Free Fund 0.25% 0.25% N/A
- --------------------------------------------------- -------------- --------------- --------------
The Transfer Agent
Boston Financial Data Services, Inc. ("BFDS") provides transfer agency and
dividend disbursing services to the Funds. For providing these services, BFDS
receives an annual fee, certain transaction-related fees, and is reimbursed for
out-of-pocket expenses incurred on behalf of the Funds.
<PAGE>
A Choice of Share Classes
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus: o
Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares. o Class B Shares - with a
contingent deferred sales charge ("CDSC") payable upon redemption that
diminishes over time, and higher on-going expenses than Class A shares.
o Class C Shares - with a 1.00% CDSC on redemptions made within one year of
purchase, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B or Class C shares. Please note that Class B shares convert
to Class A shares after seven years to avoid the higher on-going expenses
assessed against Class B shares.
Class C shares are available for the California Tax-Free Income Fund only. They
are similar to Class B shares, with some important differences. Unlike Class B
shares, Class C shares do not convert to Class A shares. The higher on-going
expenses will be assessed as long as you hold the shares. The choice between
Class B and Class C shares may depend on how long you intend to hold Fund shares
before redeeming them.
Orders for Class B shares of more than $250,000 are either treated as orders for
Class A shares or they will be refused. For Class C shares, orders of $1,000,000
or more, including purchases made which because of a right of accumulation or
letter of intent would qualify for the purchase of Class A shares without an
initial sales charge, are also either treated as orders for Class A shares or
they will be refused.
Please see the expenses listed for each Fund and the following sales charge
schedules before making your decision. You should also review the "Reduced Sales
Charges" section of the Prospectus. You may wish to discuss this choice with
your financial consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
("POP") which is the Net Asset Value ("NAV") plus the applicable sales charge.
Since sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels," the POP is lower for these purchases.
- ------------------------------------------------------------------
CLASS A SHARES LISTED IN THIS PROSPECTUS
HAVE THE FOLLOWING SALES CHARGE SCHEDULE:
- ----------------------- -------------------- ---------------------
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
AMOUNT OF PUBLIC OF AMOUNT
OF PURCHASE OFFERING PRICE INVESTED
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
Less than $50,000 4.50% 4.71%
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
$50,000 to $99,999 4.00% 4.17%
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
$100,000 to $249,999 3.50% 3.63%
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
$250,000 to $499,999 2.50% 2.56%
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
$500,000 to $999,999 2.00% 2.04%
- ----------------------- -------------------- ---------------------
- ----------------------- -------------------- ---------------------
$1,000,000 and over1 0.00% 0.00%
- ----------------------- -------------------- ---------------------
1 We will assess a 1.00% CDSC on Class A shares purchases of $1,000,000 or
more if they are redeemed within one year from the date of purchase unless
the dealer of record waived its commission with the Funds' approval. Charges
are based on the lower of the NAV on the date of purchase or the date of
redemption.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a CDSC based on
how long you have held your shares. Certain exceptions apply (see "Class B and
Class C Share CDSC Reductions" and "Waivers for Certain Parties"). The CDSC
schedule is as follows:
- -----------------------------------------------------------------------------------------
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE
THE FOLLOWING SALES CHARGE SCHEDULE:
- -------------- ------- -------- --------- --------- -------- --------- -------- ---------
REDEMPTION 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS
WITHIN
- -------------- ------- -------- --------- --------- -------- --------- -------- ---------
- -------------- ------- -------- --------- --------- -------- --------- -------- ---------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% A shares
- -------------- ------- -------- --------- --------- -------- --------- -------- ---------
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires. After shares are held for seven years, the Class B
shares are converted to Class A shares to reduce your future on-going expenses.
Class B shares that were purchased prior to July 17, 1999, but after March 3,
1997, are subject to the following CDSC schedule, and such shares convert to
Class A shares automatically after six years:
- -----------------------------------------------------------------------------------
CLASS B SHARES PURCHASED AFTER MARCH 3, 1997, BUT BEFORE JULY 17,
1999 HAVE THE FOLLOWING SALES CHARGE SCHEDULE:
- -----------------------------------------------------------------------------------
- ----------------- -------- ------- -------- -------- -------- --------- -----------
REDEMPTION 1 YEAR 2 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS
WITHIN YEARS
- ----------------- -------- ------- -------- -------- -------- --------- -----------
- ----------------- -------- ------- -------- -------- -------- --------- -----------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% A Shares
- ----------------- -------- ------- -------- -------- -------- --------- -----------
Class B shares that were purchased prior to March 3, 1997 are subject to a CDSC
if they are redeemed within four years of the original purchase. The CDSC
Schedule for these shares is below:
- --------------------------------------------------------------------------------------------------
CLASS B SHARES RECEIVED IN EXCHANGE FOR STAGECOACH FUND SHARES PURCHASED PRIOR TO MARCH 3, 1997
HAVE THE FOLLOWING SALES CHARGE SCHEDULE
- ---------------- --------- ---------- ---------- ------------ ------------ ----------- -----------
REDEMPTION 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS
WITHIN
- ---------------- --------- ---------- ---------- ------------ ------------ ----------- -----------
CDSC 3.00% 2.00% 1.00% 1.00% 0.00% 0.00% A shares
- ---------------- --------- ---------- ---------- ------------ ------------ ----------- -----------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a CDSC of 1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The Distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale, and up to 1.00% annually thereafter.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
<PAGE>
Reduced Sales Charges
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of the potential
reductions when you are deciding which share class to buy.
Class A Share Reductions
o You pay no sales charges on Fund shares you buy with reinvested distributions.
o You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
o By signing a Letter of Intent ("LOI"), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will
release the escrowed shares when you have invested the agreed amount.
o Rights of Accumulation ("ROA") allow you to combine the amount you invest
with the total NAV of shares you own in other Wells Fargo front-end load
Funds in order to reach breakpoint levels for a reduced load. We give you a
discount on the entire amount of the investment that puts you over the
breakpoint level.
o If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have
120 days to reinvest the proceeds of that redemption with no sales charge
into a Fund that charges the same or a lower front-end sales charge. If you
use such a redemption to purchase shares of a Fund with a higher front-end
sales charge, you will have to pay the difference between the lower and
higher charge.
o You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for
which Wells Fargo Bank acts as trustee provided the distribution occurred
within the 30 days prior to your reinvestment.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
o a family unit, consisting of a husband and wife and children under the age of
twenty-one or single trust estate; o a trustee or fiduciary purchasing for a
single fiduciary relationship; or o the members of a "qualified group" which
consists of a "company" (as defined in the Investment Company Act of 1940, as
amended
("1940 Act"), and related parties of such a "Company," which has been in
existence for at least six months and which has a primary purpose other
than acquiring Fund shares at a discount.
- -------------------------------------------------------------------------------------------------------------
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in a Fund in installments over the next year, by signing a
letter of intent you would pay only 3.50% sales load on the entire purchase.
Otherwise, you might pay 4.50% on the first $49,999, then 4.00% on the next
$50,000!
- -------------------------------------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions
o You pay no CDSC on Funds shares you purchase with reinvested distributions.
o We waive the CDSC for all redemptions made because of scheduled (Rule 72T
withdrawal schedule) or mandatory (withdrawals made after age 70 1/2
according to IRS guidelines) distributions for certain retirement plans.
(See your retirement plan disclosure for details.)
Reduced Sales Charges (Cont'd)
o We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability"
is defined by the Internal Revenue Code of 1986).
o We waive the CDSC for redemptions made at the direction of Wells Fargo in
order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
o We waive Class C share CDSC for certain types of accounts.
For Class B shares purchased after May 18, 1999 for former Norwest Advantage
Fund shareholders, after July 17, 1999 for former Stagecoach Funds shareholders,
and after September 17, 1999 for all other shareholders, no CDSC is imposed on
withdrawals that occur under the following circumstances:
o withdrawals are made by participating in the Systematic Withdrawal Plan;
o withdrawals may not exceed 10% of your fund assets (including "free"
shares) annually based on your anniversary date in the Systematic
Withdrawal Plan; and
o you must participate in the dividend and capital gain reinvestment program.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
o Current and retired employees, directors/trustees and officers of:
o Stagecoach Funds Trust and its affiliates;
o Wells Fargo Bank, Norwest Bank and their affiliates;
o Stephens and its affiliates; and
o Broker-Dealers who act as selling agents.
o and the families of any of the above. Contact your selling agent for further information.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment "wrap accounts" with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts." If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
Distribution Plans
We have adopted Distribution Plans ("Plans") pursuant to Rule 12b-1 of the 1940
Act for the Class A, Class B and Class C shares of the Funds. The Plans
authorize the payment of all or part of the cost of preparing and distributing
Prospectuses and distribution-related services for all the Funds, including
ongoing compensation to selling agents for all Funds except the California
Tax-Free Fund. The Plans also provide that, if and to the extent any shareholder
servicing payments are recharacterized as payments for distribution-related
services, they are approved and payable under the Plan. The fees paid under
these Plans are as follows:
<PAGE>
Reduced Sales Charges (Cont'd)
- ---------------------------------------------- ------------ ----------- -----------
FUND Class A Class B Class C
- ---------------------------------------------- ------------ ----------- -----------
- ---------------------------------------------- ------------ ----------- -----------
Arizona Tax-Free Fund 0.05% 0.75% N/A
- ---------------------------------------------- ------------ ----------- -----------
- ---------------------------------------------- ------------ ----------- -----------
California Tax-Free Bond Fund 0.05% 0.70% 0.75%
- ---------------------------------------------- ------------ ----------- -----------
- ---------------------------------------------- ------------ ----------- -----------
California Tax-Free Income Fund 0.05% N/A N/A
- ---------------------------------------------- ------------ ----------- -----------
- ---------------------------------------------- ------------ ----------- -----------
National Tax-Free Fund 0.05% 0.75% 0.75%
- ---------------------------------------------- ------------ ----------- -----------
- ---------------------------------------------- ------------ ----------- -----------
Oregon Tax-Free Fund 0.05% 0.75% N/A
- ---------------------------------------------- ------------ ----------- -----------
These fees are paid out of the Funds' assets on an on-going basis. Over time,
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
EXCHANGES
Exchanges between Stagecoach Funds Trust Funds are two transactions: a sale of
shares of one Fund and the purchase of shares of another. In general, the same
rules and procedures that apply to sales and purchases apply to exchanges. There
are, however, additional factors you should keep in mind while making or
considering an exchange:
o You should carefully read the Prospectus for the Fund into which you wish to
exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes. o If you are making an
initial investment into a new Fund through an exchange, you must exchange at
least the minimum first
purchase amount of the Fund you are redeeming, unless your balance has fallen below that amount due to market conditions.
o Any exchange between Funds you already own must meet the minimum redemption and subsequent purchase amounts for the Funds
involved.
o Exchanges between Class B shares and the Wells Fargo Money Market Fund
Class B will not trigger the CDSC. The new shares will continue to age
according to their original schedule while in the new Fund and will be
charged the CDSC applicable to the original shares upon redemption.
Exchanges into Money Market Fund Class B shares are subject to certain
restrictions in addition to those described above.
o Exchanges from any share class to a money market fund can only be re-exchanged
for the original share class. o In order to discourage excessive Fund
transaction expenses that must be borne by other shareholders, we reserve the
right to
limit or reject exchange orders. Generally, we will notify you 60 days in advance of any changes in your exchange privileges.
o You may make exchanges between like share classes. You may also exchange from Class A or Class C shares to any
non-institutional money market fund.
<PAGE>
Your Account
This section tells you how Fund shares are priced, how to open an account and
how to buy, sell or exchange Fund shares once your account is open.
Pricing Fund Shares
o As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
o We determine the Net Asset Value ("NAV") of each class of the Funds' shares
each business day as of the close of regular trading on the NYSE. We
determine the NAV by subtracting the Fund class's liabilities from its
total assets, and then dividing the result by the total number of
outstanding shares of that class. Each Fund's assets are generally valued
at current market prices.
See the Statement of Additional Information for further disclosure.
o We process requests to buy or sell shares of the Funds each business day as
of the close of regular trading on the New York Stock Exchange ("NYSE"),
which is usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central time). If the
markets close early, the Funds may close early and may value their shares
at earlier times under these circumstances. Any request we receive in
proper form before these times is processed the same day. Requests we
receive after the cutoff times are processed the next business day.
o The Funds are open for business on each day the NYSE is open for business.
NYSE holidays include New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. When any holiday falls on a weekend,
the NYSE typically is closed on the weekday immediately before or after
such holiday.
You Can Buy Fund Shares
o By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds Application with proper payment); o Through a brokerage account
with an approved selling agent; or o Through certain retirement, benefits and
pension plans, or through certain packaged investment products (please see the
providers of the plan for instructions).
Minimum Investments
o $1,000 per Fund minimum initial investment;1 or o $100 per Fund if you use the
Systematic Purchase Program; and o $100 per Fund for all investments after your
first.
We may waive the minimum for Funds you purchase through certain retirement,
benefit and pension plans, through certain packaged investment products, or
for certain classes of shareholders as permitted by the SEC. Check the
specific disclosure statements and Applications for the program through which
you intend to invest.
<PAGE>
Your Account (Cont'd)
HOW TO BUY SHARES
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your Selling Agent.
BY MAIL
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
o Complete a Stagecoach Funds Application. Be sure to indicate the Fund name
and the share class into which you intend to invest. Failure to complete an
Application properly may result in a delay in processing your request.
o Enclose a check for at least $1,000 made out in the full name and share
class of the Fund. For example, "Corporate Bond Fund, Class B."
o You may start your account with $100 if you elect the Systematic Purchase plan option on the Application.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
IF YOU ARE BUYING ADDITIONAL SHARES:
o Make a check payable to the full name and share class of your Fund for at
least $100. Be sure to write your account number on the check as well.
o Enclose the payment stub/card from your statement if available.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
<PAGE>
Your Account (Cont'd)
BY WIRE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
o If you do not currently have an account, complete a Wells Fargo Funds
Application. You must wire at least $1,000. Be sure to indicate the Fund
name and the share class into which you intend to invest.
o Mail the completed Application.
o You must first call BFDS at 1-800-222-8222 to notify them of an incoming wire
trade.
o Mail Application to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
o Wire money to: Stagecoach Funds Attention:
c/o State Street Bank & Trust Stagecoach Funds (Name
Boston, MA of Fund and Share Class)
Bank Routing Number: Account Name:
ABA 011 000028 (Registration Name Indicated
on Application)
Wire Purchase Account Number:
9905-437-1
IF YOU ARE BUYING ADDITIONAL SHARES:
o Instruct your wiring bank to transmit at least $100 according to the
instructions given to the right. Be sure to have the wiring bank include
your current account number and the name your account is registered in.
o Wire money to: Stagecoach Funds Attention:
c/o State Street Bank & Trust Stagecoach Funds (Name
Boston, MA of Fund and Share Class)
Bank Routing Number: Account Name:
ABA 011 000028 (Registration Name Indicated
on Application)
Wire Purchase Account Number:
9905-437-1
<PAGE>
Your Account (Cont'd)
BY PHONE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
You can only make your first purchase of a Fund by phone if you already have an
existing Stagecoach Funds Account. o Call Shareholder Services and instruct the
representative to either:
o transfer at least $1,000 from a linked settlement account, or
o exchange at least $1,000 worth of shares from an existing Stagecoach Fund. Please see the "Exchanges" section for special
rules.
o Call: 1-800-222-8222
IF YOU ARE BUYING ADDITIONAL SHARES:
o Call Shareholder Services and instruct the representative to either:
o transfer at least $100 from a linked settlement account, or
o exchange at least $100 worth of shares from another Stagecoach Fund.
o Call: 1-800-222-8222
HOW TO SELL SHARES
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds by mail or telephone. For Fund shares held through
brokerage and other types of accounts, please consult your Selling Agent.
BY MAIL
IF YOU ARE SELLING SHARES FOR THE FIRST TIME:
o Write a letter stating your account registration, your account number, the
Fund you wish to redeem and the dollar amount ($100 or more) of the
redemption you wish to receive (or write "Full Redemption").
o Make sure all the account owners sign the request.
o You may request that redemption proceeds be sent to you by check, by ACH
transfer into a bank account, or by wire. Please call Shareholder Services
regarding requirements for linking bank accounts or for wiring funds. We
reserve the right to charge a fee for wiring funds although it is not
currently our practice to do so.
o Signature Guarantees are required for mailed redemption requests over
$50,000, or if the address on your account was changed within the last 60
days. You can get a signature guarantee at financial institutions such as a
bank or brokerage house. We do not accept notarized signatures.
o Mail to: Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
<PAGE>
Your Account (Cont'd)
BY PHONE
o Call Shareholder Services to request a redemption of at least $100. Be
prepared to provide your account number and Taxpayer Identification Number.
o Unless you have instructed us otherwise, only one account owner needs to
call in redemption requests.
o You may request that redemption proceeds be sent to you by check, by
transfer into an ACH-linked bank account, or by wire. Please call
Shareholder Services regarding requirements for linking bank accounts or
for wiring funds. We reserve the right to charge a fee for wiring funds
although it is not currently our practice to do so.
o Telephone privileges are automatically made available to you unless you
specifically decline them on your Application or subsequently in writing.
o Telephone privileges allow us to accept transaction instructions by anyone
representing themselves as the shareholder and who provides reasonable
confirmation of their identity, such as providing the Taxpayer
Identification Number on the account. We will not be liable for any losses
incurred if we follow telephone instructions we reasonably believe to be
genuine.
o We will not mail the proceeds of a telephone redemption request if the
address on your account was changed by phone in the last 30 days.
o Call: 1-800-222-8222
GENERAL NOTES FOR SELLING SHARES
o We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the cutoff
times are processed on the same business day.
o Your redemptions are net of any applicable CDSC.
o If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or
plan. There maybe special requirements that supersede the directions in
this Prospectus.
o We reserve the right to delay payment of a redemption 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.
o 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.
<PAGE>
Additional Services and Other Information
Automatic Programs:
These programs help you conveniently purchase and/or redeem shares each month.
Once you select a Plan, tell us the day of the month you would like the
transaction to occur. If you do not specify a date, we will process the
transaction on or about the 25th day of the month. Call Investor Services at
1-800-222-8222 for more information.
o Systematic Purchase Plan - With this program, you can regularly purchase
shares of a Stagecoach Fund with money automatically transferred from a
linked bank account. Simply select the Fund you would like to purchase, and
specify an amount of at least $100.
o Systematic Exchange Plan - With this program, you can regularly exchange
shares of a Stagecoach Fund you own for shares of another Stagecoach Fund.
The exchange amount must be at least $100. See the "Exchanges" section of
this Prospectus for the conditions that apply to your shares. This feature
may not be available for certain types of accounts.
o Systematic Withdrawal Plan - With this program, you can regularly redeem
shares and receive the proceeds by check or by transfer to a linked bank
account. Simply specify an amount of at least $100. To participate in this
program, you:
o must have a Fund account valued at $10,000 or more; o must have your
distributions reinvested; and o may not simultaneously participate in the
Systematic Purchase Plan.
It generally takes about ten days to establish a plan once we have received your
instructions. It generally takes about five days to change or cancel
participation in a plan. We automatically cancel your program if the linked bank
account you specified is closed.
Dividend and Capital Gain Distributions
The Funds in this Prospectus pay any dividends monthly and make capital gains
distributions annually.
We offer the following distribution options:
o Automatic Reinvestment Option - Lets you buy new shares of the same class
of the Fund that generated the distributions. The new shares are purchased
at NAV generally on the day the income is paid. This option is
automatically assigned to your account unless you specify another plan.
o 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.
o Bank Account Payment Option - Allows you to receive distributions directly
in a checking or savings account through ACH. The bank account must be
linked to your Wells Fargo Fund account. In order to establish a new linked
bank account, you must sent a written signature guaranteed instruction
along with a copy of a voided check or deposits slip. Any distribution
returned to us due to an invalid banking instruction will be sent to your
address of record by check at the earliest date possible, and future
distributions will be automatically re-invested.
Additional Services and Other Information (Cont'd)
o Directed Distribution Purchase Option - Lets you buy shares of a different
Wells Fargo Fund of the same share class. The new shares are purchased at
NAV generally on the day the income is paid. In order to establish this
option, you need to identify the Fund and account the distributions are
coming from, and the Fund and account to which the distributions are being
directed. You must meet any required minimum purchased in both Funds prior
to establishing this option.
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed.
Taxes
The following discussion regarding taxes is based on laws that were in effect
as of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder.
It is not intended as a substitute for careful tax planning. You should
consult your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
Dividends distributed from the Funds attributable to their net interest income
from tax-exempt securities will not be subject to federal income tax.
Dividends distributed from these and the other Funds attributable to their
income from other investments and net short-term capital gain (generally, the
excess of net short-term capital gains over net long-term capital losses) will
be taxable to you as ordinary income. Corporate shareholders may be able to
deduct a portion of their dividends when determining their taxable income.
We will pass on to you any net capital gain (generally the excess of net
long-term capital gains over net short-term capital losses) earned by a Fund
as a capital gain distribution. In general, these distributions will be
taxable to you as long-term capital gains which may qualify for taxation at
preferential rates in the hands of non-corporate shareholders. Any
distribution that is not from net investment income, short term capital gains,
or net capital gain may be characterized as a return of capital to
shareholders.
<PAGE>
Portfolio Managers
Stephen Galiani, has co-managed the Arizona Tax-Free Fund since January 1997,
when he joined Wells Fargo/WCM. Mr. Galiani worked for Qualivest Capital
Management, where he was a Senior Portfolio Manager from May 1995 until joining
WCM, and was president and portfolio manager of Galiani Asset Management Corp.
from March 1990. He is currently Manager of Tax-Exempt Securities investing at
WCM.
David Klug, has co-managed the California Tax-Free Bond Fund since January 1992.
Mr. Klug has been with Wells Fargo/WCM for over 15 years and is currently a
Senior Tax-Exempt Specialist.
Laura Milner, has co-managed the California Tax-Free Bond Fund since November
1992. She has been with Wells Fargo/WCM for over ten years and is currently a
Senior Tax-Exempt Specialist.
<PAGE>
Glossary
We provide the following definitions to assist you in reading this Prospectus.
For a more complete understanding of these terms you should consult your
financial advisor.
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.
Asset-Backed Securities
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
Below Investment-Grade
Securities rated BBB or lower by S&P or Baa or lower by Moody's Investor
Services, or that may be unrated securities or securities considered to be "high
risk."
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See also "total return."
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage- and other
asset-backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund, as defined by the Investment Company Act of 1940, is one
that invests in cash, Government securities, other investment companies and no
more than 5% of its total assets in a single issuer. These policies must apply
to 75% of the Funds' total assets.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer durations typically
more sensitive to interest rate changes than shorter durations.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
<PAGE>
Glossary (Cont'd)
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" are issued by the Federal National
Mortgage Association, and FHLMC securities as "Freddie Mac" and are issued by
the Federal Home Loan Mortgage Corporation.
Gateway Fund
A Fund that invests its assets in one or more core portfolios, instead of
directly in securities, to achieve its investment objective. Gateway funds
investing in the same core portfolio can enhance their investment opportunities
and reduce their expense ratios through sharing the costs and benefits of
managing a large pool of assets.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Government National Mortgage Association.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at a fair price.
Money Market Instruments
High-quality short-term instruments meeting the requirements of Rule 2a-7 of the
1940 Act, such as bankers' acceptances, commercial paper, repurchase agreements
and government obligations. In a money market fund, average portfolio maturity
does not exceed 90 days, and all investments have maturities of 397 days or less
at the time of purchase.
Municipal securities
Debt obligations of a state or local government entity. The funds may support
general governmental needs or special projects. Virtually all municipal
securities are exempt from federal income taxes and most are exempt from state
and local income taxes, at least in the state of issue.
Nationally Recognized Rating Organization ("NRRO")
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value ("NAV")
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting accrued expenses and other liabilities, then dividing
by the total number of shares.
<PAGE>
Glossary (Cont'd)
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price ("POP") The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Funds' distributors that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
Statement of Additional Information
A document that supplements the disclosure made in the Prospectus.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Funds.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
<PAGE>
STAGECOACH FUNDS
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
Provides certain financial and other important information including a
discussion of the market conditions and investment strategies that significantly
affected Fund performance, for the most recent reporting period.
These documents are available free of charge:
Call 1-800-222-8222, or
Write to:
Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
Visit the SEC's web site:
http://www.sec.gov, or
Request copies for a fee by writing to:
SEC Public Reference Room, Washington, DC 20549-6009
(call: 1-800-SEC-0330 for details)
--------------------------------------------------
ICA Reg. No. 811-6419 NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE SFI TF (11/99)
--------------------------------------------------
<PAGE>
November 1, 1999
Stagecoach Tax-Free Income Funds
Prospectus
Arizona Tax-Free Fund Please read this Prospectus and keep it for
future reference. It is designed to provide you
California Tax-Free with important information and to help you Bond Fund decide
if a Fund's goals match your own.
California Tax-Free Federal law requires us to update this
Income Fund Prospectus annually. Federal law does not
allow us to satisfy Prospectus delivery
National Tax-Free requirements by sending one Prospectus
Fund for all accounts and people within a
household. Therefore, if you own the same
Oregon Tax-Free Fund Fund in more than one account or if
several people in your household own the same Fund,
you will receive multiple Prospectuses.
Institutional Class These securities have not been approved or
disapproved by the U.S. Securities and Exchange
Commission ("SEC"), nor has the SEC passed upon the
accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
Fund shares are NOT deposits or other obligations of,
or issued, endorsed or guaranteed by Wells Fargo
Bank, N.A. ("Wells Fargo Bank") or any of its
affiliates. Fund shares are NOT insured or guaranteed
by the U.S. Government, the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental
agency. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Table of Contents
Overview Objectives, Principal
Strategies and Fund Specific Risks
This section contains Summary of Important Risks
important summary Performance History
information about the Summary of Expenses
Funds. Key Information
The Funds Arizona Tax-Free Fund
California Tax-Free Bond Fund
This section contains California Tax-Free Income Fund
important information National Tax-Free Fund
about the individual Oregon Tax-Free Fund
Funds.
General Investment Risks
Organization and Management
of the Funds
Your Account
Turn to this section for Your Account
information on how to How to Buy Shares
open an account and How to Sell Shares
how to buy, sell and Exchanges
exchange Fund shares.
Reference
Look here for additional Other Information
information and term Portfolio Managers
definitions. Glossary
<PAGE>
Stagecoach Tax-Free Income Funds Overview
Arizona Tax-Free Fund
Objective
Seeks current income exempt from federal income tax and Arizona personal income
tax.
Principal Strategy
We invest primarily in investment grade Arizona municipal securities of varying
maturities.
Fund Specific Risks
Since we invest heavily in Arizona municipal securities, events in Arizona are
likely to affect the Fund's investments. The Arizona economy is based on
services, manufacturing, mining, tourism and the military. Adverse conditions
affecting these sectors could have a disproportionate impact on Arizona
municipal securities. Under its Constitution, Arizona is not permitted to issue
general obligation bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of Arizona are authorized to issue bonds secured
by revenues, and local governments are also authorized to incur indebtedness.
The Fund relies on the availability of such securities for investment. We may
invest up to 25% or more of our assets in Arizona municipal securities that are
related in such a way that political, economic or business developments
affecting one obligation would affect others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
California Tax-Free Bond Fund
Objective
Seeks current income exempt from federal income tax and California personal
income tax.
Principal Strategy
We invest primarily in medium- to long-term investment grade California
municipal securities.
Fund Specific Risks
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
California Tax-Free Income Fund
Objective
Seeks current income exempt from federal income tax and California personal
income tax.
Principal Strategy
We invest primarily in short- and intermediate-term investment grade California
municipal securities.
Fund Specific Risks
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
National Tax-Free Fund
Objective
Seeks current income exempt from federal income tax.
Principal Strategy
We invest primarily in investment grade municipal securities with average
maturities between 10 and 20 years.
Fund Specific Risks
Up to 25% or more of our assets invested in municipal securities may be related
in such a way that political, economic or business developments affecting one
obligation would affect the others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
Oregon Tax-Free Fund
Objective
Seeks current income exempt from federal income tax and Oregon personal income
tax.
Principal Strategy
We invest primarily in investment grade Oregon municipal securities of varying
maturities.
Fund Specific Risks
Since we invest heavily in Oregon municipal securities, events in Oregon are
likely to affect the Fund's investments. Oregon does not have a sales tax, and
state tax revenues, derived principally from corporate and personal income taxes
are particularly sensitive to economic recessions. In addition, we may invest up
to 25% or more of our assets in Oregon municipal securities that are related in
such a way that political, economic or business developments affecting one
obligation would affect others. For example, we may own different obligations
that pay interest based on the revenue of similar projects.
<PAGE>
Summary of Important Risks
This section summarizes important risks that are common to all of the Funds
described in this Prospectus, and important risks that relate specifically to
particular Funds. Both are important to your investment choice. Additional
information about these and other risks is included in:
o the individual Fund descriptions later in this Prospectus; o under the
"General Investment Risks" section beginning on page 34; and o in the Fund's
Statement of Additional Information.
An investment in a Fund is not a deposit of Wells Fargo Bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. It is possible to lose money by investing in a Fund.
Common Risks for the Funds
The Funds may invest in debt securities, such as notes and bonds, which are
subject to credit risk and interest rate risk. Credit risk is the possibility
that an issuer of an instrument will be unable to make interest payments or
repay principal. Changes in the financial strength of an issuer or changes in
the credit rating of a security may affect its value. Interest rate risk is
the risk that interest rates may increase, which will reduce the resale value
of instruments in a Fund's portfolio, including U.S. Government obligations.
Debt securities with longer maturities are generally more sensitive to
interest rate changes than those with shorter maturities. Changes in market
interest rates do not affect the rate payable on debt securities held in a
Fund, unless the instrument has adjustable or variable rate features, which
can reduce interest rate risk. Changes in market interest rates may also
extend or shorten the duration of certain types of instruments, such as
asset-backed securities, thereby affecting their value and the return on your
investment.
The Funds invest in municipal securities that rely on the creditworthiness or
revenue production of their issuers or auxiliary credit enhancement features.
The Funds reserve the right to invest up to 35% of their assets in specific
types of municipal revenue bonds, such as housing revenue and essential
services (water and sewer, electricity) bonds, although the Funds generally
do not intend to do so and none of the Funds arise so invested as of the date
of this Prospectus. Municipal securities may be difficult to obtain because
of limited supply, which may increase the cost of such securities and
effectively reduce the portfolio's yield. Typically, less information is
available about a municipal issuer than is available for other types of
securities issuers.
Although we strive to invest in municipal securities and other securities
with interest is exempt from federal personal income taxes, including the
federal AMT, some income earned by Fund investments may be subject to such
taxes.
Tax-Free Funds take advantage of tax laws that allow the income from certain
investments to be exempted from federal and, in some cases, state personal
income tax. Capital gains, whether declared by a Fund or realized by the
shareholder through the selling of Fund shares, are generally taxable.
Tax-Free Funds are generally considered non-diversified according to the
Investment Company Act of 1940, as amended ("1940 Act"). The majority of the
issuers of the securities in the Funds' portfolio are located within one
state. Non-diversified, geographically concentrated funds are riskier than
similar funds that are diversified or spread their investments over several
geographic areas. Default by a single security in the portfolio may have a
greater negative affect than a similar default in a diversified portfolio.
The National Tax-Free Fund is considered to be diversified. All other Funds
in this Prospectus are considered non-diversified.
<PAGE>
Performance History
The information on the following pages shows you how each Fund has performed
and illustrates the variability of a Fund's returns over time. Each Fund's
average annual returns from inception, and for one-, five- and ten-year
periods (as applicable) are compared to the performance of an appropriate
broad-based index.
Please remember that past performance is no guarantee of future results.
Arizona Tax-Free Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1993 10.55
1994 -3.30
1995 13.77
1996 3.66
1997 8.92
1998 5.20
Best Qtr.: Q1 '95: 5.51% Worst Qtr.: Q1 '94: -3.71%
* The Fund's year-to-date performance through September 30, 1999 was -4.39%.
Average annual total return (%)
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Institutional Class (Incept. 10/1/95)1 5.20 5.50 6.69
LB Muni Index2 6.54 6.24 7.59
1 Performance shown for periods prior to the inception of the Institutional
Class reflects the performance of the Class A shares adjusted to reflect
Institutional Class fees and expenses. Returns reflect applicable sales
charges.
2 Lehman Brothers Municipal Bond Index.
<PAGE>
California Tax-Free Bond Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1989 10.73
1990 6.48
1991 11.62
1992 9.01
1993 12.98
1994 -4.32
1995 16.39
1996 4.03
1997 9.17
1998 6.87
Best Qtr.: Q2 '89: 6.71% Worst Qtr.: Q1 '94: -4.06%
* The Fund's year-to-date performance through September 30, 1999 was -2.20%.
Average annual total return (%)
for the period ended 12/31/98 1 Year 5 Years 10 Years
Institutional Class (Incept. 12/15/97)1 6.87 6.17 8.14
LB Muni Index2 6.54 6.24 8.22
1 Performance shown for periods prior to the inception of the
Institutional Class reflects the performance of the Class A shares.
2 Lehman Brothers Municipal Bond Index.
<PAGE>
California Tax-Free Income Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1993 7.10
1994 -1.10
1995 9.14
1996 3.85
1997 5.13
1998 5.46
Best Qtr.: Q1 '95: 3.41% Worst Qtr.: Q1 '94: -1.85%
* The Fund's year-to-date performance through September 30, 1999 was -0.26%.
Average annual total return (%)1
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Institutional Class (Incept. 11/18/92) 2.04 4.58 4.44
LB 3 year Muni Index2 5.20 4.90 4.86
1 Returns reflect applicable sales charges. Performance shown for periods
prior to the inception of the Institutional Class reflects the
performance of the Class A shares.
2 Lehman Brothers Three-Year Municipal Bond Index.
<PAGE>
National Tax-Free Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1993 8.29
1994 -4.33
1995 14.53
1996 3.28
1997 8.99
1998 5.79
Best Qtr.: Q1 '95: 5.75% Worst Qtr.: Q1 '94: -4.18%
* The Fund's year-to-date performance through September 30, 1999 was -4.42%.
Average annual total return (%)
Since
for the period ended 12/31/98 1 Year 5 Years Inception
Institutional Class (Incept. 10/1/95)1 5.79 5.46 6.02
LB Muni Index2 6.54 6.24 6.22
1 Performance shown for periods prior to the inception of the
Institutional Class reflects the performance of the Class A shares.
2 Lehman Brothers Municipal Bond Index.
<PAGE>
Oregon Tax-Free Fund Institutional Class Calendar Year Returns (%)*
[BAR CHART]
1989 8.25
1990 6.02
1991 10.57
1992 8.03
1993 12.38
1994 -6.49
1995 15.84
1996 3.45
1997 8.82
1998 5.51
Best Qtr.: Q1 '95: 6.90% Worst Qtr.: Q1 '94: -5.31%
* The Fund's year-to-date performance through September 30, 1999 was -3.13%.
Average annual total return (%)
for the period ended 12/31/98 1 Year 5 Years 10 Years
Institutional Class (Incept. 10/1/95) 5.51 5.17 7.08
LB Muni Index2 6.54 6.24 8.22
1 Performance shown for periods prior to the inception of the
Institutional Class reflects the performance of the Class A shares.
2 Lehman Brothers Municipal Bond Index.
<PAGE>
Summary of Expenses
These tables are intended to help you understand the various costs and
expenses you will pay as a shareholder in a Fund. These tables do not reflect
charges that may be imposed in connection with an account through which you
hold Fund shares.
- -------------------------------------- ---------------
Shareholder Fees All Funds
Institutional
Class
- -------------------------------------- ---------------
Maximum sales charge (load)
imposed on purchases (as a
percentage of
offering price) 4.50%
- -------------------------------------- ---------------
Maximum deferred sales charge (load)
(as a percentage of the lower of None
the net asset value ("NAV") at
purchase or the NAV at redemption)
- -------------------------------------- ---------------
Annual Fund Operating Expenses (Expenses that are deducted from
Fund Assets)
- ----------------------- --------------------- --------------------- -----------------
California Tax-Free California
Tax-Free
Arizona Tax-Free Bond Fund Income Fund
Fund
--------------------- --------------------- -----------------
--------------------- --------------------- -----------------
Institutional Institutional Institutional
Class Class Class
- -----------------------
--------------------- --------------------- -----------------
Management Fees 0.50% 0.50% 0.50%
- ----------------------- --------------------- --------------------- -----------------
- ----------------------- --------------------- --------------------- -----------------
Other Expenses 0.96% 0.51% 0.80%
- ----------------------- --------------------- --------------------- -----------------
TOTAL ANNUAL FUND
OPERATING
EXPENSES1 1.46% 1.01% 1.30%
- ----------------------- --------------------- --------------------- -----------------
- ----------------------- --------------------- ---------------------
National Tax-Free Oregon Tax-Free Fund
Fund
--------------------- ---------------------
--------------------- ---------------------
Institutional Institutional
Class Class
- -----------------------
--------------------- ---------------------
Management Fees 0.50% 0.50%
- ----------------------- --------------------- ---------------------
- ----------------------- --------------------- ---------------------
Other Expenses 0.83% 0.82%
- ----------------------- --------------------- ---------------------
TOTAL ANNUAL FUND
OPERATING
EXPENSES1 1.33% 1.32%
- ----------------------- --------------------- ---------------------
- ------------------
1 Expense information in the table has been restated to reflect current fees.
The actual expenses incurred by the Funds will be lower than the contract
amounts shown above in certain instances as a result of voluntary fee waivers.
<PAGE>
Summary of Expenses (Cont'd)
Example of Expenses
These examples are intended to help you compare the cost of investing in a Fund
with the cost of investing in other mutual funds. The examples assume a fixed
rate of return and that fund operating expenses remain the same. Your actual
costs may be higher or lower than those shown.
You would pay the following expenses on a $10,000 investment assuming a 5%
annual return and that you redeem your shares at the end of each period:
- --------------- ---------------------- ---------------------------- ----------------
California Tax-Free California
Tax-Free
Arizona Tax-Free Fund Bond Fund Income Fund
---------------------- ---------------------------- ----------------
---------------------- ---------------------------- ----------------
Institutional Institutional Institutional
Class Class Class
- ---------------
---------------------- ---------------------------- ----------------
1 YEAR $ 149 $ 103 $ 132
- --------------- ---------------------- ---------------------------- ----------------
3 YEARS $ 462 $ 322 $ 412
- --------------- ---------------------- ---------------------------- ----------------
5 YEARS $ 797 $ 558 $ 713
- --------------- ---------------------- ---------------------------- ----------------
10 YEARS $1,746 $1,236 $1,568
- --------------- ---------------------- ---------------------------- ----------------
- --------------- ---------------------- ----------------------------
National Tax-Free Oregon Tax-Free Fund
Fund
---------------------- ----------------------------
---------------------- ----------------------------
Institutional Institutional
Class Class
- ---------------
---------------------- ----------------------------
1 YEAR $ 135 $ 134
- --------------- ---------------------- ----------------------------
3 YEARS $ 421 $ 418
- --------------- ---------------------- ----------------------------
5 YEARS $ 729 $ 723
- --------------- ---------------------- ----------------------------
10 YEARS $1,601 $1,590
- --------------- ---------------------- ----------------------------
<PAGE>
Key Information
Important information you should look for as you decide to invest in a Fund:
The summary information on the previous pages is designed to provide you with an
overview of each Fund. The sections that follow provide more detailed
information about the investments and management of each Fund.
Investment Objective and Investment Strategies
The investment objective of each Fund in this Prospectus is fundamental, that
is, it can be changed only by a vote of the shareholders. The objectives and
strategies descriptions for each Fund tell you:
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes a Fund different from the other Funds offered in this Prospectus.
Permitted Investments
A summary of the Fund's key permitted investments and practices.
Important Risk Factors
Describes the key risk factors for the Fund, and includes risks described in the
"Summary of Important Risks" and "General Investment Risks" sections.
Words appearing in italicized print are defined in the Glossary.
<PAGE>
Arizona Tax-Free Fund
Portfolio Managers: Stephen Galiani
Investment Objective
The Arizona Tax-Free Fund seeks to provide investors with current income exempt
from federal income tax and Arizona personal income tax.
Investment Strategies
We actively manage a portfolio of municipal securities and we buy municipal
securities of any maturity length. The portfolio's dollar-weighted average
maturity will vary depending on market conditions, economic conditions including
interest rates, the differences in yields between obligations of different
maturity lengths and other factors. Generally speaking, we will attempt to
capture greater total return by increasing maturity when we expect interest
rates to decline, and attempt to preserve capital by shortening maturity when
interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from Arizona personal income tax; and o in municipal
securities rated in the four highest credit categories by nationally recognized
rating organizations ("NRROs").
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of current income exempt from federal income tax and
Arizona personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the Fund's portfolio are located within
Arizona. Non-diversified, geographically concentrated funds are riskier than
similar funds that are diversified or spread their investments over several
geographic areas. Default by a single security in the portfolio may have a
greater negative affect than a similar default in a diversified portfolio.
Since we invest heavily in Arizona municipal securities, events in Arizona are
likely to affect the Fund's investments. The Arizona economy is based on
services, manufacturing, mining, tourism and the military. Adverse conditions
affecting these sectors could have a disproportionate impact on Arizona
municipal securities. Under its Constitution, Arizona is not permitted to issue
general obligations bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of Arizona are authorized to issue bonds secured
by revenues, and local governments are also authorized to incur indebtedness.
The Fund relies on the availability of such securities for investment. We may
invest up to 25% or more of our assets in Arizona municipal securities that are
related in such a way that political, economic or business developments
affecting one obligation would affect others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 34; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Arizona Tax-Free Fund1 Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information subsequent to September 30, 1995, which, along with their report and
the Fund's financial statements, is available upon request in the Fund's annual
report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES-- COMMENCED ON OCTOBER 1, 1995
--------------------------- ------------------------------
June 30, 1999 June 30, 19983
--------------------------- ------------------------------
For the period ended:
Net asset value, beginning of period $10.79 $10.78
Income from investment operations:
Net investment income (loss) 0.47 0.12
Net realized and unrealized gain (loss)
on investments (0.37) 0.01
Total from investment operations 0.10 0.13
Less distributions:
Dividends from net investment income (0.47) (0.12)
Distributions from net realized gain (0.19) 0.00
Total from distributions (0.66) (0.12)
Net asset value, end of period $10.23 $10.79
Total return (not annualized)2 0.76% 1.19%
Ratios/supplemental data:
Net assets, end of period (000s) $9,556 $10,995
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.72% 0.68%
Ratio of net investment income (loss) to
average net assets 4.33% 4.36%
Portfolio turnover 56% 14%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.46% 1.55%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.59% 3.49%
- ------------------------------------------------------- --------------------------- ------------------------------
1 The Fund operated as the Arizona Intermediate Tax-Free Fund of Westcore
Trust and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on March 2, 1992 until it was reorganized as a
series of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Co. on April 1, 1996, FICM was renamed as Wells Fargo
Investment Management, Inc. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, Inc. on
September 6, 1996. In conjunction with the September 6, 1996 reorganization,
existing Investor shares were converted into Class A shares of the Fund and
WFB assumed investment advisory responsibilities.
2 Total returns do not include any sales charges. 3 The Fund changed its fiscal
year-end from March 31 to June 30. 4 The Fund changed its fiscal year-end from
September 30 to March 31.
<PAGE>
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES-- COMMENCED ON OCTOBER 1, 1995
------------------- ------------------- ------------------
March 31, 1998 March 31, 19974 Sept. 30, 1996
------------------- ------------------- ------------------
For the period ended:
Net asset value, beginning of period $10.44 $10.44 $10.71
Income from investment operations:
Net investment income (loss) 0.49 0.25 0.49
Net realized and unrealized gain (loss)
on investments 0.54 0.00 (0.10)
Total from investment operations 1.03 0.25 0.39
Less distributions:
Dividends from net investment income (0.49) (0.25) (0.49)
Distributions from net realized gain (0.20) 0.00 (0.17)
Total from distributions (0.69) (0.25) (0.66)
Net asset value, end of period $10.78 $10.44 $10.44
Total return (not annualized)2 9.99% 2.38% 3.74%
Ratios/supplemental data:
Net assets, end of period (000s) $12,029 $14,349 $15,577
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.44% 0.40% 0.48%
Ratio of net investment income (loss) to
average net assets 4.52% 4.73% 4.63%
Portfolio turnover 127% 77% 42%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.55% 1.50% 1.20%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.41% 3.63% 3.91%
- ------------------------------------------------------- ------------------- ------------------- ------------------
2 Total returns do not include any sales charges. 4 The Fund changed its fiscal
year-end from September 30 to March 31.
<PAGE>
California Tax-Free Bond Fund
Portfolio Managers: Laura Milner
David Klug
Investment Objective
The California Tax-Free Bond Fund seeks to provide investors with a high level
of current income exempt from federal income tax and California personal income
tax, while preserving capital, by investing in medium- to long-term investment
grade municipal securities.
Investment Strategies
We actively manage a portfolio of investment grade municipal securities. We buy
municipal securities of any maturity length, but we invest substantially all of
our assets in securities with remaining maturities of 2 to 10 years (medium
term) or 10 years or longer (long term). We have some flexibility in setting the
portfolio's dollar-weighted average maturity. Generally speaking, we will
attempt to capture greater total return by increasing dollar-weighted average
maturity when we expect interest rates to decline, and attempt to preserve
capital by shortening maturity when interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from California personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and California personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within California.
Non-diversified, geographically concentrated funds are riskier than similar
funds that are diversified or spread their investments over several geographic
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 34; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
California Tax-Free Bond Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON DECEMBER 15, 1997
----------------- ------------------ ----------------
June 30, 1999 June 30, 19981 Dec. 31, 1997
----------------- ------------------ ----------------
For the period ended:
Net asset value, beginning of period $11.40 $11.35 $11.32
Income from investment operations:
Net investment income (loss) 0.52 0.26 0.03
Net realized and unrealized gain (loss)
on investments (0.22) 0.05 0.03
Total from investment operations 0.30 0.31 0.06
Less distributions:
Dividends from net investment income (0.52) (0.26) (0.03)
Distributions from net realized gain (0.15) 0.00 0.00
Total from distributions (0.67) (0.26) (0.03)
Net asset value, end of period $11.03 $11.40 $11.35
Total return (not annualized) 2.46% 2.80% 0.49%
Ratios/supplemental data:
Net assets, end of period (000s) $73,625 $82,577 $84,113
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.72% 0.69% 0.63%
Ratio of net investment income (loss) to
average net assets 4.50% 4.69% 4.79%
Portfolio turnover 17% 15% 12%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.01% 0.98% 0.92%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.21% 4.40% 4.50%
- ------------------------------------------------------- ----------------- ------------------ ----------------
1 The Fund changed its fiscal year-end from December 31 to June 30.
<PAGE>
California Tax-Free Income Fund
Portfolio Managers: Laura Milner
David Klug
Investment Objective
The California Tax-Free Income Fund seeks to provide investors with a high level
of current income exempt from federal income tax and California personal income
tax, while preserving capital.
Investment Strategies
We actively manage a portfolio of municipal securities. We buy municipal
securities of any maturity length, but we primarily buy securities with
remaining maturities of less than 2 years (short-term) or 2 to 10 years
(medium-term). We have some flexibility in setting the portfolio's
dollar-weighted average maturity. Generally speaking, we will attempt to capture
greater total return by increasing dollar-weighted average maturity when we
expect interest rates to decline, and attempt to preserve capital by shortening
maturity when interest rates are expected to increase. Under normal market
conditions, the average expected duration of the Fund's portfolio securities
will be from 1 to 5 years.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from California personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
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 to maintain liquidity or for
short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and California personal income tax.
Important Risk Factors
Since we invest heavily in California municipal securities, events in California
are likely to affect the Fund's investments. For example, California exports a
significant portion of its economic production to various pacific rim countries.
The current economic crisis in Asia, while recovering, may have a
disproportionate impact on California municipal securities. In addition, we may
invest up to 25% or more of our assets in California municipal securities that
are related in such a way that political, economic or business developments
affecting one obligation would affect the others. For example, we may own
different obligations that pay interest based on the revenue of similar
projects.
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within California.
Non-diversified, geographically concentrated funds are riskier than similar
funds that are diversified or spread their investments over several geographical
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 34; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
California Tax-Free Income Fund Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information which, along with their report and the Fund's financial statements,
is available upon request in the Fund's annual report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON SEPTEMBER 6, 1996
------------------ ------------------ -------------------
June 30, 1999 June 30, 19981 March 31, 1998
------------------ ------------------ -------------------
For the period ended:
Net asset value, beginning of period $10.27 $10.27 $10.11
Income from investment operations:
Net investment income (loss) 0.39 0.10 0.39
Net realized and unrealized gain (loss)
on investments (0.08) 0.00 0.19
Total from investment operations 0.31 0.10 0.58
Less distributions:
Dividends from net investment income (0.39) (0.10) (0.39)
Distributions from net realized gain (0.12) 0.00 (0.03)
Total from distributions (0.51) (0.10) (0.42)
Net asset value, end of period $10.07 $10.27 $10.27
Total return (not annualized) 2.96% 0.94% 5.91%
Ratios/supplemental data:
Net assets, end of period (000s) $7,633 $7,559 $7,069
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.70% 0.70% 0.62%
Ratio of net investment income (loss) to
average net assets 3.75% 3.77% 3.84%
Portfolio turnover 68% 2% 88%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.30% 1.40% 1.17%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.15% 3.07% 3.29%
- ------------------------------------------------------- ------------------ ------------------ -------------------
1 The Fund changed its fiscal year-end from March 31 to June 30.
<PAGE>
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON SEPTEMBER 6, 1996
--------------------------- ------------------------------
March 31, 1997 Sept. 30, 1996
--------------------------- ------------------------------
For the period ended:
Net asset value, beginning of period $10.10 $10.06
Income from investment operations:
Net investment income (loss) 0.19 0.02
Net realized and unrealized gain (loss)
on investments 0.01 0.04
Total from investment operations 0.20 0.06
Less distributions:
Dividends from net investment income (0.19) (0.02)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.19) (0.02)
Net asset value, end of period $10.11 $10.10
Total return (not annualized) 2.00% 0.60%
Ratios/supplemental data:
Net assets, end of period (000s) $7,061 $10,066
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.60% 0.55%
Ratio of net investment income (loss) to
average net assets 3.73% 3.06%
Portfolio turnover 14% 48%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.05% 0.92%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.28% 2.69%
- ------------------------------------------------------- --------------------------- ------------------------------
1 The Fund changed its fiscal year-end from September 30 to March 31.
<PAGE>
National Tax-Free Fund
Portfolio Manager: Stephen Galiani
Investment Objective
The National Tax-Free Fund seeks current income exempt from federal income
taxes.
Investment Strategies
We invest primarily in a portfolio of investment grade municipal securities. We
invest at least 80% of net assets in municipal securities paying interest exempt
from federal income taxes, including the federal AMT.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o up to 20% of net assets in securities whose income is
subject to federal income taxes, including the federal AMT; and o in municipal
securities rated in the four highest credit categories by NRROs.
The dollar-weighted average maturity of the Fund's assets normally will be
between 10 and 20 years, but may vary depending on market conditions. In
general, the longer the maturity of a municipal obligation, the higher the rate
of interest it pays. However, a longer maturity security is generally subject to
greater interest rate risk and price volatility. We emphasize investments in
municipal securities that produce interest income rather than stability of the
Fund's NAV.
We may temporarily hold assets in cash or in money market instruments, including
U.S. Government obligations, shares of other mutual funds and repurchase
agreements, or make other short-term investments either to maintain liquidity or
for short-term defensive purposes when we believe it is in the best interests of
shareholders to do so. During these periods, the Fund may not achieve its
objective of current income exempt from federal income taxes.
Important Risk Factors
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 34; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
National Tax-Free Fund1 Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information subsequent to September 30, 1995, which, along with their report and
the Fund's financial statements, is available upon request in the Fund's annual
report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON OCTOBER 1, 1995
--------------------------- ------------------------------
June 30, 1999 June 30, 19982
--------------------------- ------------------------------
For the period ended:
Net asset value, beginning of period $15.97 $15.92
Income from investment operations:
Net investment income (loss) 0.77 0.19
Net realized and unrealized gain (loss)
on investments (0.59) 0.05
Total from investment operations 0.18 0.24
Less distributions:
Dividends from net investment income (0.77) (0.19)
Distributions from net realized gain 0.00 0.00
Total from distributions (0.77) (0.19)
Net asset value, end of period $15.38 $15.97
Total return (not annualized) 1.02% 1.51%
Ratios/supplemental data:
Net assets, end of period (000s) $7,886 $7,696
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.76% 0.76%
Ratio of net investment income (loss) to
average net assets 4.78% 4.76%
Portfolio turnover 90% 30%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.33% 1.35%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 4.21% 4.17%
- ------------------------------------------------------- --------------------------- ------------------------------
<PAGE>
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON OCTOBER 1, 1995
------------------- ------------------- ------------------
March 31, 1998 March 31, 19973 Sept. 30, 1996
------------------- ------------------- ------------------
For the period ended:
Net asset value, beginning of period $15.17 $15.24 $15.34
Income from investment operations:
Net investment income (loss) 0.76 0.37 0.71
Net realized and unrealized gain (loss)
on investments 0.81 (0.07) (0.10)
Total from investment operations 1.57 0.30 0.61
Less distributions:
Dividends from net investment income (0.76) (0.37) (0.71)
Distributions from net realized gain (0.06) 0.00 0.00
Total from distributions (0.82) (0.37) (0.71)
Net asset value, end of period $15.92 $15.17 $15.24
Total return (not annualized) 10.51% 1.95% 4.04%
Ratios/supplemental data:
Net assets, end of period (000s) $7,654 $7,354 $7,132
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.42% 0.35% 0.36%
Ratio of net investment income (loss) to
average net assets 4.82% 4.82% 4.66%
Portfolio turnover 78% 86% 73%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.92% 2.03% 1.45%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.32% 3.14% 3.57%
- ------------------------------------------------------- ------------------- ------------------- ------------------
<PAGE>
1 The Fund operated as the Quality Tax-Exempt Income Fund of Westcore Trust
and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on January 15, 1993 until it was reorganized as a
series of Pacifica Funds Trust on October 1, 1995, when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. In connection with the merger of First Interstate Bancorp
into Wells Fargo & Co. on April 1, 1996, FICM was renamed as Wells Fargo
Investment Management, Inc. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of Stagecoach Funds, Inc. on
September 6, 1996.
2 The Fund changed its fiscal year-end from March 31 to June 30. 3 The Fund
changed its fiscal year-end from September 30 to March 31.
<PAGE>
Oregon Tax-Free Fund
Portfolio Manager: Stephen Galiani
Investment Objective
The Oregon Tax-Free Fund seeks to provide investors with a high level of current
income exempt from federal income tax and Oregon personal income tax.
Investment Strategies
We actively manage a portfolio of investment grade municipal securities and we
buy municipal securities of any maturity length. The portfolio's dollar-weighted
average maturity will vary depending on market conditions, economic conditions
including interest rates, the differences in yields between obligations of
different maturity lengths and other factors. There is no required range for the
portfolio's dollar-weighted average maturity. Generally speaking, we will
attempt to capture greater total return by increasing maturity when we expect
interest rates to decline, and attempt to preserve capital by shortening
maturity when interest rates are expected to increase.
Permitted Investments
Under normal market conditions, we invest:
o at least 80% of net assets in municipal securities that pay interest exempt
from federal income tax; o at least 65% of total assets in municipal securities
that pay interest exempt from Oregon personal income tax; and o in municipal
securities rated in the four highest credit categories by NRROs.
We may invest up to 20% of net assets in certain investments subject to federal
personal income taxes (including the federal AMT).
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. During such periods, the Fund may not achieve its
investment objective of a high level of current income exempt from federal
income tax and Oregon personal income tax.
Important Risk Factors
The Fund is considered non-diversified according to the 1940 Act. The majority
of the issuers of the securities in the portfolio are located within Oregon.
Non-diversified, geographically concentrated Funds are riskier than similar
Funds that are diversified or spread their investments over several geographical
areas. Default by a single security in the portfolio may have a greater negative
affect than a similar default in a diversified portfolio.
Municipal securities rely on the creditworthiness or revenue production of their
issuers. Municipal securities may be difficult to obtain because of limited
supply, which may increase the cost of such securities and effectively reduce
the portfolio's yield. Typically, less information is available about a
municipal issuer than is available for other types of securities issuers.
Since we invest heavily in Oregon municipal securities, events in Oregon are
likely to affect the Fund's investments. Oregon does not have a sales tax, and
State tax revenues, derived principally from corporate and personal income
taxes, are particularly sensitive to economic recessions. In addition, we may
invest up to 25% or more of our assets in Oregon municipal securities that are
related in such a way that political, economic or business developments
affecting one obligation would affect others. For example, we may own different
obligations that pay interest based on the revenue of similar projects.
Although we strive to invest in municipal securities and other securities with
interest that is exempt from federal personal income taxes, including the
federal AMT, some interest earned by Fund investments may be subject to such
taxes.
You should consider the "Summary of Important Risks" section on page 5; the
"General Investment Risks" section beginning on page 34; and the specific risks
listed here. They are all important to your investment choice.
<PAGE>
Oregon Tax-Free Fund1 Financial Highlights
This table is intended to help you understand the Fund's financial performance
for the past 5 years (or since inception, if shorter). KPMG LLP audited this
information subsequent to September 30, 1995, which, along with their report and
the Fund's financial statements, is available upon request in the Fund's annual
report.
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON OCTOBER 1, 1995
--------------------------- ------------------------------
June 30, 1999 June 30, 19982
--------------------------- ------------------------------
For the period ended:
Net asset value, beginning of period $16.82 $16.81
Income from investment operations:
Net investment income (loss) 0.76 0.19
Net realized and unrealized gain (loss)
on investments (0.47) 0.01
Total from investment operations 0.29 0.20
Less distributions:
Dividends from net investment income (0.76) (0.19)
Distributions from net realized gain (0.25) 0.00
Total from distributions (1.01) (0.19)
Net asset value, end of period $16.10 $16.82
Total return (not annualized) 1.62% 1.18%
Ratios/supplemental data:
Net assets, end of period (000s) $5,903 $7,314
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.62% 0.62%
Ratio of net investment income (loss) to
average net assets 4.49% 4.46%
Portfolio turnover 54% 24%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.32% 1.26%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.79% 3.82%
- ------------------------------------------------------- --------------------------- ------------------------------
<PAGE>
FOR A SHARE OUTSTANDING
INSTITUTIONAL CLASS SHARES--COMMENCED
ON OCTOBER 1, 1995
------------------- ------------------ -----------------
March 31, 1998 Mar. 31, 19973 Sept. 30, 1996
------------------- ------------------ -----------------
For the period ended:
Net asset value, beginning of period $16.28 $16.42 $16.38
Income from investment operations:
Net investment income (loss) 0.79 0.39 0.72
Net realized and unrealized gain (loss)
on investments 0.82 (0.11) 0.04
Total from investment operations 1.61 0.28 0.76
Less distributions:
Dividends from net investment income (0.79) (0.39) (0.72)
Distributions from net realized gain (0.29) (0.03) 0.00
Total from distributions (1.08) (0.42) (0.72)
Net asset value, end of period $16.81 $16.28 $16.42
Total return (not annualized) 10.08% 1.69% 5.13%
Ratios/supplemental data:
Net assets, end of period (000s) $7,635 $8,175 $8,512
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.43% 0.40% 0.63%
Ratio of net investment income (loss) to
average net assets 4.72% 4.72% 4.41%
Portfolio turnover 82% 90% 27%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses (annualized) 1.27% 1.24% 0.93%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses (annualized) 3.88% 3.88% 4.11%
- ----------------------------------------------------- ------------------- ------------------ -----------------
1 The Fund operated as the Oregon Tax-Exempt Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A. from its commencement of
operations until it was reorganized as a series of Pacifica Funds Trust on
October 1, 1995, when First Interstate Capital Management, Inc. ("FICM")
assumed investment advisory responsibilities. In connection with the merger
of First Interstate Bancorp into Wells Fargo & Co. on April 1, 1996, FICM
was renamed as Wells Fargo Investment Management, Inc. The Fund operated as
a series of Pacifica Funds Trust until it was reorganized as a series of
Stagecoach Funds, Inc. on September 6, 1996.
2 The Fund changed its fiscal year-end from March 31 to June 30. 3 The Fund
changed its fiscal year-end from September 30 to March 31.
<PAGE>
General Investment Risks
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your risk tolerance and preferences.
You should carefully consider the risks common to investing in all mutual funds,
including the Stagecoach Funds Trust Funds. Certain common risks are identified
in the "Summary of Important Risks" section on page 5. Other risks of mutual
fund investing include the following:
o Unlike bank deposits, such as CDs or savings accounts, mutual funds are not insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a Fund, nor can we assure you that the market value of your investment will not
decline. We will not "make good" any investment loss you may suffer, nor
can anyone we contract with to provide certain services, such as selling
agents or investment advisors, offer or promise to make good any such
losses.
o Share prices -- and therefore the value of your investment -- will increase
and decrease with changes in the value of the underlying securities and
other investments. This is referred to as price volatility.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
o Each Fund may continue to hold debt-instruments that cease to be rated by a
NRROs or whose ratings fall below the levels generally permitted for such
Fund, provided Wells Fargo deems the instrument to be of comparable quality
to rated or higher-rated instruments. Unrated or downgraded instruments may
be more susceptible to credit and interest rate risks than investment grade
bonds.
o The Funds may invest a portion of their assets in U.S. Government
obligations such as securities issued or guaranteed by the Government
National Mortgage Association ("GNMAs"), the Federal National Mortgage
Association ("FNMAs") and the Federal Home Loan Mortgage Corporation
("FHLMCs"). Each are mortgage-backed securities representing partial
ownership of a pool of residential mortgage loans. A "pool" or group
of such mortgages is assembled and, after being approved by the
issuing or guaranteeing entity, is offered to investors through
securities dealers. Mortgage-backed securities are subject to
prepayment and extension risk, which can alter the maturity of the
securities and also reduce the rate of return on the portfolio. It is
important to recognize that the U.S. Government does not guarantee the
market value or current yield of those obligations. Not all U.S.
Government obligations are backed by the full faith and credit of the
U.S. Treasury, and the U.S. Government's guarantee does not extend to
the Funds themselves.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
Investment practices and risk levels are carefully monitored. Every attempt is
made to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
What follows is a general list of the types of risks (some of which are
described previously) that may apply to a given Fund and a table showing some of
the additional investment practices that each Fund may use and the risks
associated with them. Additional information about these practices is available
in the Statement of Additional Information.
Counter-Party Risk--The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
General Investment Risks (Cont'd)
Credit Risk--The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Experience Risk--The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Extension Risk--The risk that an interest rates rise, prepayments slow, thereby
lengthening the duration and potentially reducing the value of certain
asset-backed securities.
Information Risk--The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk--The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk--The risk that a practice, such as lending portfolio securities or
engaging in forward commitment or when-issued securities transactions, may
increase a Fund's exposure to market risk, interest rate risk or other risks by,
in effect, increasing assets available for investment.
Liquidity Risk--The risk that a security cannot be sold at the time desired, 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.
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--The Funds' principal service providers have advised the Funds
that they are working on the necessary changes to their computer systems to
avoid any system failure based on an inability to distinguish the year 2000 from
the year 1900, and that they expect their systems to be adapted in time. There
can, of course, be no assurance of success. In addition, the companies or
entities in which the Funds invest also could be adversely impacted by the Year
2000 issue, especially foreign entities, which may be less prepared for Year
2000. The extent of such impact cannot be predicted.
In addition to the general risks discussed above, you should carefully consider
and evaluate any special risks that may apply to investing in a particular Fund.
See the "Important Risk Factors" in the summary for each Fund. You should also
see the Statement of Additional Information for additional information about the
investment practices and risks particular to each Fund.
Investment Practice/Risk
The following table lists some of the additional investment practices of the
Funds, including some not disclosed in the Investment Objective and Investment
Strategies sections of the Prospectus. The risks indicated after the description
of the practice are NOT the only potential risks associated with that practice,
but are among the more prominent. Market risk is assumed for each. See the
Investment Objective and Investment Strategies for each Fund or the Statement of
Additional Information for more information on these practices.
General Investment Risks (Cont'd)
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters of its
objective.
Remember, each Fund is designed to meet different investment needs and
objectives.
--- ---- ---- ----- ---
ARIZCALIFCALIFNATIONOREGON-TAX-FREE
- ------------------------------------------------------------ ------------------------
--- ---- ---- ----- ---
Investment Practice Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Borrowing Policies
o o o o o
--- ---- ---- ----- ---
The ability to borrow from banks for temporary Leverage Risk
--- ---- ---- ----- ---
purposes to meet shareholder redemptions.
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Floating and Variable Rate Debt
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Instruments with interest rates that are adjusted either Interest Rate and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
on a schedule or when an index or benchmark changes. Credit Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Forward Commitment, When-Issued and
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Delayed Delivery Transactions Interest Rate,
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Securities bought or sold for delivery at a later date or Leverage, Credit and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
bought or sold for a fixed price at a fixed date. Experience Risk
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------
Illiquid Securities
o o o o o
--- ---- ---- ----- ---
A security that cannot be readily sold, or cannot be
--- ---- ---- ----- ---
readily sold without negatively affecting its fair price. Liquidity Risk
--- ---- ---- ----- ---
Limited to 15% of total assets.
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------
Loans of Portfolio Securities
o o o o o
The practice of loaning securities to brokers, dealers Credit, Counter-Party
and financial institutions to increase return on those and Leverage Risk
securities. Loans may be made up to Investment Company
Act of 1940 limits (currently one-third of total assets including the value of
collateral received).
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Mortgage- and Asset-Backed Securities
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Securities consisting of an undivided fractional Interest Rate, Credit,
--- ---- ---- ----- ---
--- ---- ---- ----- ---
interests in pools of consumer loans, such as mortgage Prepayment and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
loans, car loans, credit card debt, or receivables held in Experience Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
trust.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
<PAGE>
General Investment Risks (Cont'd)
--- ---- ---- ----- ---
ARIZCALIFCALIFNATIONOREGON-TAX-FREE
- ------------------------------------------------------------ ------------------------
--- ---- ---- ----- ---
Investment Practice Risk
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Options
The right or obligation to receive or deliver a security Credit, Information o o o o o
or cash payment depending on the security's price or the and Liquidity Risk
performance of an index or benchmark. Types of options
used may include: options on securities, options on a
stock index, stock index futures and options on stock
index futures to protect liquidity and portfolio value.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Other Mutual Funds
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
The temporary investment in shares of another mutual
--- ---- ---- ----- ---
--- ---- ---- ----- ---
fund. A pro rata portion of the other fund's expenses, Market Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
in addition to the expenses paid by the Funds, will be
--- ---- ---- ----- ---
--- ---- ---- ----- ---
borne by Fund shareholders.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Private Activity Bonds
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
Bonds that pay interest subject to the federal alternative Interest Rate, Credit
minimum tax. Limited to 20% of net assets. and Experience Risk
--- ---- ---- ----- ---
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
Repurchase Agreements
o o o o o
--- ---- ---- ----- ---
--- ---- ---- ----- ---
A transaction in which the seller of a security agrees to Credit and
--- ---- ---- ----- ---
--- ---- ---- ----- ---
buy back a security at an agreed upon time and price, Counter-Party Risk
--- ---- ---- ----- ---
--- ---- ---- ----- ---
usually with interest.
- ------------------------------------------------------------ ------------------------ --- ---- ---- ----- ---
<PAGE>
Organization and Management of the Funds
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for the Funds.
About Stagecoach Funds
Each Fund is one of over 30 Funds of Stagecoach Funds, an open-end management
investment company. Stagecoach was organized on September 9, 1991, as a Maryland
Corporation.
The Board of Directors of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below.
Except for the advisers, which require shareholder vote to change, if the Board
believes that it is in the best interests of the shareholders it may make a
change in one of these companies.
<PAGE>
Organization and Management of the Funds (Cont'd)
------------------------------------------------------------------------------------
BOARD OF DIRECTORS
------------------------------------------------------------------------------------
Supervises the Funds' activities
------------------------------------------------------------------------------------
------------------------------------------ -----------------------------------------
INVESTMENT ADVISOR CUSTODIAN
------------------------------------------ -----------------------------------------
Wells Fargo Bank, N.A. Norwest Bank Minnesota, N.A.
525 Market St., San Francisco, CA 6th & Marquette, Minneapolis, MN
Manages the Funds' investment Provides safekeeping for the Funds'
assets
activities
------------------------------------------ -----------------------------------------
------------------------------------------------------------------------------------
INVESTMENT SUB-ADVISOR
------------------------------------------------------------------------------------
Wells Capital Management Incorporated
525 Market St.
San Francisco, CA
Manages the Funds' investment activities
------------------------------------------------------------------------------------
-------------------- ----------------------- ----------------------- ---------------
SHAREHOLDER
TRANSFER SERVICING
DISTRIBUTOR ADMINISTRATOR AGENT AGENTS
-------------------- ----------------------- ----------------------- ---------------
Stephens Inc. Wells Fargo Bank, N.A. Boston Financial Data Various Agents
111 Center St. 525 Market Street Services, Inc.
Little Rock, AR San Francisco, CA Two Heritage Drive
Markets the Funds Manages the Quincy, MA Provide
and distributes Funds' business Maintains records services to
Fund shares
activities of shares and customers
supervises the
payment of dividends
-------------------- ----------------------- ----------------------- ---------------
------------------------------------------------------------------------------------
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
------------------------------------------------------------------------------------
Advise current and prospective shareholders on their Fund investments
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
SHAREHOLDERS
------------------------------------------------------------------------------------
<PAGE>
Organization and Management of the Funds (Cont'd)
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described.
The Investment Advisor
Wells Fargo Bank provides portfolio management and fundamental security analysis
services as the advisor for each of the Funds. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the largest
banks in the United States. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of June 30, 1999,
Wells Fargo Bank and its affiliates managed over $131 billion in assets. For
providing these services, Wells Fargo Bank is entitled to receive fees as
described in the "Summary of Expenses" section at the front of this Prospectus.
The Investment Sub-Advisor
Wells Capital Management Incorporated ("WCM"), a wholly owned subsidiary of
Wells Fargo Bank, N.A., is the sub-advisor for each of the Funds. As of June 30,
1999, WCM provided investment advice for assets in excess of $42 billion.
The Administrator
Wells Fargo Bank provides the Funds with administration services, including
general supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Trust's Trustees and officers. Wells Fargo
Bank also furnishes office space and certain facilities to conduct each Fund's
business, and compensates the Trust's Trustees. For providing these services,
Wells Fargo Bank is entitled to receive a fee of up to 0.15% of the average
annual net assets of each Fund.
Shareholder Servicing Plan
We have a shareholder servicing plan for each 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, each Fund pays the following:
- --------------------------------------------------- -------------------
Institutional
Class
- --------------------------------------------------- -------------------
- --------------------------------------------------- -------------------
Arizona Tax-Free Fund 0.25%
- --------------------------------------------------- -------------------
- --------------------------------------------------- -------------------
California Tax-Free Bond Fund 0.30%
- --------------------------------------------------- -------------------
- --------------------------------------------------- -------------------
California Tax-Free Income Fund 0.30%
- --------------------------------------------------- -------------------
- --------------------------------------------------- -------------------
National Tax-Free Fund 0.25%
- --------------------------------------------------- -------------------
- --------------------------------------------------- -------------------
Oregon Tax-Free Fund 0.25%
- --------------------------------------------------- -------------------
The Transfer Agent
Boston Financial Data Services, Inc. ("BFDS") provides transfer agency and
dividend disbursing services to the Funds. For providing these services, BFDS
receives an annual fee, certain transaction-related fees, and is reimbursed for
out-of-pocket expenses incurred on behalf of the Funds.
<PAGE>
Your Account
This section tells you how Fund shares are priced, how to open an account and
how to buy, sell or exchange Fund shares once your account is open.
Pricing Fund Shares
o As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
o We determine the Net Asset Value ("NAV") of each Funds' shares each
business day as of the close of regular trading on the NYSE. We determine
the NAV by subtracting the Fund class's liabilities from its total assets,
and then dividing the result by the total number of outstanding shares of
that class. Each Fund's assets are generally valued at current market
prices. See the Statement of Additional Information for further disclosure.
o We process requests to buy or sell shares of the Funds each business day as
of the close of regular trading on the New York Stock Exchange ("NYSE"),
which is usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central time). If the
markets close early, the Funds may close early and may value their shares
at earlier times under these circumstances. Any request we receive in
proper form before this time is processed the same day. Requests we receive
after the cutoff time is processed the next business day.
o The Funds are open for business on each day the NYSE is open for business.
NYSE holidays include New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. When any holiday falls on a weekend,
the NYSE typically is closed on the weekday immediately before or after
such holiday.
Minimum Investments
Institutions are required to make a minimum initial investment of $2,000,000 per
Fund. There are no minimum subsequent investment requirements so long as your
Institution maintains account balances at or above the minimum initial
investment amount. Minimum initial investment requirements may be waived for
certain Institutions.
<PAGE>
Your Account (Cont'd)
HOW TO BUY SHARES
You can open a Fund account and buy Fund shares through an Institution through
which you have established a Customer Account. Investors interested in
purchasing Institutional shares of the Funds should contact an account
representative at their Institution and should understand the following:
o Share purchases are made through a Customer Account at an Institution in
accordance with the terms of the Customer Account involved;
o Institutions are usually the holders of record of Institutional shares held
through Customer Accounts and maintain records reflecting their customer's
beneficial ownership of the shares;
o Institutions are responsible for transmitting their customers' purchase and
redemption orders to the Funds and for delivering required payment on a
timely basis;
o The exercise of voting rights and the delivery of shareholder
communications from the Fund is governed by the terms of the Customer
Account involved; and
o Institutions may charge their customers account fees and may receive fees
from us with respect to investments their customers have made with the
Funds.
<PAGE>
Your Account (Cont'd)
HOW TO SELL SHARES
Institutional shares must be redeemed in accordance with the account agreement
governing your Customer Account at the Institution. Please read the Customer
Account agreement with your Institution for rules governing selling shares.
General Notes for Selling Shares
o We process requests we receive from an Institution in proper form before
the close of the NYSE usually 1:00 p.m. (Pacific time)/3:00 p.m. (Central
time), at the NAV determined on the same business day. Requests we receive
after this time are processed on the next business day.
o Redemption proceeds are usually wired to the redeeming Institution the
following business day.
o If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product plan.
There may be special requirements that supersede the directions in this
Prospectus.
o We reserve the right to delay payment of a redemption so that we may be
reasonably certain that investments made by check or through ACH have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the SEC in order to protect remaining
shareholders. Payments of redemptions also may be delayed up to seven days
under normal circumstances, although it is not our policy to delay such
payments.
o 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 a ninety-day period. If a request for a redemption
is over these limits, it may be to the detriment of existing shareholders.
Therefore, we may pay the redemption in part or in whole in securities of
equal value.
EXCHANGES
Exchanges between Wells Fargo Funds are two transactions: a sale of shares of
one Fund and the purchase of shares of another. In general, the same rules and
procedures that apply to sales and purchases apply to exchanges. There are,
however, additional factors you should keep in mind while making or considering
an exchange:
o You should carefully read the Prospectus for the Fund into which you wish to
exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes. o In order to discourage
excessive Fund transaction expenses that must be borne by other shareholders, we
reserve the right to
limit or reject exchange orders. Generally, we will notify you 60 days in advance of any changes in your exchange privileges.
o You may make exchanges between like share classes.
Contact your account representative for further details.
<PAGE>
Other Information
Dividend and Capital Gain Distributions
The Funds in this Prospectus pay any dividends monthly and make any capital
gains distributions annually. Contact your Institution for distribution options.
Taxes
The following discussion regarding taxes is based on laws that were in effect
as of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder.
It is not intended as a substitute for careful tax planning. You should
consult your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
Dividends distributed from the Funds attributable to their net interest income
from tax-exempt securities will not be subject to federal income tax.
Dividends distributed from these and the other Funds attributable to their
income from other investments and net short-term capital gain (generally, the
excess of net short-term capital gains over net long-term capital losses) will
be taxable to you as ordinary income. Corporate shareholders may be able to
deduct a portion of their dividends when determining their taxable income.
We will pass on to you any net capital gain (generally the excess of net
long-term capital gains over net short-term capital losses) earned by a Fund
as a capital gain distribution. In general, these distributions will be
taxable to you as long-term capital gains which may qualify for taxation at
preferential rates in the hands of non-corporate shareholders. Any
distribution that is not from net investment income, short term capital gains,
or net capital gain may be characterized as a return of capital to
shareholders.
<PAGE>
Portfolio Managers
Stephen Galiani, has managed the California Tax-Free Bond Fund since January
1998, and has managed the Oregon Tax-Free Fund since December 1997. Mr. Galiani
also has co-managed the Arizona Tax-Free Fund since January 1997, when he joined
Wells Fargo/WCM. Mr. Galiani worked for Qualivest Capital Management, where he
was a Senior Portfolio Manager from May 1995 until joining WCM, and was
president and portfolio manager of Galiani Asset Management Corp. from March
1990. He is currently Manager of Tax-Exempt Securities investing at WCM.
David Klug, has co-managed the California Tax-Free Bond Fund since January 1992
and the California Tax-Free Income Fund since December 1997. Mr. Klug has been
with Wells Fargo/WCM for over 15 years and is currently a Senior Tax-Exempt
Specialist.
Laura Milner, has co-managed the California Tax-Free Income Bond Fund since
November 1992. She has been with Wells Fargo/WCM for over ten years and is
currently a Senior Tax-Exempt Specialist.
<PAGE>
Glossary
We provide the following definitions to assist you in reading this Prospectus.
For a more complete understanding of these terms you should consult your
financial advisor.
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.
Asset-Backed Securities
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
Below Investment-Grade
Securities rated BBB or lower by S&P or Baa or lower by Moody's Investor
Services, or that may be unrated securities or securities considered to be "high
risk."
Business Day
Any day the New York Stock Exchange is open is a business day for the Funds.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See also "total return."
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage- and other
asset-backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
Diversified
A diversified fund, as defined by the Investment Company Act of 1940, is one
that invests in cash, Government securities, other investment companies and no
more than 5% of its total assets in a single issuer. These policies must apply
to 75% of the Funds' total assets.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer durations typically
more sensitive to interest rate changes than shorter durations.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
<PAGE>
Glossary (Cont'd)
FHLMC
FHLMC securities are commonly known as "Freddie Mac" and are issued by the
Federal Home Loan Mortgage Corporation.
FNMA
FNMA securities are known as "Fannie Maes" are issued by the Federal National
Mortgage Association, and FHLMC securities as "Freddie Mac" and are issued by
the Federal Home Loan Mortgage Corporation.
Gateway Fund
A Fund that invests its assets in one or more core portfolios, instead of
directly in securities, to achieve its investment objective. Gateway funds
investing in the same core portfolio can enhance their investment opportunities
and reduce their expense ratios through sharing the costs and benefits of
managing a large pool of assets.
GNMA
GNMA securities are commonly known as "Ginnie Maes" and are issued by the
Government National Mortgage Association.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at a fair price.
Money Market Instruments
High-quality short-term instruments meeting the requirements of Rule 2a-7 of the
1940 Act, such as bankers' acceptances, commercial paper, repurchase agreements
and government obligations. In a money market fund, average portfolio maturity
does not exceed 90 days, and all investments have maturities of 397 days or less
at the time of purchase.
Municipal securities
Debt obligations of a state or local government entity. The funds may support
general governmental needs or special projects. Virtually all municipal
securities are exempt from federal income taxes and most are exempt from state
and local income taxes, at least in the state of issue.
Nationally Recognized Rating Organization ("NRRO")
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value ("NAV")
The value of a single fund share. It is determined by adding together all of a
Fund's assets, subtracting accrued expenses and other liabilities, then dividing
by the total number of shares.
<PAGE>
Glossary (Cont'd)
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options may also be based on the
movement of an index such as the S&P 500.
Public Offering Price ("POP") The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Funds' distributors that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
Statement of Additional Information
A document that supplements the disclosure made in the Prospectus.
Taxpayer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Funds.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Weighted-Average Maturity
The average maturity for the debt securities in a portfolio on a
dollar-for-dollar basis.
<PAGE>
STAGECOACH FUNDS
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
Provides certain financial and other important information including a
discussion of the market conditions and investment strategies that significantly
affected Fund performance, for the most recent reporting period.
These documents are available free of charge:
Call 1-800-222-8222, or
Write to:
Stagecoach Funds
PO Box 8266
Boston, MA 02266-8266
Visit the SEC's web site:
http://www.sec.gov, or
Request copies for a fee by writing to:
SEC Public Reference Room, Washington, DC 20549-6009
(call: 1-800-SEC-0330 for details)
--------------------------------------------------
ICA Reg. No. 811-6419 NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE SFI TF (11/99)
--------------------------------------------------
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 1, 1999
ARIZONA TAX-FREE FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
Class A, Class B, Class C and Institutional Class
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about five funds (each, a "Fund" and collectively, the
"Funds") in the Stagecoach Family of Funds -- the Arizona Tax-Free, California
Tax-Free Bond, California Tax-Free Income, National Tax-Free and Oregon Tax-Free
Funds (each, a "Fund" and sometimes, collectively, the "Tax-Free Funds" or
"Funds"). Each Fund is generally considered non-diversified under the Investment
Company Act of 1940, as amended (the "1940 Act"). The California Tax-Free Income
Fund offers Class A shares. Each of the other Funds offers Class A and Class B
shares. The California Tax-Free Bond and National Tax-Free Funds also offer
Class C shares. All of the Funds offer Institutional Class shares. This SAI
relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 1, 1999. All terms used in this SAI that
are defined in the Prospectus have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by calling
1-800-222-8222 or writing to Stagecoach Funds, P.O. Box 7066, San Francisco,
CA 94120-7066.
<PAGE>
dc-175852v3 i
421
TABLE OF CONTENTS
Page
Historical Fund Information.......................................................................... 1
Investment Restrictions.............................................................................. 1
Additional Permitted Investment Activities........................................................... 7
Risk Factors......................................................................................... 20
Special Considerations Affecting Arizona Municipal Obligations....................................... 23
Special Considerations Affecting California Municipal Obligations.................................... 24
Special Considerations Affecting Oregon Municipal Obligations........................................ 29
Management........................................................................................... 35
Performance Calculations............................................................................. 48
Determination of Net Asset Value..................................................................... 57
Additional Purchase and Redemption Information....................................................... 57
Portfolio Transactions............................................................................... 58
Fund Expenses........................................................................................ 60
Federal Income Taxes................................................................................. 60
Capital Stock........................................................................................ 67
Other ............................................................................................ 68
Counsel ............................................................................................69
Independent Auditors................................................................................. 69
Financial Information................................................................................ 69
Appendix ............................................................................................A-1
<PAGE>
dc-175852v3 64
421
HISTORICAL FUND INFORMATION
The California Tax-Free Bond and California Tax-Free Income Funds
(sometimes referred to as the "California Funds") were originally organized as
funds of the Company. The California Tax-Free Bond Fund commenced operations on
January 1, 1992 and the California Tax-Free Income Fund commenced operations on
November 18, 1992. On December 12, 1997, the California Tax-Free Bond Fund of
Overland Express Funds, Inc. ("Overland"), another investment company advised by
Wells Fargo Bank, was reorganized with and into the California Tax-Free Bond of
the Company (the "Consolidation"). For accounting purposes, the Overland Fund is
considered the survivor of the Consolidation. The Class A shares and the Class D
shares of the Overland Fund commenced operations on October 6, 1988 and July 1,
1993, respectively. The Overland Fund is sometimes referred to throughout this
SAI as the "predecessor portfolio" to the Company's California Tax-Free Bond
Fund.
The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds were
originally organized as investment portfolios of Westcore Trust ("Westcore")
under the names Arizona Intermediate Tax-Free, Quality Tax-Exempt Income, and
Oregon Tax-Exempt Funds, respectively. On October 1, 1995, the Funds were
reorganized as the Pacifica Arizona Tax-Exempt Fund, Oregon Tax-Exempt Fund and
National Tax-Exempt Fund, investment portfolios of Pacifica Funds Trust
("Pacifica"). On September 6, 1996, the Arizona Tax-Exempt Fund, National
Tax-Exempt Fund and Oregon Tax-Exempt Fund of Pacifica were reorganized as the
Company's National Tax-Free Fund, Oregon Tax-Free Fund and Arizona Tax-Free
Fund, respectively.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
Each Fund has adopted the following investment restrictions, all of
which are fundamental policies; that is, they may not be changed without
approval by the vote of the holders of a majority (defined in the 1940 Act) of
the outstanding voting securities of such Fund.
The Arizona Tax-Free Fund, National Tax-Free Fund and Oregon Tax-Free Fund may not:
(1) purchase or sell commodity contracts (including futures contracts
with respect to the Arizona Tax-Free and National Tax-Free Funds), or invest in
oil, gas or mineral exploration or development programs, except that each Fund,
to the extent appropriate to its investment objective, may purchase publicly
traded securities of companies engaging in whole or in part in such activities,
and provided that the Oregon Tax-Free Fund may enter into futures contracts and
related options;
(2) purchase or sell real estate, except that each Fund may purchase
securities of issuers that deal in real estate and may purchase securities that
are secured by interests in real estate;
(3) purchase securities of companies for the purpose of exercising
control;
(4) acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act;
(5) act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Fund's investment objective, policies and limitations may be deemed to be
underwriting;
(6) write or sell put options, call options, straddles, spreads, or any
combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options;
(7) borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of a Fund's total assets at the
time of such borrowing. None of these Funds will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. Securities held in escrow or separate accounts in
connection with a Fund's investment practices described in this SAI or in its
Prospectus are not deemed to be pledged for purposes of this limitation;
(8) purchase securities on margin, make short sales of securities or
maintain a short position, except that the Funds may obtain short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities, and except that this limitation shall not apply to the Oregon
Tax-Free Fund's transactions in futures contracts and related options;
(9) invest less than 80% of its net assets in securities the interest
on which is exempt from federal income tax, except during periods of unusual
market conditions. For purposes of this investment limitation, securities the
interest on which is treated as a specific tax preference item under the federal
alternative minimum tax are considered taxable; nor
(10) make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding 30% of its total assets.
The Arizona Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets; nor
(2) purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) or guaranteed by the United States, any
state, territory or possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or political subdivisions,
which would cause 25% or more of the value of the Fund's total assets at the
time of purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry.
The National Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets; nor
(2) purchase any securities that would cause 25% or more of the value
of its total assets at the time of purchase to be invested in municipal
obligations with similar characteristics (such as private activity bonds where
the payment of principal and interest is the ultimate responsibility of issuers
in the same industry, pollution control revenue bonds, housing finance agency
bonds or hospital bonds) or the securities of issuers conducting their principal
business activities in the same industry, provided that there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government, the
District of Columbia, and their respective agencies, authorities,
instrumentalities or political subdivisions.
The Oregon Tax-Free Fund may not:
(1) purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, except that (a) up to 50% of the value of the
Fund's total assets may be invested without regard to this 5% limitation
provided that no more than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies,
authorities, instrumentalities or political subdivisions. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets; nor
(2) purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) or guaranteed by the United States, any
state, territory or possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or political subdivisions,
which would cause 25% or more of the value of the Fund's total assets at the
time of purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry.
The California Tax-Free Bond Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers) and
(ii) obligations of the United States Government, its agencies or
instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts);
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions with regard to the Fund and except
for margin payments in connection with options, futures and options on futures
or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of municipal securities or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or
management;
(6) issue senior securities, except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
nor
(7) write, purchase or sell puts, calls, options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity.
The California Tax-Free Income Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers), and
(ii) obligations of the United States Government, its agencies or
instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts);
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of municipal securities or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or
management;
(6) issue senior securities, except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets, but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets;
(7) write, purchase or sell puts, calls, options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity;
(8) make loans of portfolio securities having a value that exceeds 50%
of the current value of its total assets provided that, for purposes of this
restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
Non-Fundamental Investment Policies
Each Fund has adopted the following non-fundamental policies which may
be changed by a majority vote of the Board of Directors of the Company at any
time and without approval of such Fund's shareholders.
(1) Each Fund may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, a Fund's investment in such securities currently is
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of such Fund's net assets with respect to
any one investment company, and (iii) 10% of such Fund's net assets in the
aggregate. Other investment companies in which the Funds invest can be expected
to charge fees for operating expenses, such as investment advisory and
administration fees, that would be in addition to those charged by a Fund.
(2) Each Fund may not invest or hold more than 15% net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) Each Fund may invest up to 25% of its net assets in securities of
foreign governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds
each may lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) the value of 30% of
the Fund's total assets. The California Tax-Free Bond and California Tax-Free
Income Funds each may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) the value of
one-third of the Fund's total assets. Any such loans of portfolio securities
will be fully collateralized based on values that are marked to market daily.
The Funds will not enter into any portfolio security lending arrangement having
a duration of longer than one year.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total assets.
Asset-Backed Securities
The Funds may purchase asset-backed securities, which are securities
backed by installment contracts, credit-card receivables or other assets.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other reasons, an
asset-backed security's stated maturity may be shortened, and the security's
total return may be difficult to predict precisely.
Bank Obligations
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Bonds
Certain of the debt instruments purchased by the Funds may be bonds. A
bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have to
reinvest the proceeds at lower market rates. Most bonds bear interest income at
a "coupon" rate that is fixed for the life of the bond. The value of a fixed
rate bond usually rises when market interest rates fall, and falls when market
interest rates rise. Accordingly, a fixed rate bond's yield (income as a percent
of the bond's current value) may differ from its coupon rate as its value rises
or falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).
The California Tax-Free Income Fund may invest in variable-rate
instruments with a maximum final maturity of up to 30 years, provided the period
remaining until the next readjustment of the instrument's interest rate, or the
period remaining until the principal amount can be recovered through demand, is
less than 5 years.
Commercial Paper
The Funds may invest in commercial paper. Commercial paper includes
short-term unsecured promissory notes, variable rate demand notes and variable
rate master demand notes issued by domestic and foreign bank holding companies,
corporations and financial institutions as well as similar taxable instruments
issued by government agencies and instrumentalities.
Other Derivative Securities
The Funds may invest in structured notes, bonds or other instruments
with interest rates that are determined by reference to changes in the value of
other interest rates, indices of financial indicators ("References") or the
relative change in two or more References. The Funds may also hold derivative
instruments that have interest rates that re-set inversely to changing current
market rates and/or have embedded interest rate floors and caps that require the
issuers to pay an adjusted interest rate if market rates fall below or rise
above a specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these instruments.
It is uncertain how these instruments will perform under different economic and
interest-rate scenarios. Because certain of these instruments are leveraged,
their market value may be more volatile than other types of bonds and may
present greater potential for capital gain or loss. The embedded option features
of other derivative instruments could limit the amount of appreciation a Fund
can realize on its investment, could cause a Fund to hold a security it might
otherwise sell or could force the sale of a security at inopportune times or for
prices that do not reflect current market value. The possibility of default by
the issuer or the issuer's credit provider may be greater for these structured
and derivative instruments than for other types of instruments. In some cases it
may be difficult to determine the fair value of a structured of derivative
instrument because of a lack of reliable objective information and an
established secondary market for some instruments may not exist.
Floating- and Variable-Rate Obligations
The Funds may purchase floating- and variable-rate obligations as
described in the Prospectuses. Each Fund may purchase floating- and
variable-rate demand notes and bonds. Variable-rate demand notes include master
demand notes that are obligations that permit a Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. The interest rates on these notes
may fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and each Fund may invest in obligations
which are not so rated only if Wells Fargo Bank determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which such Fund may invest. Wells Fargo Bank, on behalf of each Fund, considers
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. No Fund will invest
more than 15% of the value of its total net assets in floating- or variable-rate
demand obligations whose demand feature is not exercisable within seven days.
Such obligations may be treated as liquid, provided that an active secondary
market exists.
Floating- and variable-rate demand instruments acquired by the Arizona,
National and Oregon Tax-Free Funds may include participations in municipal
obligations purchased from and owned by financial institutions, primarily banks.
Participation interests provide these Funds with a specified undivided interest
(up to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the Advisor has determined meets the
prescribed quality standards for these Funds. The bank typically retains fees
out of the interest paid on the obligation for servicing the obligation,
providing the letter of credit and issuing the repurchase commitment.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions
Each Fund may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although each Fund will generally purchase securities with the intention of
acquiring them, a Fund may dispose of securities purchased on a when-issued,
delayed-delivery or a forward commitment basis before settlement when deemed
appropriate by the advisor. Securities purchased on a when-issued or forward
commitment basis may expose the relevant Fund to risk because they may
experience price fluctuations prior to their actual delivery. Purchasing
securities on a when-issued or forward commitment basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Each Fund will segregate cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Illiquid Securities
The Funds each will not knowingly invest more than 15% (10% for the
California Tax-Free Bond Fund) of the value of its net assets in securities that
are illiquid because of restrictions on transferability or other reasons.
Illiquid securities shall not include securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the Advisor, pursuant to guidelines established by
the Company's Board of Directors, and commercial paper that is sold under
Section 4(2) of the 1933 Act.
Letters of Credit
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Funds
may be used for letter of credit-backed investments.
Loans of Portfolio Securities
Each Fund may lend its portfolio securities pursuant to guidelines
approved by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
A Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested subject to the investment
objectives, principal investment strategies and policies of the Fund. In
connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral. In either case, a Fund could experience delays in recovering
securities or collateral or could lose all or part of the value of the loaned
securities. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur. A Fund may pay a portion of the
interest or fees earned from securities lending to a borrower or securities
lending agent.
Municipal Obligations
The Funds may invest in municipal obligations issued by governmental
entities to obtain funds for various public purposes. These purposes may include
the construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Assessment bonds,
wherein a specially created district or project area levies a tax (generally on
its taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors. Each Fund, subject to its
respective investment objective and policies, is not limited with respect to
which category of municipal bonds it may acquire. Some or all of these bonds may
be considered "private activity bonds" for federal income tax purposes.
The two principal classifications of municipal obligations that may be
held by a Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the issuer of the
facility being financed. A Fund's portfolio may also include "moral obligation"
securities, which are issued normally by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality that created the issuer.
There are, of course, variations in the quality of municipal
obligations both within a particular classification and between classifications,
and the yields on municipal obligations depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
Certain of the municipal obligations held by a Fund may be insured as
to the timely payment of principal and interest. The insurance policies usually
are obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance does not protect against
market fluctuations caused by changes in interest rates and other factors. The
Funds may, from time to time, invest more than 25% of their assets in municipal
obligations covered by insurance policies.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities, including those held in a Fund's portfolio, will decline
and (if purchased at par value) sell at a discount. If interests rates fall, the
values of outstanding securities will generally increase and (if purchased at
par value) sell at a premium. Changes in the value of municipal securities held
in the Fund's portfolio arising from these or other factors will cause changes
in the net asset value per share of the Fund.
Municipal securities may include variable- or floating-rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Private activity bonds are issued to obtain funds to provide privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid waste
disposal. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Private activity bonds include industrial development bonds, which are a
specific type of revenue bond backed by the credit and security of a private
user. The credit quality of such bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Private activity bonds
issued by or on behalf of public authorities to finance various privately
operated facilities are considered municipal obligations if the interest
received thereon is exempt from federal income tax but nevertheless subject to
the federal alternative minimum tax. Assessment bonds, wherein a specially
created district or project area levies a tax (generally on its taxable
property) to pay for an improvement or project may be considered a variant of
either category. There are, of course, other variations in the types of
municipal bonds, both within a particular classification and between
classifications, depending on numerous factors. Some or all of these bonds may
be considered "private activity bonds" for federal income tax purposes.
The Funds may also purchase short-term General Obligation Notes, Tax
Anticipation Notes ("TANS"), Bond Anticipation Notes ("BANs"), Revenue
Anticipation Notes ("RANs"), Tax-Exempt Commercial Paper, Construction Loan
Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues, and are usually general
obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
Municipal Lease Obligations. The Funds may invest in municipal lease
obligations. The Advisor makes determinations concerning the liquidity of a
municipal lease obligation based on relevant factors. These factors may include,
among others: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer. In addition, the general credit quality of the
municipality and the essentiality to the municipality of the property covered by
the lease may be considered. In evaluating the credit quality of a municipal
lease obligation, the factors to be considered might include: (1) whether the
lease can be canceled; (2) what assurance there is that the assets represented
by the lease can be sold; (3) the strength of the lessee's general credit (e.g.,
its debt, administrative, economic, and financial characteristics); (4) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an "event of the
nonappropriation"); and (5) the legal recourse in the event of failure to
appropriate.
Certificates of Participation. The Funds may purchase municipal
obligations known as "certificates of participation" which represent undivided
proportional interests in lease payments by a governmental or nonprofit entity.
The lease payments and other rights under the lease provide for and secure the
payments on the certificates. Lease obligations may be limited by applicable
municipal charter provisions or the nature of the appropriation for the lease.
In particular, lease obligations may be subject to periodic appropriation. Lease
obligations also may be abated if the leased property is damaged or becomes
unsuitable for the lessee's purpose. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may or may not provide that the certificate trustee can
accelerate lease obligations upon default. If the trustee could not accelerate
lease obligations upon default, the trustee would only be able to enforce lease
payments as they became due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. Certificates of participation are
generally subject to redemption by the issuing municipal entity under specified
circumstances. If a specified event occurs, a certificate is callable at par
either at any interest payment date or, in some cases, at any time. As a result,
certificates of participation are not as liquid or marketable as other types of
municipal obligations and are generally valued at par or less than par in the
open market.
Pass-Through Obligations. Certain of the debt obligations which the
Funds may purchase may be pass-through obligations that represent an ownership
interest in a pool of mortgages and the resultant cash flow from those
mortgages. Payments by homeowners on the loans in the pool flow through to
certificate holders in amounts sufficient to repay principal and to pay interest
at the pass-through rate. The stated maturities of pass-through obligations may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular pass-through obligation. Variations in the maturities
of pass-through obligations will affect the yield of the Funds. Furthermore, as
with any debt obligation, fluctuations in interest rates will inversely affect
the market value of pass-through obligations. The Funds may invest in
pass-through obligations that are supported by the full faith and credit of the
U.S. Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of the
U.S. Government (such as the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation) or bonds collateralized by any of the
foregoing.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax (and to the
exemption of interest from state personal income tax) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds,
the Funds' investment Advisor nor their counsel will review the proceedings
relating to the issuance of municipal obligations or the bases for such
opinions.
For a further discussion of factors affecting purchases of municipal
obligations by the State Tax-Free Funds, see "Special Considerations Affecting
Arizona Municipal Securities," "Special Considerations Affecting California
Municipal Securities" and, "Special Considerations Affecting Oregon Municipal
Securities" in this SAI.
Stand-By Commitments. The Funds may acquire stand-by commitments with
respect to municipal obligations held by such Funds. Under a stand-by
commitment, a dealer or bank agrees to purchase from a Fund, at the Fund's
option, specified municipal obligations at a specified price. The amount payable
to a Fund upon its exercise of a stand-by commitment is normally (i) the Fund's
acquisition cost of the municipal obligations (excluding any accrued interest
that the Fund paid on their acquisition), less any amortized market premium plus
any amortized market or original issue discount during the period the Fund owned
the securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Stand-by commitments may be sold,
transferred or assigned by a Fund only with the underlying instrument.
Each of the Funds expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.
Each of the Funds intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Advisor's opinion, present
minimal credit risks. Each Fund's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
municipal obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Advisor will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
Each of these Funds intends to acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying municipal
obligations, which will continue to be valued in accordance with the ordinary
method of valuation employed by the Funds. Stand-by commitments acquired by a
Fund will be valued at zero in determining net asset value.
Tax Status. From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal obligations. For example, under federal tax
legislation enacted in 1986, interest on certain private activity bonds must be
included in an investor's alternative minimum taxable income, and corporate
investors must treat all tax-exempt interest as an item of tax preference.
Moreover, with respect to Arizona, California and Oregon obligations, the Funds
cannot predict what legislation, if any, may be proposed in the state
legislature regarding the state income tax status of interest on such
obligations, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
municipal obligations generally, or Arizona, California and Oregon obligations,
specifically, for investment by a Fund and the liquidity and value of the Fund's
portfolio. In such an event, the Fund involved would re-evaluate its investment
objective and policies and consider possible changes in its structure or
possible dissolution.
Ratings of Municipal Securities. The Funds may invest in municipal
bonds rated at the date of purchase "Baa" or better by Moody's Investors
Service, Inc. ("Moody's") or "BBB" or better by; Standard & Poor's Ratings Group
("S&P"), or unrated bonds that are considered by the investment Advisor to be of
comparable quality. Bonds rated "Baa" and "BBB" have speculative characteristics
and are more likely than higher-rated bonds to have a weakened capacity to pay
principal and interest in times of adverse economic conditions; all are
considered investment grade. Municipal bonds generally have a maturity at the
time of issuance of up to 40 years.
The highest rating assigned by S&P is "AAA" for state and municipal
bonds, "SP-1" for state and municipal notes, and "A-1" for state and municipal
paper. The highest rating assigned by Moody's is "Aaa," "MIG 1," and "Prime-1"
for state and municipal bonds, notes and commercial paper, respectively. These
instruments are judged to be the best quality and present minimal risks and a
strong capacity for repayment of principal and interest. If a municipal security
ceases to be rated or is downgraded below an investment grade rating after
purchase by the Fund, it may retain or dispose of such security. In any event,
the Short-Term Municipal Income Fund does not intend to purchase or retain any
municipal security that is rated below the top four rating categories by a
Nationally Recognized Statistical Ratings Organization ("NRSRO"), or, if
unrated, is considered by the investment Advisor to be of comparable quality.
Securities rated in the fourth highest category are considered to have
speculative characteristics. A description of ratings is contained in the
Appendix to the SAI.
The Funds may invest in municipal notes rated at the date of purchase
"MIG 2" (or "VMIG 2" in the case of an issue having a variable rate with a
demand feature) or better by Moody's or "SP-2" or better by S&P, or unrated
notes that are considered by the investment Advisor to be of comparable quality.
Municipal notes generally have maturities at the time of issuance of three years
or less. Municipal notes are generally issued in anticipation of the receipt of
tax funds, of the proceeds of bond placements, of other revenues. The ability of
an issuer to make payments on notes is therefore especially dependent on such
tax receipts, proceeds from bond sales or other revenues, as the case may be.
The Funds may invest in municipal commercial paper rated at the date of
purchase "Prime-1" or "Prime-2" by Moody's or "A-1+," "A-1" or "A-2" by S&P, or
unrated commercial paper that is considered by the investment Advisor to be of
comparable quality. Municipal commercial paper is a debt obligation with a
stated maturity of 270 days or less that is issued to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term debt.
In the event a security purchased by a Fund is downgraded below
investment grade, the Fund may retain such security, although the Fund may not
have more than 5% of its assets invested in securities rated below investment
grade at any time. A description of the ratings is contained in the Appendix to
the Funds' SAI.
Other Investment Companies
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Funds.
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Funds
or proceeds from sales of portfolio securities or in anticipation of redemptions
or to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank,
as investment Advisor, it is advisable to do so because of market conditions,
each Fund may elect to invest temporarily up to 20% of the current value of its
net assets in cash reserves, in instruments that pay interest which is exempt
from federal income taxes, but not, from the State Tax-Free Funds, from a
respective state's personal income tax, or the following taxable high--quality
money market instruments: (i) U.S. Government obligations; (ii) negotiable
certificates of deposit, bankers' acceptance and fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the FDIC; (iii) commercial paper rated at the date
of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
Such temporary investments would most likely be made for cash
management purposes or when there is an unexpected or abnormal level of investor
purchases or redemptions of shares of the Fund or because of unusual market
conditions. The income from these temporary investments and investment
activities may be subject to federal income taxes. However, as stated above,
Wells Fargo Bank seeks to invest substantially all of the Fund's assets in
securities exempt from such taxes.
Repurchase Agreements. The Funds may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price that involves the
acquisition by a Fund of an underlying debt instrument, subject to the seller's
obligation to repurchase, and such Fund's obligation to resell, the instrument
at a fixed price usually not more than one week after its purchase. The Fund's
custodian has custody of, and holds in a segregated account, securities acquired
as collateral by a Fund under a repurchase agreement. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission to be loans by
the Fund. The Funds may enter into repurchase agreements only with respect to
securities of the type in which such Fund may invest, including government
securities and mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be deposited with the
custodian if the value of the securities purchased should decrease below resale
price. Wells Fargo Bank monitors on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price. Certain costs
may be incurred by a Fund in connection with the sale of the underlying
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, disposition of the securities by a Fund
may be delayed or limited. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility of a
decline in the market value of the underlying securities, as well as delay and
costs to a Fund in connection with insolvency proceedings), it is the policy of
each Fund to limit repurchase agreements to selected creditworthy securities
dealers or domestic banks or other recognized financial institutions. Each Fund
considers on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements.
Borrowing and Reverse Repurchase Agreements. The Funds intend to limit
their borrowings (including reverse repurchase agreements) during the current
fiscal year to not more than 10% of net assets. At the time a Fund enters into a
reverse repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account liquid assets such as U.S.
Government securities or other liquid high-grade debt securities having a value
equal to or greater than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
Unrated Investments
The Funds may purchase instruments that are not rated if, in the
opinion of Wells Fargo Bank, such obligations are of comparable quality to other
rated investments that are permitted to be purchased by such Fund. After
purchase, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by these Funds. Neither event will require a
sale of such security by the Funds. To the extent the ratings given by Moody's
or S&P may change as a result of changes in such organizations or their rating
systems, the Funds will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the Fund's
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the Appendix.
U.S. Government Obligations
The Funds may invest in various types of U.S. Government obligations in
accordance with the policies described in each Fund's Prospectus. U.S.
Government obligations include securities issued or guaranteed as to principal
and interest by the U.S. Government and supported by the full faith and credit
of the U.S. Treasury. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis. U.S. Government obligations also include securities issued or guaranteed
by federal agencies or instrumentalities, including government-sponsored
enterprises. Some obligations of such agencies or instrumentalities of the U.S.
Government are supported by the full faith and credit of the United States or
U.S. Treasury guarantees; others, by the right of the issuer or guarantor to
borrow from the U.S. Treasury; still others by the discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities (including government-sponsored enterprises) where
it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms. The Funds may invest in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. Examples of the types of
U.S. Government obligations that may be held by the Funds include U.S. Treasury
bonds, notes and bills and the obligations of Federal Home Loan Banks, Federal
Farm Credit Banks, Federal Land Banks, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, Federal
National Mortgage Association, General Services Administration, Student Loan
Marketing Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.
Warrants
Although they have no present intention to do so, the Funds may each
invest up to 5% of its net assets at the time of purchase in warrants (other
than those that have been acquired in units or attached to other securities),
and not more than 2% of its net assets in warrants which are not listed on the
New York or American Stock Exchange. Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities. The Funds may only purchase warrants on securities in which the
Funds may invest directly.
Nationally Recognized Statistical Ratings Organizations
The ratings of Moody's Investors Service, Inc., Standard & Poor's
Ratings Group, Division of McGraw Hill, Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc. Thomson Bank Watch and IBCA Inc. represent their
opinions as to the quality of debt securities. It should be emphasized, however,
that ratings are general and not absolute standards of quality, and debt
securities with the same maturity, interest rate and rating may have different
yields while debt securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to purchase by a Fund, an
issue of debt securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by a Fund. The Advisor will
consider such an event in determining whether the Fund involved should continue
to hold the obligation.
The payment of principal and interest on debt securities purchased by
the Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or, in the case of governmental entities, upon the ability
of such entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be, noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to "industrial development
bonds" which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells
Fargo Bank, are not insured by the FDIC and are not insured against loss of
principal. When the value of the securities that a Fund owns declines, so does
the value of your Fund shares. You should be prepared to accept some risk with
the money you invest in a Fund.
The portfolio debt instruments of a Fund may be subject to credit risk.
Credit risk is the risk that the issuers of securities in which the Fund invests
may default in the payment of principal and/or interest. Interest rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which a Fund invests and hence the value of your
investment in a Fund.
The market value of a Fund's investments in fixed-income securities
will change in response to various factors, such as changes in market interest
rates and the relative financial strength of each issuer. During periods of
falling interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater price
fluctuation than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities can be reduced, but not eliminated, by variable
rate or floating rate features. In addition, some of the asset-backed securities
in which the Funds invest are subject to extension risk. This is the risk that
when interest rates rise, prepayments of the underlying obligations slow,
thereby lengthening the duration and potentially reducing the value of these
securities.
Although some of the Funds' portfolio securities are guaranteed by the
U.S. Government, its agencies or instrumentalities, such securities are subject
to interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value is based, will fluctuate. No assurance can be given
that the U.S. Government would provide financial support to its agencies or
instrumentalities where it is not obligated to do so.
Derivatives are financial instruments whose value is derived, at least
in part, from the price of another security or a specified asset, index or rate.
Some of the permissible investments described in this Prospectus, such as
floating- and variable-rate instruments, structured notes and certain U.S.
Government obligations, are considered derivatives. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms. If a Fund's Advisor judges
market conditions incorrectly, the use of certain derivatives could result in a
loss regardless of the Advisor's intent in using the derivatives.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or
difficulty in selling securities may result in a loss or be costly to a Fund.
Each Fund may invest 25% or more of its assets in municipal obligations that
are related in such a way that an economic, business or political development
or change affecting one such obligation would also affect the other
obligations; for example, a Fund may own different municipal obligations
which pay interest based on the revenues of similar types of projects. To the
extent that such a Fund's assets are concentrated in municipal obligations
payable from revenues on similar projects, the Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would
be if the Fund's assets were not so concentrated. Furthermore, for the
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds payment of
municipal obligations of certain projects may be secured by mortgages or
deeds of trust. In the event of a default, enforcement of the mortgages or
deeds of trust will be subject to statutory enforcement procedures and
limitations, including rights of redemption and limitations on obtaining
deficiency judgments. In the event of a foreclosure, collection of the
proceeds of the foreclosure may be delayed and the amount of proceeds from
the foreclosure may not be sufficient to pay the principal of and accrued
interest on the defaulted municipal obligations.
Each state Fund is classified as non-diversified under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon
the performance of a smaller number of securities relative to the number held
in a diversified portfolio. Consequently, the change in value of any one
security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio, and thereby subject the market-based
net asset value per share of the non-diversified portfolio to greater
fluctuations. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with a similar objective may be.
The concentration of the state Funds in municipal obligations of particular
states raises additional considerations. Payment of the interest on and the
principal of these obligations is dependent upon the continuing ability of
state issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors should consider
the greater risk inherent in a Fund's concentration in such obligations
versus the safety that comes with a less geographically concentrated
investment portfolio and should compare the yield available on a portfolio of
state-specific issues with the yield of a more diversified portfolio
including issues of other states before making an investment decision.
The state Funds have constitutional and/or statutory restrictions that affect
government revenues. Because of the nature of the various restrictions,
certain possible ambiguities and inconsistencies in their terms and the scope
of various exemptions and exceptions, as well as the impossibility of
predicting the level of future appropriations for state and local
governmental entities, it is not presently possible to determine the impact
of these restrictions and related measures on the ability of governmental
issuers in Oregon and Arizona to pay interest or repay principal on their
obligations. There have, however, been certain adverse developments with
respect to municipal obligations of governmental issuers in these states over
the past several years.
In addition to the risk of nonpayment of state and local governmental debt,
if such debt declines in quality and is downgraded by the NRSROs, it may
become ineligible for purchase by a Fund. Since there are a number of buyers
of such debt that may be similarly restricted, the supply of eligible
securities could become inadequate at certain times. Similarly, there is a
relatively small active market for Arizona Obligations, California
Obligations and Oregon Obligations and the market price of such bonds may
therefore be volatile. If any of the State Tax-Free Funds were forced to sell
a large volume of Arizona Obligations, California Obligations or Oregon
Obligations for any reason, such as to meet redemption requests for a large
number of shares, there is a risk that the large sale itself would adversely
affect the value of such Fund's portfolio.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that
is inherent in investing in particular types of investment products.
SPECIAL CONSIDERATIONS AFFECTING ARIZONA MUNICIPAL OBLIGATIONS
The concentration of the Arizona Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
Under its constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The State
enters into certain lease transactions that are subject to annual renewal at the
option of the State. Local governmental units in the State are also authorized
to incur indebtedness. The major source of financing for such local government
indebtedness is an ad valorem property tax. In addition, in order to finance
public projects, local governments in the State can issue revenue bonds payable
from the revenues of a utility or enterprise or from the proceeds of an excise
tax, or assessment bonds payable from special assessments. Arizona local
governments have also financed public projects through leases which are subject
to annual appropriation at the option of the local government.
There is a statutory restriction on the amount of annual increases in
taxes that can be levied by the various taxing jurisdictions in the State
without voter approval. This restriction does not apply to taxes levied to pay
general obligation debt.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there would
be an adverse impact on State or local government financing. It is not possible
to predict whether any such proposals will be enacted in the future or what
would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve
this objective, the State has, at various times in the past, utilized a
combination of spending reductions or reductions in the rate of growth in
spending, and tax increases. In recent years, the State's fiscal situation has
improved even while tax reduction measures have been enacted each year since
1992. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase state revenue. Accordingly, it will be more
difficult to reverse tax reductions, which may adversely affect state fund
balances and fiscal conditions over time.
Arizona state government tax revenue growth in fiscal year 1997
increased by 6.5% over fiscal year 1996, even after factoring in tax reductions.
The 5.1% increase in sales tax revenue for FY 1997, and projected increases of
5.0% for FY 1998 and FY 1999, respectively, reflect continued strong economic
growth in the state. The state general fund ended fiscal year 1997 with a total
general fund balance of approximately $762 million, representing approximately
16% of total general fund expenditures for fiscal year 1997. Included in the
total balance is a general fund ending balance of approximately $516 million,
and a budget stabilization ("rainy day") fund balance of approximately $246
million. The total general fund balance at the end of fiscal year 1998 is
projected to be approximately $814 million. While these balances are indicative
of present fiscal health, the overall fiscal picture could change rapidly and
dramatically for the worse, depending on fluctuations in revenues resulting from
an economic recession or other adverse conditions.
The 1998 legislature enacted a $120 million tax reduction package,
resulting in the seventh consecutive year of significant state tax reduction. In
earlier years, the 1997 legislature enacted a $110 million income tax reduction
package, the 1996 legislature enacted a $200 million property tax reduction
package, and an income tax reduction of $200 million was enacted in 1995.
Although the 1998 general election ballot will not include questions related to
the state tax structure generally, efforts were made to bring such issues to the
ballot, and may be made again in 2000 and in future years.
In 1998, the Legislature adopted a comprehensive plan to overhaul the
state's K-12 education capital finance system. Under this plan, a substantial
commitment of state general fund revenues to the system has been made, totaling
approximately $360 million in FY 1999, with greater amounts likely in future
years. There may be additional legislative activity during 1999 and beyond in
the areas of tax reform and school finance. The combined impact of the
commitment of resources to K-12 education capital finance, continued tax
reduction, and the inability to increase revenues without a two-thirds of both
houses of the legislature, together with other actions and circumstances, may
result in deteriorating fiscal conditions in the future, which may adversely
affect state fund balances and fiscal health.
Arizona has a diversified economic base that is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, which was at one time a major sector,
now plays a much smaller role in the State's economy. For several decades,
the population of the State has grown at a substantially higher rate than the
population of the United States. While the State's economy flourished during
the early 80's, a substantial amount of overbuilding occurred, adversely
affecting Arizona-based financial institutions, many of which were placed
under the control of the Resolution Trust Corporation. Spillover effects
produced further weakening in the State's economy. The Arizona economy has
begun to grow again, albeit at a slower pace than experienced before the real
estate collapse. The North American Free Trade Agreement is generally viewed
as beneficial to the State. However, current and proposed reductions in
federal military expenditures may adversely affect the Arizona economy.
SPECIAL CONSIDERATIONS AFFECTING CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession. Unemployment
reached 10.1% in January 1994, but fell sharply to 7.7% in October and November
1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which
basically mirror economic conditions. It also caused increased expenditures for
health and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been
recovering steadily. Employment has grew in excess of 500,000 during 1994 and
1995, and 400,000 additional jobs were created between the fourth quarter of
1996 and the fourth quarter of 1997. This trend is projected to continue through
the rest of the decade. Unemployment, while remaining higher than the national
average, has come down from its 10% recession peak to under 6% in the Spring of
1998. Because of the improving economy and California's fiscal austerity, the
state has had operating surpluses for the five consecutive fiscal years through
1996-97. Also, Standard & Poors upgraded its rating of California municipal
obligations back to "A+" on July 15, 1996 and the SFEU is projected to be $296
million on June 30, 1999. However, the Asian economic difficulties since
mid-1997 are expected to have had a moderate dampening effect on California's
economy. Any delay or reversal of the recovery may create new shortfalls in
revenues.
Local Governments. On December 6, 1994, Orange County, California
became the largest municipality in the United States to file for protection
under the Federal Bankruptcy laws. The filing stemmed from approximately $1.7
billion in losses suffered by the county's investment pool because of
investments in high risk "derivative" securities. In September 1995,
California's legislature approved legislation permitting the county to use for
bankruptcy recovery $820 million over 20 years in sales taxes previously
earmarked for highways, transit, and development. In June 1996, the county
completed an $880 million bond offering secured by real property owned by the
county. In June 1996, the county emerged from bankruptcy, and the county's
investment rating by Standard & Poors was "AAA" as of July 31, 1998.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8
on the Richter Scale struck Los Angeles County, California causing significant
damage to public and private structures and facilities. While county residents
and businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the county's and California's economy is not
expected to be serious. However, Los Angeles County is experiencing financial
difficulty due in part to the severe operating deficits for the county's health
care system. In August 1995, the credit rating of the county's long term bonds
was downgraded for the third time since 1992. The county has received federal
and state assistance and the proposed fiscal 1999 budget for Los Angeles County
is the first in several years that does not begin with an operating deficit.
Even though the state has no existing obligations with respect to either Orange
County or Los Angeles County, the state may be required to intervene and provide
funding if the counties cannot maintain certain programs because of insufficient
resources.
State Finances. The monies of California are segregated into the
General Fund and approximately 600 Special Funds. The General Fund consists of
the revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state monies not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required to
return monies so transferred without payment of interest as soon as there are
sufficient monies in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add the
balance in the SFEU to the balance in the General Fund so as to show the total
monies then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-99
Executive Budget projections submitted to the State Legislature in February
1998, forecast a 1999-00 General Fund budget gap of approximately $1.7 billion
and a 2000-01 gap of $3.7 billion. As a result of changes made in the 1998-99
enacted budget, the 1999-00 gap is now expected to be roughly $1.3 billion, or
about $400 million less than previously projected, after application of reserves
created as part of the 1998-99 budget process. Such reserves would not be
available against subsequent year imbalances.
Changes in California Constitutional and Other Laws. In 1978,
California voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended
Article XIIIB and Article XVI of the state's Constitution. Proposition 98 (as
modified by "Proposition 111," which was enacted in 1990), changed state funding
of public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
In 1996, California voters approved "Proposition 218," which added
Articles XIIIC and XIIID to the state's Constitution generally requiring voter
approval of most tax or fee increases by local governments and curtailing local
government use of benefit assessments to fund certain property-related services
to finance infrastructure. Proposition 218 also limits the use of special
assessments or "property-related" fees to services or infrastructure that confer
a "special benefit" to specific property; police, fire and other services are
now deemed to benefit the public at large and, therefore, could not be funded by
special assessments. Finally, the amendments enable the voters to use their
initiative power to repeal previously-authorized taxes, assessments, fees and
charges. The interpretation and application of Proposition 218 will ultimately
be determined by the courts. Proposition 218 is generally viewed as restricting
the fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced.
The Governor in the 1998-99 budget bill proposed that California reduce
its Vehicle License Fee (a personal property tax on the value of automobiles,
the "VLF") by 75% over five years, by which time the tax cut would be more than
$3.5 billion annually. Under current law, the VLF is entirely dedicated to city
and county government, and the Governor proposed to use the General Fund to
offer the loss of VLF funds to local government. The bill as passed provides for
a phased-in reduction of the VLF and provides that the General Fund be used to
replace the lost revenues to local governments. On January 1, 1999, the VLF will
be reduced by 25%, at a cost to the General Fund of approximately $500 million
in the 1998-99 Fiscal Year and about $1 billion annually thereafter.
In addition to the reduction of the VLF, the 1998-99 budget bill
included increases in the personal income tax dependent credit (resulting in a
$612 million General Fund cost in 1998-99), a nonrefundable renters tax credit
(resulting in a $133 million cost in 1998-99), and various targeted business tax
credits (monthly in a $106 million cost in 1998-99). It remains to be seen, as
such, what impact these changes in California laws, fee and tax policies will
have on existing and future California security obligations.
Other Information. Certain debt obligations held by the Funds may be
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate funding
for lease payments in its annual budget for each fiscal year. In case of a
default under the lease, the only remedy available against the lessor is that of
reletting the property; no acceleration of lease payments is permitted. Each of
these factors presents a risk that the lease financing obligations held by a
Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
nearly half of $105 billion in total exports, will not adversely affect the
market value of California municipal securities or the ability of obligors to
continue to make payments on such securities.
SPECIAL CONSIDERATIONS AFFECTING OREGON MUNICIPAL OBLIGATIONS
The concentration of the Oregon Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
State Bonds and Revenues. As of September 1, 1998, $2.90 billion
(rounded) in general obligation bonds issued by the State of Oregon and its
agencies were outstanding, including $35.8 million (rounded) in general
obligation bonds supported by the budget for the State's general fund and $2.76
billion (rounded) of self-supporting general obligation bonds. The State's
self-supporting general obligation bonds include $2.05 billion (rounded) of
State veteran's bonds, which, in the event of poor economic conditions resulting
in an increased number of mortgage defaults, could cease to be self-supporting.
All of the existing and outstanding general obligation bonds of the State have
been issued under specific State constitutional provisions that authorize the
issuance of such bonds and provide authority for ad valorem taxation to pay the
principal of and interest on such bonds. With the exception of the veteran's
bonds, for which no more than two mills on each dollar valuation may be levied
to pay principal and interest, the authority of the State to tax property for
the payment of its general obligation bonds is unlimited. Since at least 1950,
the State has not imposed ad valorem tax for the payment of any of its
obligations because other revenues, including those generated by the
self-supporting bonds, have been sufficient.
In addition to general obligation bonds, various State statutes
authorize the issuance of State revenue bonds and certificates of participation.
These limited obligations of the State or its agencies or instrumentalities may
be payable from a specific project or source, including lease rentals. The State
is not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Fund or the
ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal sources of State
tax revenues are personal income and corporate income taxes. In the
legislatively adopted budget for the 1997-99 biennium, approximately 97.0% of
the State's revenues for the 1997-99 biennium were projected to come from
combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes. Since 1983 State revenues have improved
substantially, and in recent years the State has granted tax refunds because of
budget surpluses, as required by statute.
Oregon Economic and Revenue Forecast. A quarterly Economic and Revenue
Forecast is prepared by the State Department of Administrative Services as
required by ORS 291.342. A complete copy of the State's most recent quarterly
Economic and Revenue Forecast is posted at the Oregon Department of
Administrative Services' web site: www.oea.das.state.or.us when publicly
released. The following is a portion of the summary of the September 1, 1998
Oregon Economic and Revenue Forecast prepared by the State of Oregon for use in
its Official Statements for State Obligations issued between October 1, 1998 and
January 1, 1999 (a delay of approximately 30 days typically following public
release of the most recent quarterly Oregon Economic and Revenue Forecast and
the preparation of this summary material for inclusion in State Official
Statements).
Economic Forecast. Oregon's economy is clearly slowing. Asia's weakness
is dampering the state's high technology, forest products and agriculture
sectors. Oregon's close ties to Asian export markets is causing the state to
feel the impact o the region's financial crisis proportionately more than the
country as a whole. However, similar to the nation, Oregon consumers appear to
be proving the fuel to keep the state's economic expansion going.
Oregon's economy has been at the forefront in absorbing the impact of
Asia's recessions. The Office of Economic Analysis (OEA) expects this trend to
continue. Following years of superior economic performance, the state's growth
rate is expected to hover near the national average over the next two years. The
state's mid-1990's economic boom is clearly over. Nonetheless, Oregon's economy
is likely to continue growing as long as the nation avoids a recession.
Oregon's job and income growth rates are expected to be close to the
national average. This contrasts with the state's much stronger growth
throughout the 1990's. On a per capita basis, Oregon personal income is expected
to slip relative to the national average in both 1998 and 1999. This has not
happened since 1992. Average wages are also expected to grow more slowly than
the U.S. as a whole in 1998 and 1999.
OEA projects a similar trend for job growth in the state. Non-farm
payroll employment increased 3.4 percent in 1997. It is projected to rise 2.6
percent for 1998 and 1.4 percent for 1999.
Oregon's economic boom in the mid-1990's can be largely traced to rapid
expansion of the high technology sector. A surge in semiconductor investment
triggered rapid growth in construction and electronics industry employment.
Modest employment declines are anticipated for both electronics and construction
over the next four quarters. The downturn in these two sectors is the catalyst
for slower economic growth in the state.
The major risk to Oregon's economy is worsening of the Asian economic
crisis. If the recessions now underway in Asia turn out to be more severe than
currently-expected. Oregon's economy will slow further. Japan is the state's
largest export market. A severe recession in Japan, rather than the moderate one
now anticipated, would have a significant impact on Oregon exporters.
Demographic Forecast. The Office of Economic Analysis projects total
population in Oregon to grow from 3.217 million in 1997 to 3.597 million in
2005, an increase of 11.8 percent. This reflects a continuation of moderate
population growth for the state. The fastest growth will occur in the young
adult population (18-24 year-olds), older wage earners (ages 45-64 years-old),
and those ages 85 and older.
Revenue Forecast. The Office of Economic Analysis now projects General
Fund revenue of $8.356.7 million for the 1997-99 biennium. This is a decrease of
$216.5 million from the June forecast. The September forecast is $131.6 million
higher than the 1997 close of legislative session ("COS") forecast.
The Oregon Supreme Court ruled that the state has illegally taxed
Federal government pension income since 1991. The September forecast includes a
$306.1 million reduction to account for refunds of back taxes and lower future
tax collections from pension income.
The reduction in revenue caused by the pension income decision is
partly offset by higher collections in the second quarter and a higher forecast
for capital gains income. Personal income tax collections in the second quarter
exceeded the June estimate by $63.7 million. This is attributed to a jump in
capital gains income during the 1997 tax year.
The surge in capital gains income explains why Oregon's personal income
tax revenue continues to rise rapidly despite the slowing state economy.
Oregon's corporate income tax revenue has clearly been affected by the
softening state economy. Second quarter corporate income tad revenue came in
$18.3 million below the June forecast. The slower pace of collections and a
lower national profit forecast from DRI are the major reasons for the $28.3
million reduction in the 1997-99 corporate income tax forecast.
All non-corporate income tax revenue is now projected to exceed the COS
forecast by $167.9 million. This is 2.2 percent above the close of session
forecast. This means that a surplus kicker refund for individuals is projected
for the 1999-2001 biennium.
A surplus kicker credit is not anticipated for corporations. The corporate
income tax forecast is $36.3 million below the COS projection.
1999-2001 General Fund Revenue. General Fund revenue is projected to
total $9,908.0 million for the 1999-2001 biennium. The 1999-2001 beginning
balance is estimated to be $327.0 million. This leaves a General Fund resource
projection of $10,235 million.
The General Fund revenue projection is $30.3 million higher than the
June forecast. However, the beginning balance estimate is $208.7 million less
than expected in June. This leaves the September General Fund resources forecast
$178.4 million below the previous projection.
Recent Environmental Developments. In 1991 and 1992, in response to
concerns over diminishing salmon runs, three populations of Snake River salmon
were placed on the Endangered Species list. More recently, the National Marine
Fisheries Service and the U.S. Fish and Wildlife Service have commenced status
reviews of hundreds of additional salmon and trout populations in the Columbia
Basin and throughout Western Oregon. The Snake River salmon listings have
already had substantial economic impacts, primarily through increased
electricity rates and related impacts on rate-sensitive industries such as the
aluminum industry. Efforts to protect salmon and steelhead populations may
eventually affect a wide variety of industrial, recreational and land use
activities, with corresponding impacts on long-term economic growth; however,
the magnitude and extent of any future environmental action is impossible to
predict at this time. The State's economic forecasts do not address the
potential impact of endangered species problems on Oregon's economy.
Recent Developments Affecting Government Revenues. Ballot Measure 5.
Article XI, section 11b of the Oregon Constitution, adopted by Oregon's voters
in November 1990 ("Ballot Measure 5"), imposes an aggregate limit on the rate of
property taxes, including ad valorem taxes, that may be levied against any real
or personal property. The limit is subject to certain exceptions and is being
phased in over a five-year period. Beginning with the tax year that starts on
July 1, 1996, the final year of the phase-in period, not more than $15 per
$1,000 of real market value can be levied against any piece of property. Of this
amount, $5 may be used for public education, and the remaining $10 may be used
for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to
pay the principal of and interest on bonded indebtedness authorized by a
specific provision of the State Constitution. Therefore, the ability of the
State to levy taxes to service its constitutionally authorized general
obligation bonds is not subject to the limit. In addition, because the State
currently receives its revenues from sources other than property taxes, Ballot
Measure 5 has not directly affected State revenues.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 5 has controlled the growth of local property tax
revenues since its adoption. Although the growth in local property valuations
during the period 1991 to 1997 has somewhat mitigated the potential impacts of
Ballot Measure 5, revenues of local government units in Oregon have generally
been adversely affected by the adoption of Ballot Measure 5. This appears to be
particularly true with respect to school district operating revenues.
Ballot Measure 5 required the State to replace a substantial portion of
the lost revenues of local school districts through the end of fiscal year
1995-96. Although this obligation has now expired, the extent of revenue loss
perceived to have been incurred by local school districts indicates that the
State may continue to provide significant revenue relief to these governmental
units. In addition, the provisions of the initiative known as Ballot Measure 50,
as defined and discussed below, is expected to also result in the State making
further financial assistance available to certain units of local government as a
result of further restrictions and limitations placed upon the ability of units
of local government to generate revenues through Oregon's system of ad valorem
property taxation.
Ballot Measure 50. The 1997 Legislative Assembly referred to Oregon
voters, and the voters approved at the May 20, 1997, special election, a
constitutional amendment ("Measure 50") that replaced the property tax
limitations imposed by a voter initiative approved at the November 5, 1996,
general election ("Measure 47"). Measure 50 repealed Measure 47 and replaced it
with new ad valorem property tax limitations similar to those which would have
been required to be enacted under Measure 47. Measure 50 limits the assessed
value for the tax year 1997-98 to its 1995-96 "real market value," less ten
percent. In implementing Measure 50, the Oregon Legislature also ordered a 17%
reduction in 1997-98 in operating tax levies (which amounts vary by government
entity). Thereafter, Measure 50 limits the valuation growth of property
assessments on each unit of property to three percent per year for future tax
years. Measure 50 preserves the general limitations on property tax rates of $5
per $1,000 for public education and $10 per $1,000 for all other governmental
services. Measure 50 also requires that any new property taxes be approved by a
majority of the voters in an election where at least 50% of eligible voters
participate, except in the instance of a general election in even numbered
years. In addition, Measure 50 requires voter approval of the use of fees,
taxes, assessments or other charges as alternative funding sources to make up
for revenue reductions caused by the amended property tax limits.
Units of local government that levy and collect property taxes are most
directly affected by Measure 50. The State does not levy or collect property
taxes, but relies instead on state income taxes as the main source of revenue
for the State's general fund. Therefore, Measure 50's main impact on the State
will likely be to increase pressure on the Legislative Assembly to use State
funds to replace revenues lost by local governments. Measure 50 requires the
Legislative Assembly to replace the estimated $428 million in revenues that the
public school system, including community colleges, is expected to lose in the
1997-99 biennium because of the property tax limitation. In this manner, Measure
50 may influence the State budgeting process.
The Oregon Legislative Revenue Office has estimated that the total
reduction in property tax revenues collected by local governments under Measure
50 will be approximately $389 million for the tax year 1997-98 and approximately
$454 million for the tax year 1998-99. The first year of implementation occurred
with the local property tax bills subject to Measure 50 being distributed in
late November 1997. Until local governments and county tax assessors and
collectors have significantly more practical experience with implementing and
administering the property tax system under the guidelines and limitations of
Measure 50 and its implementing legislation, the actual short term and long term
financial effects of Measure 50 on local governments will be uncertain.
The Initiative Process. The Oregon Constitution reserves to the people
of the State initiative and referendum power pursuant to which measures designed
to amend the State Constitution or enact legislation, can be placed on the
statewide general election ballot for consideration by the voters. "Referendum"
generally means measures referred to the electors by a legislative body such as
the State Legislative Assembly or the governing body of a city, county or other
political subdivision, while "initiative" generally means a measure placed
before the voters as a result of a petition circulated by one or more private
citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for initiative
measures. After considering any public comments, the Attorney General must
either certify or revise the draft ballot title. In general, any elector who
timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
To have an initiative placed on a general election ballot, the
proponents of the proposed initiative must submit to the Secretary of State
initiative petitions signed by the number of qualified voters equal to a
specified percentage of the total number of votes cast for all candidates for
governor in the most recent gubernatorial election. The initiative petition must
be filed with the Secretary of State not less than four months prior to the
general election at which the proposed measure is to be voted upon. State law
permits persons circulating initiative petition to pay money to persons
obtaining signatures for the petition.
Over the past decade Oregon has witnessed increasing activity in the
number of initiative petitions that have qualified for the statewide general
election. As of July 20, 1998, several initiatives had qualified to be placed on
the November 1998 general election ballot. One of these, an initiative
restricting forest harvest practices, is forecast to potentially result in a
decrease in state revenues from timber harvest tax collections of approximately
$30 million per year is enacted. In recent years, a number of initiatives
involving the fiscal operations of the State were proposed and placed on the
ballot. Several of these initiatives have been approved by the voters and have
had or will have a significant impact on the fiscal operations of the State and
local governments. See "Recent Developments Affecting Government Revenues -
Ballot Measure 5 and Measure 50." Other initiatives, had they been approved by
the voters, also may have had significant impacts on the fiscal operations of
the State.
It is difficult to predict with certainty either the likelihood of a
proposed initiative measure obtaining the required number of valid initiative
petition signatures or the likelihood of an initiative that has acquired the
necessary number of valid signatures being approved by the voters. There can be
no assurance that additional initiatives that will have a material adverse
impact on the financial condition of the State or units of local government or
the State's or units of local government's ability to collect the revenues
required to repay their general obligation bonds, revenue bonds or other
obligations will not be proposed, placed on the ballot, or be approved by the
voters.
Judicial challenges seeking interpretations and clarifications of the
scope and application of Ballot Measure 5 continue to be filed. It is
anticipated that the passage of Measure 50 will also require substantial
judicial interpretation of its meaning and application. If it is judicially
determined that certain statutes adopted by the Oregon legislature to implement
Ballot Measure 5 or statutes adopted relating to Measure 50 do not adequately
implement the restrictions contained in that measure, local governments may have
to seek new funding sources for certain items which have been traditionally
financed in part through the issuance of voter approved ad valorem tax supported
indebtedness.
The Oregon Bond Market. There is a relatively small active market for
municipal bonds of Oregon issuers other than the general obligations of the
State itself, and the market price of such other bonds may therefore be
volatile. If the Oregon Tax-Free Fund were forced to sell a large volume of
Oregon Obligations owned by it for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's portfolio.
MANAGEMENT
The following information supplements, and should be read in
conjunction with, the section in the Prospectus entitled "Organization and
Management of the Funds." The principal occupations during the past five years
of the Directors and principal executive Officer of the Company are listed
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School of
321 Beechcliff Court Business and Accounting at Wake Forest University
Winston-Salem, NC 27104 since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser Water
Crystal Geyser Water Co. Company and President of Crystal Geyser Roxane
55 Francisco Street Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College since
75 Grasslands Road 1971; Adjunct Professor of Columbia University
Valhalla, NY 10595 Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman of
Charleston, SC 29401 Renaissance Properties Ltd.; President of Morse
Investment Corporation; and Co-Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director of
Secretary and Capo Inc.
Treasurer
Compensation Table
12-Month Period Ended June 30, 1999
Total Compensation
Aggregate Compensation from Registrant and
Name and Position from Registrant Wells Fargo Fund Complex
Jack S. Euphrat $15,850 $20,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $15,850 $20,750
Director
Peter G. Gordon $15,850 $20,750
Director
Joseph N. Hankin $15,350 $19,750
Director
W. Rodney Hughes $15,350 $19,750
Director
J. Tucker Morse $15,350 $19,750
Director
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated below and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Trust and Life & Annuity Trust are considered
to be members of the same fund complex as such term is defined in Form N-1A
under the 1940 Act (the "Wells Fargo Fund Complex"). Barclays Global Investors
Funds, Inc. and Master Investment Portfolio together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin and Peter G. Gordon, who only serve the aforementioned members of the
Wells Fargo Fund Complex. The Directors are compensated by other companies and
trusts within a fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of each
fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Advisor. Wells Fargo Bank provides investment advisory
services to the Funds. As Investment Advisor, Wells Fargo Bank furnishes
investment guidance and policy direction in connection with the daily portfolio
management of the Funds. Wells Fargo Bank furnishes to the Company's Board of
Directors periodic reports on the investment strategy and performance of each
Fund. Wells Fargo Bank provides the Funds with, among other things, money market
security and fixed-income research, analysis and statistical and economic data
and information concerning interest rate and securities markets trends,
portfolio composition, and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled
to receive a monthly fee at the annual rates indicated below of each Fund's
average daily net assets:
Annual Rate
Fund (as percentage of net assets)
Arizona Tax-Free 0.50%
California Tax-Free Bond 0.50%
California Tax-Free Income 0.50%
National Tax-Free 0.50%
Oregon Tax-Free 0.50%
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Year-Ended
6/30/99
Fund Fees Paid Fees Waived
Arizona Tax-Free $ 26,674 $ 60,197
California Tax-Free Bond $1,473,040 $2,020,699
California Tax-Free Income $ 84,334 $ 189,929
National Tax-Free $ 87,449 $ 198,702
Oregon Tax-Free $ 63,262 $ 144,862
Three-Month Six-Month
Period Ended Year-Ended Period Ended
Fund 6/30/98 3/31/98 3/31/97
Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
Arizona Tax-Free $ 6,959 $ 15,744 $ 29,358 $ 65,926 $ 0 $ 52,838
California Tax-Free Bond* $ 716,047 $979,592 $1,259,094 $ N/A N/A
0
California Tax-Free Income $ 23,651 $ 54,709 $ 106,906 $ 241,280 $67,449 $144,315
National Tax-Free $ 21,766 $ 49,565 $ 39,446 $ 89,340 $ 0 $ 30,284
Oregon Tax-Free $ 14,994 $ 34,127 $ 57,037 $ 130,517 $ 0 $102,775
- --------------------
* These amounts reflect the six-month period ended June 30, 1998, and
the year ended December 31, 1997. Prior to December 12, 1997, these amounts
reflect fees paid by the Overland predecessor portfolio.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. The Pacifica
Arizona Tax-Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds were
reorganized as the Company's Arizona Tax-Free, National Tax-Free and Oregon
Tax-Free Funds on September 6, 1996. Prior to September 6, 1996, Wells Fargo
Investment Management, Inc. ("WFIM") and its predecessor, First Interstate
Capital Management, Inc. ("FICM") served as Advisor to the Pacifica Arizona
Tax-Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds. As of September 6,
1996, Wells Fargo Bank became the Advisor to the Company's Arizona Tax-Free,
National Tax-Free and Oregon Tax-Free Funds.
For the period begun April 1, 1996 and ended September 5, 1996, the
Pacifica predecessor portfolios paid to WFIM, and for the period begun September
6, 1996 and ended September 30, 1996, the Funds paid to Wells Fargo Bank the
advisory fees indicated below and the indicated amounts were waived:
Year Ended
9/30/96
Fund Fees Paid Fees Waived
Arizona Tax-Free $ 22,457 $ 98,300
National Tax-Free $ 0 $ 67,463
Oregon Tax-Free $173,249 $ 57,377
Prior to October 1, 1995, First Interstate Bank of Oregon, N.A. and First
Interstate Bank of Washington, N.A. served as co-Advisors to the predecessor
portfolio of the National Tax-Free Fund; First Interstate Bank of Oregon, N.A.
served as Advisor to the predecessor portfolio of the Oregon Tax-Free Fund; and
First Interstate Bank of Arizona, N.A. served as Advisor to the predecessor
portfolio of the Arizona Tax-Free Fund.
For the periods indicated below, the prior Advisors were entitled to
receive the following amounts in advisory fees and waived reimbursed fees in the
indicated amounts. In 1995, the Funds changed their fiscal year from May 31 to
September 30.
Four-Month
Period Ended
9/30/95
Fees Fees
Fund Paid Waived
Arizona Tax-Free $41,159 $66,373
National Tax-Free $24,173 $68,667
Oregon Tax-Free $84,999 $43,995
California Tax-Free Bond and California Tax-Free Income Funds. For the
periods indicated below, the California Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
Nine-Month
Period Ended Year Ended
9/30/96 12/31/95
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
California Tax-Free Bond* $1,276,667 $ 0 $1,165,967 $248,047
California Tax-Free Income $ 281,991 $18,321 $ 236,632 $ 31,013
- --------------------
* Indicates fees paid by the Overland predecessor portfolio. For 1996, the
amount shown is for the year ended December 31, 1996.
General. Each Fund's Advisory Contract will continue in effect for more
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisor. Wells Fargo Bank has engaged Wells Capital
Management ("WCM") to serve as Investment Sub-Advisor to each Fund. Subject to
the direction of the Company's Board of Directors and the overall supervision
and control of Wells Fargo Bank and the Company, WCM makes recommendations
regarding the investment and reinvestment of the Funds' assets. WCM furnishes to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Funds. WCM and also furnishes such additional reports and information as
Wells Fargo Bank and the Company's Board of Directors and officers may
reasonably request.
As compensation for its sub-advisory services, WCM is entitled to
receive a monthly fee equal to an annual rate of 0.15% of the first $400 million
of the average daily net assets, 0.125% of the next $400 million of the Funds'
net assets, and 0.10% of net assets over $800 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from the Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by the Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
Portfolio Managers. Mr. Stephen Galiani assumed sole responsibility for
the day-to-day portfolio management of the National Tax-Free Fund in July 1997,
and for the Arizona Tax-Free and Oregon Tax-Free Funds on March 1, 1999. Mr.
Galiani joined Wells Capital Management in June of 1977 as the Senior Portfolio
Manager in charge of the municipal bond group. He came to WCM from Qualivest
Capital Management in Portland, Oregon, where he was the Director of Fixed
Income for two years. Prior to that, he served as President and portfolio
manager of his own investment advisory firm from 1990 to 1995. Earlier
affiliations included Keystone Custodian Funds, where he managed the municipal
bond team, and Eaton Vance Corporation. Mr. Galiani began his investment career
in 1975 after earning an M.B.A. from Boston University. He holds a B.A. from
Manhattan College.
Ms. Laura Milner assumed sole responsibility for the day-to-day
management of the California Tax-Free Income Fund on June 1, 1995. Ms. Milner
had been a portfolio co-manager of the California Tax-Free Income Fund since
November 1992. Ms. Milner also has been portfolio co-manager of the California
Tax-Free Bond Fund. Ms. Milner's current position with Wells Fargo Bank is
Senior Tax-Exempt Specialist/Portfolio Manager. Her background includes over
seven years experience specializing in short- and long-term municipal securities
with Salomon Brothers. She is a member of the National Federation of Municipal
Analysts and its California chapter.
Mr. David Klug assumed sole responsibility for the day-to-day
management of the California Tax-Free Bond Fund on June 1, 1995. Mr. Klug had
been a co-manager of the California Tax-Free Bond Fund since January 1992. Mr.
Klug also has been portfolio co-manager of the California Tax-Free Income Fund.
Mr. Klug's current position with Wells Fargo Bank is Senior Tax-Exempt
Specialist/Portfolio Manager. He has managed municipal bond portfolios for Wells
Fargo Bank for over nine years. Prior to joining Wells Fargo Bank, he managed
the municipal bond portfolio for a major property and casualty insurance
company. Mr. Klug holds an M.B.A. from the University of Chicago, and is a
member of the National Federation of Municipal Analyst and its California
chapter.
Administrator. The Company has retained Wells Fargo Bank as
Administrator on behalf of each Fund. Under the Administration Agreement between
Wells Fargo Bank and the Company, Wells Fargo Bank shall provide as
administration services, among other things: (i) general supervision of the
Funds' operations, including coordination of the services performed by each
Fund's investment Advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for each Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank also furnishes office space and certain facilities required for
conducting the Funds' business together with ordinary clerical and bookkeeping
services. The Administrator is entitled to receive a fee of 0.15%, of the
average daily net assets on an annual basis of each Fund.
Prior to March 25, 1999, Wells Fargo Bank served as administrator and
Stephens Inc. ("Stephens") served as co-administrator for the Fund and each were
entitled to receive 0.03% and 0.04%, respectively, of each Fund's average daily
net assets on an annual basis. Prior to February 1, 1998, Wells Fargo Bank and
Stephens received monthly fees of 0.04% and 0.02%, respectively, of the average
daily net assets on an annual basis of each Fund. In connection with the change
in fees, the responsibility for performing various administration services was
shifted to the Co-Administrator. Except as described below, prior to February 1,
1997, Stephens served as sole Administrator and performed substantially the same
services now provided by Wells Fargo Bank. The Administration fees paid are
listed below.
For the periods indicated below, the Funds paid to Wells Fargo Bank and
Stephens the following dollar amounts for administration and co-administration
fees:
Year-Ended
6/30/99
Fund Total Wells Fargo Stephens*
---- ----- ----------- --------
Arizona Tax-Free $ 14,351 $ 6,171 $ 8,180
California Tax-Free Bond $569,825 $245,025 $324,800
California Tax-Free Income $ 45,036 $ 19,365 $ 25,671
National Tax-Free $ 47,231 $ 20,309 $ 26,922
Oregon Tax-Free $ 34,149 $ 14,684 $ 19,465
- --------------------
* Reflects fees paid to Stephens as Co-Administrator prior to March 25, 1999.
Three-Month
Period Ended
Fund 6/30/98
Total Wells Fargo Stephens
Arizona Tax-Free $ 3,251 $ 1,398 $ 1,853
California Tax-Free Bond* $232,768 $100,090 $132,678
California Tax-Free Income $ 11,046 $ 4,750 $ 6,296
National Tax-Free $ 10,157 $ 4,368 $ 5,789
Oregon Tax-Free $ 6,989 $ 3,005 $ 3,984
- --------------------
* Represents the six-month period ended June 30, 1998.
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- ------- -------
Total Wells Fargo Stephens Total Wells Fargo Stephens
----- ----------- -------- ----- ----------- --------
Arizona Tax-Free $ 12,043 $ 8,069 $ $ 5,750 $ 1,150 $ 4,600
3,974
California Tax-Free Bond* $217,623 $43,525 $174,098 N/A N/A N/A
California Tax-Free Income $ 43,808 $29,351 $ 14,457 $ 16,307 $ 3,261 $ 13,046
National Tax-Free $ 16,707 $11,194 $ $ 3,222 $ 644 $ 2,578
5,513
Oregon Tax-Free $ 23,433 $15,700 $ $ 10,907 $ 2,181 $ 8,726
7,733
- --------------------
* These amounts are for the year-ended December 31, 1997. Prior to December
12, 1997, these amounts reflect fees paid by the Overland predecessor
portfolio.
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. The
Pacifica Arizona Tax-Exempt, National Tax-Exempt and Oregon Tax-Exempt Funds
were reorganized as the Company's Arizona Tax-Free, National Tax-Free and Oregon
Tax-Free Funds on September 6, 1996. Prior to September 6, 1996, the
Administrator, Furman Selz LLC ("Furman Selz"), of the Pacifica predecessor
portfolios provided management and administration services necessary for the
operation of such Funds, pursuant to an Administrative Services Contract. For
these services, Furman Selz was entitled to receive a fee, payable monthly, at
the annual rate of 0.15% of the average daily net assets of the predecessor
portfolios.
For the period begun September 6, 1996 and ended September 30, 1996,
the Funds paid to Stephens the dollar amounts of administration fees indicated
below. Stephens, as sole Administrator during this period, was entitled to
receive a monthly fee at the annual rate of 0.03% of each Fund's average daily
net assets. The amount also reflects the net administration fees paid, after
waivers, by the predecessor portfolio to Furman Selz for the period begun
October 1, 1995 and ended September 5, 1996.
Year Ended
9/30/96
Fund Fees Paid
$24,636
$14,138
$49,627
Arizona Tax-Free
National Tax-Free
Oregon Tax-Free
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS")
served as the Administrator for the predecessor portfolios to the Arizona
Tax-Free, National Tax-Free and Oregon Tax-Free Funds. For its administration
services, ALPS was entitled to receive the dollar amounts indicated below for
the periods indicated in the table and waived the indicated amounts. In 1995,
the Funds changed their fiscal year-end from May 31 to September 30.
Four-Month
Period Ended
9/30/95
Fees Fees
Fund Paid Waived
Arizona Tax-Free $4,116 $ 0
National Tax-Free $2,417 $ 0
Oregon Tax-Free $8,500 $ 0
California Tax-Free Bond and California Tax-Free Income Funds. Prior to
the Consolidation of the Overland portfolios into the Stagecoach funds on
December 12, 1997, Wells Fargo Bank and Stephens served as Administrator and
Co-Administrator, respectively, to the Overland California Tax-Free Bond and
California Tax-Free Income Funds. Prior to February 1, 1997, Stephens served as
sole Administrator to such Funds and was entitled to receive a fee, payable
monthly, at the annual rate of 0.03% of each such Fund's average daily net
assets.
For the periods indicated below, the Funds paid to Stephens the
following dollar amounts for administration fees:
Nine-Month
Period Ended Year Ended
Fund 9/30/96 12/31/95
California Tax-Free Bond* $357,423 $384,015
California Tax-Free Income $ 18,371 $ 16,793
- --------------------
* Represents amounts paid by the Overland predecessor portfolio. For 1996, the
amount shown is for the year ended December 31, 1996.
Distributor. Stephens (the "Distributor"), located at 111 Center
Street, Little Rock, Arkansas 72201, serves as Distributor to the Funds. Each
Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") for each class of its shares. The
Institutional Class shares have no Plans. The Plans were adopted by the
Company's Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Funds and who had no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plans (the "Non-Interested Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
Funds pay Stephens the amounts below as compensation for distribution-related
services or as reimbursement for distribution-related expenses. The fees are
expressed as a percentage of the average daily net assets attributable to each
Class or Fund.
<PAGE>
Fund Fee
Arizona Tax-Free
Class A 0.05%
Class B 0.75%
Institutional Class N/A
California Tax-Free Bond
Class B 0.70%
Class C 0.75%
Institutional Class N/A
National Tax-Free
Class A 0.05%
Class B 0.75%
Class C 0.75%
Institutional Class N/A
Oregon Tax-Free
Class A 0.05%
Class B 0.75%
Institutional Class N/A
The actual fee payable to the Distributor by the above-indicated Funds
and classes is determined, within such limits, from time to time by mutual
agreement between the Company and the Distributor and will not exceed the
maximum sales charges payable by mutual funds sold by members of the National
Association of Securities Dealers, Inc. ("NASD") under the Conduct Rules of the
NASD. The Distributor may enter into selling agreements with one or more selling
agents (which may include Wells Fargo Bank and its affiliates) under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable to
their customers. The Distributor may retain any portion of the total
distribution fee payable thereunder to compensate it for distribution-related
services provided by it or to reimburse it for other distribution-related
expenses.
Under the Plans in effect for the Class A shares of the California
Tax-Free Bond and California Tax-Free Income Funds, each Fund may defray all or
part of the cost of preparing and printing prospectuses and other promotional
materials and of delivering those prospectuses and promotional materials to
prospective shareholders by paying on an annual basis up to 0.05% of the
respective Fund's average daily net assets attributable to Class A shares. The
Plans for the Class A shares of the Funds provide only for reimbursement of
actual expenses.
General. Each plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the
Company and the Non-Interested Directors. Any Distribution Agreement related
to the Plans also must be approved by such vote of the Directors and
Non-Interested Directors. Such Agreement will terminate automatically if
assigned, and may be terminated at any time, without payment of any penalty,
by a vote of a majority of the outstanding voting securities of the relevant
class of the Fund or by vote of a majority of the Non-Interested Directors on
not more than 60 days' written notice. The Plans may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to the Plans may be made except by a majority of both the Directors
of the Company and the Non-Interested Directors.
The Plans require that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plans. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the
Funds' shares pursuant to selling agreements with Stephens authorized under
the Plans. As a selling agent, Wells Fargo Bank has an indirect financial
interest in the operation of the Plans. The Board of Directors has concluded
that the Plans are reasonably likely to benefit the Funds and their
shareholders because the Plans authorize the relationships with selling
agents, including Wells Fargo Bank, that have previously developed
distribution channels and relationships with the retail customers that the
Funds are designed to serve. These relationships and distribution channels
are believed by the Board to provide potential for increased Fund assets and
ultimately corresponding economic efficiencies (i.e., lower per-share
transaction costs and fixed expenses) that are generated by increased assets
under management.
Shareholder Servicing Agent. The Funds have approved a Servicing Plan
and have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank, on behalf of the Class A, Class B,
Class C and Institutional Class shares. Under the agreements, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for purchases, exchanges
and redemptions; maintaining shareholder accounts and records; and providing
such other related services as the Company or a shareholder may reasonably
request. For providing shareholder services, a Servicing Agent is entitled to a
fee from the applicable Fund, on an annualized basis, of the average daily net
assets of the class of shares owned of record or beneficially by the customers
of the Servicing Agent during the period for which payment is being made. The
amounts payable under the Shareholder Servicing Plan and Agreements are shown
below. The Servicing Plan and related Shareholder Servicing Agreements were
approved by the Company's Board of Directors and provide that a Fund shall not
be obligated to make any payments under such Plan or related Agreements that
exceed the maximum amounts payable under the Conduct Rules of the NASD.
Fund Fee
Arizona Tax-Free
Class A 0.25%
Class B 0.25%
Institutional Class 0.25%
California Tax-Free Bond
Class A 0.30%
Class B 0.30%
Class C 0.25%
Institutional Class 0.25%
California Tax-Free Income
Class A 0.30%
Institutional Class 0.25%
National Tax-Free
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
Oregon Tax-Free
Class A 0.25%
Class B 0.25%
Institutional Class 0.25%
General. The Servicing Plan will continue in effect from year to year
if such continuance is approved by a majority vote of both the Directors of the
Company, including a majority of the Directors who are not "interested periods"
(as defined in the 1940 Act) of the Funds ("Non-Interested Directors"). Any form
of Servicing Agreement related to the Servicing Plan also must be approved by
such vote of the Directors and the Non-Interested Directors. Servicing
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Board of Directors, including a majority of the
Non-Interested Directors. No material amendment to the Servicing Plan or related
Servicing Agreements may be made except by a majority of both the Directors of
the Company and the Non-Interested Directors.
The Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
6th & Marquette, Minneapolis, MN, acts as Custodian for each Fund. The
Custodian, among other things, maintains a custody account or accounts in the
name of each Fund, receives and delivers all assets for each Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of each Fund, and pays all expenses
of each Fund. For its services as Custodian, Norwest Bank is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Norwest Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of a Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
Transfer and Dividend Disbursing Agent. Boston Financial Data Services
Inc. ("BFDS"), located at Two Heritage Drive, Quincy MA, acts as Transfer and
Dividend Disbursing Agent for the Funds. For providing such services, BFDS is
entitled to receive monthly payments at the annual rate of 0.14% of each Fund's
average daily net assets of each retail class of shares and 0.06% of each Fund's
average daily net assets of the Institutional Class shares.
Underwriting Commissions. Front-end sales loads and contingent deferred
sales charges are not assessed in connection with the purchase and redemption of
Institutional Class shares. Therefore, no underwriting commissions were paid to
Stephens as the Funds' Distributor for these shares.
For the year-ended June 30, 1999, the aggregate dollar amount of
underwriting commissions paid to Stephens as sales/redemptions of the Company's
shares was $6,388,031 Stephens retained $3,295,813 of such commissions.
For the three-month period ended June 30, 1998, the aggregate dollar
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,546,670. Stephens retained $485,869 of such commissions.
Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, retained $1,068,673 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 of such commissions.
For the six-month period ended March 31, 1997, the aggregate dollar
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's share was $2,296,243. Stephens retained $241,806 of such commissions.
WFSI and its registered representatives retained $1,719,000 and $335,437,
respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate
amount of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,917,738. Stephens retained $198,664 of such commissions.
WFSI and its registered representatives retained $2,583,027 and $136,047,
respectively, of such commissions.
For the period begun October 1, 1995 and ended September 5, 1996 with
respect to the predecessor portfolios to the Arizona Tax-Free, National Tax-Free
and Oregon Tax-Free Funds, the aggregate amount of underwriting commissions on
sales/redemptions of Pacifica's shares was $150,771. Pacifica Funds Distributor
Inc. ("PFD"), retained $18,139 and its registered representatives retained
$132,632 of such commissions.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or
prospective shareholders, these figures may also be compared to the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
Performance shown or advertised for the Class A shares of the Arizona
Tax-Free Fund for periods prior to September 6, 1996, reflects performance of
the Investor shares of the Pacifica Arizona Tax-Exempt Fund, a predecessor
portfolio with the same objective and policies as the Stagecoach Arizona
Tax-Free Fund. Performance shown or advertised for the Class B shares of the
Stagecoach Arizona Tax-Free Fund for periods prior to September 6, 1996,
reflects performance of the Investor shares of the predecessor portfolio
adjusted to reflect Class B expenses in effect on September 6. Performance shown
or advertised for the Institutional Class shares of the Arizona Tax-Free Fund
for periods prior to September 6, 1996, reflects performance of the
Institutional Class shares and the Investor Class shares (prior to October 1,
1995) of the Pacifica Arizona Tax-Exempt Fund, a predecessor portfolio with the
same objective and policies as the Stagecoach Arizona Tax-Free Fund.
Performance shown or advertised for the Class A shares of the
Stagecoach California Tax-Free Bond Fund for periods prior to December 12, 1997,
reflects performance of the Class A shares of the Overland Express California
Tax-Free Bond Fund (the accounting survivor of a merger of the Funds on December
12, 1997). Performance shown or advertised for the Class C shares of the
Stagecoach Fund reflects performance of the Class D shares of the Overland Fund;
for periods prior to July 1, 1993, Class C share performance of the Stagecoach
Fund reflects performance of the Class A shares of the Overland Fund, adjusted
to reflect the sales charges and expenses of the Class C shares. Performance
shown or advertised for the Class B shares of the Stagecoach Fund for periods
prior to January 1, 1995, reflects performance of the Class D shares of the
Overland Fund, although for periods prior to July 1, 1993, Class B share
performance of the Stagecoach Fund reflects performance of the Class A shares of
the Overland Fund, adjusted to reflect the sales charges and expenses of the
Class B shares of the Class B shares of the Stagecoach Fund. Performance shown
or advertised for the Institutional Class shares of the Stagecoach California
Tax-Free Bond Fund for periods prior to December 15, 1997, reflects performance
of the Class A shares of the Overland California Tax-Free Fund (the accounting
survivor of a merger of the Funds on December 12, 1997).
Performance shown or advertised for the Institutional Class shares of
the California Tax-Free Income Fund for periods prior to September 6, 1996,
reflects the performance of the Fund's Class A shares.
Performance shown or advertised for the Class A shares of the National
Tax-Free Fund for periods prior to September 6, 1996, reflects performance of
the Investor shares of the Pacifica National Tax-Free Fund, a predecessor
portfolio with the same objective and policies as the Stagecoach National
Tax-Free Fund. Performance shown or advertised for the Class B shares of the
Stagecoach National Tax-Free Fund for periods prior to September 6, 1996,
reflects performance of the Investor shares of the predecessor portfolio
adjusted to reflect Class B expenses in effect on September 6. Performance shown
or advertised for the Institutional Class shares of the National Tax-Free Fund
for periods prior to September 6, 1996, reflects performance of the
Institutional Class shares and the Investor Class shares (prior to October 1,
1995) of the Pacifica National Tax-Exempt Fund, a predecessor portfolio with the
same objective and policies as the Stagecoach National Tax-Free Fund.
Performance shown or advertised for the Class A shares of the Oregon
Tax-Free Fund for periods prior to September 6, 1996, reflects performance of
the Investor shares of the Pacifica Oregon Tax-Exempt Fund, a predecessor
portfolio with the same objective and policies as the Stagecoach Oregon Tax-Free
Fund. Performance shown or advertised for the Class B shares of the Stagecoach
Oregon Tax-Free Fund for periods prior to September 6, 1996, reflects
performance of the Investor shares of the predecessor portfolio adjusted to
reflect Class B expenses in effect on September 6. Performance shown or
advertised for the Institutional Class shares of the Oregon Tax-Free Fund for
periods prior to September 6, 1996, reflects performance of the Institutional
Class shares and the Investor Class shares (prior to October 1, 1995) of the
Pacifica Oregon Tax-Exempt Fund, a predecessor portfolio with the same objective
and policies as the Stagecoach Oregon Tax-Free Fund.
Average Annual Total Return: The Funds may advertise certain total
return information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)n=ERV.
Average Annual Total Return for the Applicable Period Ended June 30, 19991
Inception2 Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Charge Sales Charge Sales Charge Sales Sales Charge Sales Charge Sales Sales
Fund Charge Charge Charge
Arizona Tax-Free
Class A 5.10 5.76 4.48 5.44 3.50 5.11 (3.87) 0.66
Class B 4.71 4.71 4.07 4.40 3.12 4.03 (4.74) 0.00
Institutional N/A 5.86 N/A 5.59 N/A 5.29 N/A 0.76
Class3
California
Tax-Free
Bond
Class A 7.19 7.65 5.61 6.60 4.86 6.47 (2.23) 2.38
Class B 6.92 6.92 5.52 5.84 4.80 5.70 (3.20) 1.69
Class C 6.92 6.92 5.84 5.84 5.70 5.70 0.71 1.69
Institutional N/A 7.66 N/A 6.62 N/A 6.50 N/A 2.46
Class3
California
Tax-Free
Income
Class A 3.96 4.44 3.95 4.58 3.31 4.38 (0.22) 2.84
Institutional N/A 4.46 N/A 4.61 N/A 4.43 N/A 2.96
Class3
National Tax-Free
Class A 4.42 5.18 4.71 5.68 3.97 5.58 (3.50) 1.03
Class B 4.16 4.16 4.26 4.60 3.34 4.26 (4.53) 0.35
Class C 4.14 4.14 4.57 4.57 4.22 4.22 (0.62) 0.35
Institutional N/A 5.19 N/A 5.69 N/A 5.69 N/A 1.02
Class3
Oregon Tax-Free
Class A 6.15 6.60 4.92 5.89 5.80 6.29 (2.98) 1.57
Class B 5.79 5.79 4.66 4.99 5.48 5.48 (4.28) 0.63
Institutional N/A 6.64 N/A 5.98 N/A 6.34 N/A 1.62
Class3
- --------------------
1 Return calculations reflect the inclusion of front-end sales charges
for Class A shares and the maximum applicable contingent deferred sales
charge for Class B and Class C shares.
2 For purposes of showing performance information, the inception date of
each Fund is as follows: Arizona Tax-Free - March 1, 1992; California
Tax-Free Income - November 18, 1992; California Tax- Free Bond -
October 6, 1988; National Tax-Free - January 15, 1993; Oregon Tax-Free
- June 1, 1988. The actual inception date of each Class may differ from
the inception date of the corresponding Fund.
3 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the California Tax-Free Income Fund
reflect the performance of the Class A shares of such Fund. For periods
prior to September 6, 1996, performance figures for the Institutional
Class shares of the Arizona, Oregon, and National Tax-Free Funds
reflects the performance of such Funds' predecessor portfolios. The
performance figures for the Institutional Class shares of the
California Tax-Free Bond Fund reflect the performance of the Class A
shares of the Overland California Tax-Free Bond Fund (the accounting
survivor of the merger of the Stagecoach and Overland Funds on December
12, 1997). Institutional Class shares do not assess a sales charge.
Cumulative Total Return: In addition to the above performance
information, each Fund may also advertise the cumulative total return of the
Fund. Cumulative total return is based on the overall percentage change in value
of a hypothetical investment in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested, without reflecting the effect of any
sales charge that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended June 30, 19991
Inception2 Inception2 Five Year Five Year Three Year Three Year
With No With No With No
Sales Charge Sales Charge Sales Charge Sales Charge Sales Sales Charge
Fund Charge
Arizona Tax-Free
Class A 44.02 50.79 24.29 30.35 10.88 16.14
Class B 40.13 40.13 22.05 24.00 9.65 12.58
Institutional N/A 51.83 N/A 31.25 N/A 16.74
Class3
California
Tax-Free
Bond
Class A 110.74 120.65 31.41 37.64 15.29 20.79
Class B 105.07 105.07 30.79 32.79 15.10 18.10
Class C 105.05 105.05 32.78 32.78 18.09 18.09
Institutional N/A 120.85 N/A 37.76 N/A 20.81
Class3
California
Tax-Free
Income
Class A 29.30 33.31 21.35 25.10 10.26 13.72
Institutional N/A 33.52 N/A 25.30 N/A 13.90
Class3
National Tax-Free
Class A 31.99 38.24 25.88 31.80 12.40 17.68
Class B 29.91 29.91 23.20 25.21 10.34 13.34
Class C 29.75 29.75 25.05 25.05 13.20 13.20
Institutional N/A 38.35 N/A 31.90 N/A 17.69
Class3
Oregon Tax-Free
Class A 98.83 103.00 27.11 33.11 11.77 17.06
Class B 86.53 86.53 25.55 27.56 10.59 13.59
Institutional N/A 103.90 N/A 33.69 N/A 17.59
Class3
- --------------------
1 Return calculations reflect the inclusion of front-end sales charges
for Class A shares and the maximum applicable contingent deferred sales
charge for Class B and Class C shares.
2 For purposes of showing performance information, the inception date of
each Fund and Class is as follows: Arizona Tax-Free - March 1, 1992;
California Tax-Free Income - November 18, 1992; California Tax- Free
Bond - October 6, 1988; National Tax-Free - January 15, 1993; Oregon
Tax-Free - June 1, 1988. The actual inception date of each Class may
differ from the inception date of the corresponding Fund.
3 For periods prior to September 6, 1996, performance figures for the
Institutional Class shares of the California Tax-Free Income Fund
reflect the performance of the Class A shares of such Fund. For periods
prior to September 6, 1996, performance figures for the Institutional
Class shares of the Arizona, Oregon, and National Tax-Free Funds
reflects the performance of such Funds' predecessor portfolios. The
performance figures for the Institutional Class shares of the
California Tax-Free Bond Fund reflect the performance of the Class A
shares of the Overland California Tax-Free Bond Fund (the accounting
survivor of the merger of the Stagecoach and Overland Funds on December
12, 1997). Institutional Class shares do not assess a sales charge.
Yield Calculations: The Funds may, from time to time, include their
yields, tax-equivalent yields (if applicable) and average annual total returns
in advertisements or reports to shareholders or prospective investors.
Quotations of yield for the Funds is based on the investment income per share
earned during a particular 30-day period, less expenses accrued during a period
("net investment income") and is computed by dividing net investment income by
the maximum offering price per share on the last day of the period, according to
the following formula:
YIELD = 2[(a - b + 1)6 -1]
cd
where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily number
of shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period. The
net investment income of the and Funds includes actual interest income, plus or
minus amortized purchase discount (which may include original issue discount) or
premium, less accrued expenses. Realized and unrealized gains and losses on
portfolio securities are not included in the Funds' net investment income.
Tax-Equivalent Yield: Quotations of tax-equivalent yield for a Tax-Free Fund are
calculated according the following formula:
TAX EQUIVALENT YIELD = ( E ) + t
1 - p
E = Tax-exempt yield
p = stated income tax rate
t = taxable yield
Effective Yield: Effective yields for the Funds are based on the change
in the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Period Ended June 30, 19991
Thirty-Day Tax-Equivalent
Thirty-Day Yield Yield2
After Before After Before
Fund Waiver Waiver Waiver Waiver
California Tax-Free Bond
Class A
Class B
Class C
Institutional Class
California Tax-Free Income
Class A
Institutional Class
Arizona Tax-Free
Class A
Class B
Institutional Class
Oregon Tax-Free
Class A
Class B
Institutional Class
National Tax-Free
Class A
Class B
Class C
Institutional Class
- ----------------------
1 Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares. "After Waiver" figures reflect any waived
fees or reimbursed expenses throughout the period.
2 Based on a combined federal and state income tax rate of 45.22% for each
of the California Tax-Free Bond and California Tax-Free Income Funds, and
45.04% and 42.72% for the Oregon Tax-Free Fund and the Arizona Tax-Free
Fund, respectively, and a federal income tax rate of 39.60% for the
National Tax-Free Fund.
From time to time and only to the extent the comparison is appropriate
for a Fund or a Class of shares, the Company may quote the performance or
price-earning ratio of a Fund or Class in advertising and other types of
literature as compared with the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Years Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or a class also may be compared to that of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare a
Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is appropriate
for a class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of a
Fund or a class of shares or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of
tax-deferred compounding on the investment returns of a Fund or a class of
shares, or on returns in general, may be illustrated by graphs, charts, etc.,
where such graphs or charts would compare, at various points in time, the return
from an investment in a Fund or a class of shares (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or a class or current or potential value with
respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and the
related "Tax Freedom Day."
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by an NRSRO, such as Standard
& Poor's Corporation. Such rating would assess the creditworthiness of the
investments held by a Fund. The assigned rating would not be a recommendation to
purchase, sell or hold a Fund's shares since the rating would not comment on the
market price of a Fund's shares or the suitability of a Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to a Fund or its investments. The Company may compare a
Fund's performance with other investments that are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare a Fund's
past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management), a division of Wells Fargo Bank,
is listed in the top 100 by Institutional Investor magazine in its July 1997
survey "America's Top 300 Money Managers." This survey ranks money managers in
several asset categories. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by the Company's investment Advisor and the total amount of assets under
management by Wells Fargo Bank. As of August 1, 1998, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $63 billion
of assets of individuals, trusts, estates and institutions and $32 billion of
mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as
of the close of regular trading (currently 1:00 p.m., Pacific time) on each day
the New York Stock Exchange ("NYSE") is open for business. Expenses and fees,
including advisory fees, are accrued daily and are taken into account for the
purpose of determining the net asset value of the Funds' shares.
Securities of a Fund for which market quotations are available are
valued at latest prices. Any security for which the primary market is an
exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the latest bid price quoted on
such day. In the case of other Fund securities, including U.S. Government
securities but excluding money market instruments and debt securities maturing
in 60 days or less, the valuations are based on latest quoted bid prices. Money
market instruments and debt securities maturing in 60 days or less are valued at
amortized cost. Futures contracts will be marked to market daily at their
respective settlement prices determined by the relevant exchange. Prices may be
furnished by a reputable independent pricing service approved by the Company's
Board of Directors. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Company's Board of Directors
and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the Advisor, be made in
the form of securities that are permissible investments for the Funds. For
further information about this form of payment please contact Stephens. In
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in accordance
with the pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Company's responsibilities under the 1940 Act. In addition,
the Company may redeem shares involuntarily to reimburse the Funds for any
losses sustained by reason of the failure of a shareholders to make full payment
for shares purchased or to collect any charge relating to a transaction effected
for the benefit of a shareholder which is applicable to shares of a Fund as
provided from time to time in the Prospectus.
Investors in Norwest Advantage Funds. Class A shareholders of the
Norwest Advantage Funds who redeem shares at net asset value may use the
redemption proceeds to purchase Class A shares of the Stagecoach Funds at net
asset value (without a sales charge). A reciprocal sales load waiver is
available to the Class A shareholders of Stagecoach Funds, who may use
redemption proceeds to purchase Class A shares of the Norwest Advantage Funds at
net asset value.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the Act, persons affiliated with the Company are prohibited
from dealing with the Company as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the Commission or an exemption is otherwise available. The Funds may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the Act and in compliance with procedures adopted by the Board of
Directors.
Wells Fargo Bank, as Investment Advisor to the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
For the fiscal year ended [June 30, 1999], the Company paid
[$_________] in commissions to various broker/dealers in connection with such
allocated transactions.
Brokerage Commissions. For the year-ended June 30, 1999, and for the
three-month period ended June 30, 1998, and the year ended March 31, 1998, the
Funds paid no brokerage commissions.
During the fiscal periods ended September 30, 1996, September 30, 1995,
May 31, 1995 and May 31, 1994, the predecessor portfolios of the Arizona,
National and Oregon Tax-Free Funds did not pay any brokerage commissions,
because all of their portfolio transactions occurred in the over-the-counter
market.
During the nine-month period ended September 30, 1996 and the years
ended December 31, 1995 and 1994, the California Funds did not pay any brokerage
commissions on portfolio transactions.
Securities of Regular Broker/Dealers. As of June 30, 1999, none of the
Funds owned securities of their "regular brokers or dealers" or their parents as
defined in the 1940 Act.
Portfolio Turnover Rate. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Changes may be
made in the portfolios consistent with the investment objectives and policies of
the Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate s not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from
the Funds in whole or in part. Any such waiver will reduce Fund expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against a Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectuses of each Fund
describe generally the tax 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 gain, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each Fund will not be taxed on its income and
gains distributed to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund (a) derive at least 90% of its
annual gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gains are directly
related to the regulated investment company's principal business of investing in
stock or securities) and other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
The Funds also must distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose, includes net short-term capital gains and certain other items) 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 income and 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 purchased by a
Fund at a market discount (generally at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Fund held the debt obligation.
If a Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
Capital Gain Distributions. Distributions which are designated by a
Fund as capital gain distributions will be taxed to shareholders as long-term
term capital gain (to the extent such dividends do exceed the Fund's actual net
capital gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations have been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do not apply to losses realized under a
periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on 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"), usually a shareholder's
social security or employee identification number, provided is correct and that
the shareholder is not subject to backup withholding, or the Internal Revenue
Service ("IRS") notifies the Company that the shareholder's TIN is incorrect or
that the shareholder is subject to backup withholding. Such tax withheld does
not constitute any additional tax imposed on the shareholder, and may be claimed
as a tax payment on the shareholder's federal income tax return. An investor
must provide a valid TIN upon opening or reopening an account. Failure to
furnish a valid TIN to the Company could also subject the investor to penalties
imposed by the IRS.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Funds to a nonresident alien individual, foreign trust (i.e.,
trust which a U.S. court is able to exercise primary supervision over
administration of that trust and one or more U.S. persons have authority to
control substantial decisions of that trust), foreign estate (i.e., the income
of which is not subject to U.S. tax regardless of source), foreign corporation,
or foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a distribution paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the foreign shareholder), in which case the reporting and withholding
requirements applicable to U.S. persons will apply. Capital gain distributions
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, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders that will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Special Tax Considerations.
All Funds
Each Fund intends that at least 50% of the value of its total assets at
the close of each quarter of its taxable years will consist of obligations the
interest on which is exempt from federal income tax, so that they will qualify
under the Code to pay "exempt-interest dividends." The portion of total
dividends paid by the Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. In general, exempt-interest dividends will be exempt
from federal income taxation in the hands of the Funds' shareholders. Long-term
and/or short-term capital gain distributions will not constitute exempt-interest
dividends and will be taxed as capital gain or ordinary income dividends,
respectively. The exemption of interest income derived from investments in
tax-exempt obligations for federal income tax purposes may not result in a
similar exemption under the laws of a particular state or local taxing
authority.
Not later than 60 days after the close of its taxable year, the Funds
will notify its respective shareholders of the portion of the dividends paid
with respect to such taxable year which constitutes exempt-interest dividends.
The aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. Interest on
indebtedness incurred to purchase or carry shares of a Fund will not be
deductible to the extent that the Fund's distributions are exempt from federal
income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of the Fund's expenses in computing their AMT. With respect to a corporate
shareholder of such Funds, exempt-interest dividends paid by a Fund is included
in the corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions or
concerns about AMT should consult their tax advisors.
Distributions other than exempt-interest dividends, including
distributions of interest in municipal securities issued by other issuers and
all long-term and short-term capital gains will be subject to state income tax
unless specifically exempted by statute.
Shares of a Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs (including Education IRAs, Spousal IRAs and Roth
IRAs) since such plans and accounts are generally tax-exempt and, therefore,
would not benefit from the exempt status of dividends from the Fund.
Arizona Tax-Free Fund
Individuals, trusts and estates who are subject to Arizona income tax
will not be subject to such tax on dividends paid by the Arizona Tax-Free Fund,
to the extent that such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code and are
attributable to either (i) obligations of the State of Arizona or its political
subdivisions thereof or (ii) obligations issued by the governments of Guam,
Puerto Rico, or the Virgin Islands. In addition, dividends paid by the Arizona
Tax-Free Fund that are attributable to interest payments on direct obligations
of the U.S. government will not be subject to Arizona income tax to the extent
the Arizona Tax-Free Fund qualifies as a regulated investment company under
Subchapter M of the Code. Other distributions from the Arizona Tax-Free Fund,
however, such as distributions of short-term or long-term capital gains, will
generally not be exempt from Arizona income tax.
Because shares of the Arizona Tax-Free Fund are intangibles, they are
not subject to Arizona property tax. Shareholders of the Arizona Tax-Free Fund
should consult their tax advisors about other state and local tax consequences
of their investment in the Arizona Tax-Free Fund. The Company makes no
representations as to Arizona state and local taxes that may be imposed on a
corporate investor in the Arizona Tax-Free Fund and encourages such investors to
consult with their own tax advisors.
California Tax-Free Bond and California Tax-Free Income Funds
Individuals, trusts and estates resident in California will not be
subject to California personal income tax on distributions from the California
Tax-Free Bond Fund and California Tax-Free Income Fund that represent tax-exempt
interest paid on municipal obligations of the State of California, its political
subdivisions, direct obligations of the U.S. government and certain other
issuers, including Puerto Rico, Guam, and the U.S. Virgin Islands. Such
individuals, trusts and estates will be subject to California personal income
tax on other distributions received from the California Tax-Free Bond Fund and
California Tax-Free Income Fund, including distributions of interest on
municipal obligations issued by other issuers and all capital gains.
Except as noted above with respect to California personal income
taxation of individuals, trusts and estates resident in California,
distributions from the California Tax-Free Bond Fund and California Tax-Free
Income Fund may be taxable to investors under state or local law as income even
though all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
Shareholders of the California Tax-Free Bond Fund and California
Tax-Free Income Fund should consult their own tax advisors about other state and
local tax consequences of their investments in the California Tax-Free Bond Fund
and California Tax-Free Income Fund, such as consequences to California
part-year residents, which may be different than the federal income tax
consequences of such investments. The Company makes no representations as to
California state and local taxes that may be imposed on a corporate investor in
the California Tax-Free Bond Fund or California Tax-Free Income Fund and
encourages such investors to consult with their own tax advisors.
Oregon Tax-Free Fund
So long as the Oregon Tax-Free Fund qualifies to be taxed as a separate
"regulated investment company" under the Code, individuals, trusts and estates
will not be subject to Oregon personal income tax on distributions from the
Oregon Tax-Free Fund that represent "exempt-interest dividends" of a regulated
investment company under the Code paid on municipal obligations of the State of
Oregon and its political subdivisions, the U.S. Virgin Islands, Puerto Rico and
Guam. Individuals, trusts and estates will be subject to Oregon personal income
tax on other types of distributions received from the Oregon Tax-Free Fund,
including distributions of interest on obligations issued by other issuers and
all long-term and short-term capital gains. Shares of the Oregon Tax-Free Fund
will not be subject to the Oregon property tax.
Shareholders of the Oregon Tax-Free Fund should consult their own tax
advisors about other state and local tax consequences of their investments in
the Oregon Tax-Free Fund, which may differ from the federal income tax
consequences of such investments. The Company makes no representations as to
Oregon state and local taxes that may be imposed on a corporate investor in the
Oregon Tax-Free Fund and encourages such investors to consult with their own tax
advisors.
National Tax-Free Fund
Investors are advised to consult their tax advisors concerning the
application of state and local taxes, which may have different consequences from
those under federal income tax law.
Other Matters. Investors should be aware that the investments to be
made by the Funds may involve sophisticated tax rules that may result in income
or gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the federal tax
considerations generally affecting investments in the Funds. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state, local or foreign taxes.
CAPITAL STOCK
The Funds are six of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of over thirty other funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain
class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule
12b-1) that are allocated to a particular class. Please contact Investor
Services at 1-800-222-8222 if you would like additional information about other
funds or classes of shares offered.
With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, all shares of a Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by series is required
by law or where the matter involved only affects one series. For example, a
change in a Fund's fundamental investment policy affects only one series and
would be voted upon only by shareholders of the Fund involved. Additionally,
approval of an advisory contract, since it affects only one Fund, is a matter to
be determined separately by series. Approval by the shareholders of one Series
is effective as to that Series whether or not sufficient votes are received from
the shareholders of the other series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Fund, means the
vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
Shares have no preemptive rights or subscription. All shares, when
issued for the consideration described in the Prospectus, are fully paid and
non-assessable by the Company.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In the
event of the liquidation or dissolution of the Company, shareholders of a Fund
or class are entitled to receive the assets attributable to the Fund or class
that are available for distribution, and a distribution of any general assets
not attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Set forth below as of June 30, 1998 is the name, address and share
ownership of each person known by the Company to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities of a Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% Ownership AS OF oCTOBER 25, 1999
Percentage
Fund Name and Address of Class
ARIZONA TAX-FREE
Class A HEP & CO 6.59%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 91372-027
Calabasas, CA 91372-0800
DEAN WITTER FOR THE BENEFIT OF 6.45%
JUDITH A. HUTCHINGS TEE OF THE
P.O. Box 250 Church Street Station
New York, NY 1008-0250
DONNA MARIE BROWN 5.75%
P.O. Box 2450
Pine Top, AZ 85935-2450
Class B DEAN WITTER FOR THE BENEFIT OF 10.91%
ROBERT C. BUNDY
390 S Palo Verde Drive
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 7.99%
HANNA SCOTT TTEE OF THE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 6.61%
FRANK V. HORALEK &
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 5.37%
WAYNE J. HARRINGTON TTEE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 5.36%
WALTER J. MARSHALL TTEE OF THE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
STEVEN W. WINTER 5.23%
3741 E Leland Street
Mesa, AZ 85215-2319
Institutional Class VIRG & CO 82.20%
ATTN: MF DEPT A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & CO 8.49%
STAGECOACH AZ Tax Free FD CL I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 5.81%
STAGECOACH AZ Tax Free FD CL I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
CALIFORNIA LIMITED TERM
TAX-FREE
Class A INVESTOR SERVICES GROUP 40.03%
FBO Wells Fargo/Portfolio Advisor
Customer
211 South Gulph Road
King of Prussia, PA 19406-3101
VIRG & CO 7.42%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Institutional Class HEP & CO 47.01%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
VIRG & CO 36.66%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
DIM & CO 10.97%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
CALIFORNIA TAX-FREE
Class A N/A N/A
Class B N/A N/A
Class C MLPF&S FOR THE SOLE BENEFIT 6.34%
OF ITS CUSTOMERS
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Institutional Class DIM & CO 72.99%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
VIRG & CO 9.97%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & CO 6.54%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
NATIONAL TAX-FREE
Class A MLPF&S FOR THE SOLE BENEFIT OF ITS 10.36%
CUSTOMERS
Attn: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Class B NFSC FSBO #CL5-591483 9.98%
Winifred S. Laughlin Revocable
U/A 07/08/94
51 Dunnell Road
Maplewood, NJ 07040-1333
DEAN WITTER FOR THE BENEFIT OF
Ruth Dines, Ttee
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Class C MLPF&S FOR THE SOLE BENEFIT OF ITS 28.30%
CUSTOMERS
Attn: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Norwest Investment Services Inc. 21.22%
FBO 112609161
Northstar Bldg. East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Institutional Class VIRG & CO. 50.73%
Attn: MF Dept.
P.O. Box 9800
Calabbasas, CA 91372-0800
HEP & CO. 34.16%
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
DIM & CO. 14.40
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
OREGON TAX-FREE
Class A N/A N/A
Class B N/A N/A
Institutional Class VIRG & CO 56.02%
MF DEPT A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & CO 22.87%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
WELLS FARGO BANK CUSTODIAN 12.66%
FBO F.W. Temple & Gary Temple Tru
MF 2141-028 A/C #216074
P.O. Box 9800
Calabasas, CA 91372-0800
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more that 25% of the voting securities of a
fund is presumed to "control" such fund. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more that 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
This Company's Registration Statement, including the Prospectus and SAI
for the Fund and the exhibits filed therewith, may be examined at the office of
the U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in a Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Company, has rendered its opinion as
to certain legal matters regarding the due authorization and valid issuance of
the shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP erves 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 Funds for the year ended June 30, 1999, are
hereby incorporated by reference to the Annual Report as filed with the SEC on
September 1, 1999.
Annual Reports may be obtained by calling 1-800-222-8222.
<PAGE>
421
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STAGECOACH FUNDS, INC.
SEC REGISTRATION NOS. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
Exhibit
Number Description
------ -----------
a(1) - Amended and Restated Articles of
Incorporation dated
November 22, 1995,
incorporated by reference to Post-
Effective Amendment
No. 17 to the Registration Statement, filed November
29, 1995.
a(2) - Articles Supplementary, incorporated by reference to
Post-Effective Amendment No. 43 to the Registration
Statement filed March 30, 1998.
b - By-Laws, incorporated by reference to
Post-Effective Amendment No. 31 to the
Registration Statement, filed May 15, 1997.
c - Not Applicable
d(1) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Funds,
incorporated by reference to Post- Effective Amendment
No. 51 to the Registration Statement filed March 1,
1999.
d(2) - Sub-Advisory Contract with Wells Capital Management
on behalf of various Funds, incorporated by reference to
Post-Effective Amendment No. 48 to the Registration Statement, filed July 31,
1998.
d(3) - Sub-Advisory Contract with Barclays Global Fund Advisors
on behalf of the Asset Allocation, Equity Index, Index
Allocation, and U.S. Government Allocation Funds, incorporated by
reference to Post-Effective Amendment No. 48, filed July 31, 1998.
e(1) - Amended Distribution Agreement with Stephens Inc.,
incorporated by reference to Post-Effective Amendment
No. 50, filed November 30, 1998.
e(2) - Selling Agreement with Wells Fargo Bank, N.A. on behalf
of the Funds,
incorporated by reference to Post- Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
f - Not Applicable
g(1)(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Asset Allocation Fund,
incorporated by reference to Post- Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
g(1)(b) - Addendum No. 1 to the Custody Agreement
with Wells Fargo Institutional Trust Company, N.A. on
behalf of the Asset Allocation Fund, incorporated by reference to
Post- Effective Amendment No. 48 to the
Registration Statement, filed July 31,
1998.
g(2)(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the U.S. Government
Allocation Fund, incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17, 1992.
g(2)(b) - Addendum No. 1 to the Custody Agreement
with Wells Fargo Institutional Trust Company, N.A. on
behalf of the U.S. Government Allocation Fund, incorporated
by
reference to Post-Effective Amendment No. 48 to
the Registration Statement,
filed July 31, 1998.
g(3)(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Equity Index, (formerly,
Corporate Stock) Fund, incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17, 1992.
g(3)(b) - Custody Agreement with Norwest Bank Minnesota, N.A. on
behalf of all Funds other than the Asset Allocation, Index
Allocation, U.S. Government Allocation, Equity Index and International Equity
Funds, incorporated by reference to Post-Effective
Amendment No. 55 to the Registration Statement, filed July 1,
1999.
g(4) - Custody Agreement with Barclays Global Investors, N.A. on behalf of
the Index Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 55 to the Registration
Statement, filed July 1, 1999.
g(5) - Custody Agreement with Investors Bank and Trust
Co. on behalf of the International Equity Fund, incorporated
by reference to Post-Effective Amendment No. 55 to the Registration
Statement, filed July 1, 1999.
h(1) - Administration Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, incorporated by reference to
Post-Effective Amendment No. 48 to the Registration Statement, filed July 31,
1998.
h(2) - Agency Agreement with Wells Fargo Bank, N.A. on behalf
of the Funds,
incorporated by reference to Post- Effective Amendment
No. 50 to the Registration Statement, filed November
30, 1998.
h(3) - Servicing Plan as consolidated to include all classes
of the Funds, incorporated by reference to Post-
effective Amendment No. 50 to the Registration Statement, filed November
30, 1998.
h(4) - Form of Shareholder Servicing Agreement
with Wells Fargo Bank, N.A. on behalf of the Funds, incorporated by
reference to Post-Effective Amendment No. 50 to the Registration
Statement, filed November 30, 1998.
i - Opinion and Consent of Counsel, filed herewith.
j - Consent of Independent Auditors, filed herewith.
k - Not Applicable.
l - Investment letter, incorporated by reference to Item
24(b) of Pre- Effective Amendment No. 1 to the
Registration Statement, filed November 29, 1991.
m(1) - Distribution Plan on behalf of various classes and Funds,
incorporated by
reference to Post-Effective Amendment No. 48 to
the Registration Statement,
filed July 31, 1998.
m(2) - Distribution Plan on behalf of the Asset Allocation
Fund, California Tax-Free Bond Fund, California Tax-Free
Income Fund, California Tax-Free Money Market Mutual Fund, Diversified Equity
Income Fund, Growth Fund, Money Market Mutual Fund, Short-Intermediate U.S.
Government Income Fund, U.S. Government Allocation Fund and U.S. Government
Income Fund, incorporated by reference to Post-Effective Amendment No. 48 to
the Registration Statement, filed July 31, 1998.
m(3) - Distribution Plan on behalf of the California Tax-Free
Money Market Trust and National Tax-Free Money Market
Trust, incorporated by reference to
Post-Effective Amendment No. 48 to the Registration Statement, filed
July 31,
1998.
n(1) - Schedules for Computation of Performance
Data, incorporated by reference to Post-Effective Amendment
No. 15, filed May 1, 1995.
n(2) - Financial Data Schedules for the fiscal period ended
March 31, 1999, for the Income and Tax-Free Income Funds is incorporated
by reference to the Form N-SAR, filed May 28, 1999.
o - Rule 18f-3 Multi-Class Plan, as amended,
incorporated by reference to
Post-Effective Amendment No. 50 to the Registration Statement, filed
November 30, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant
- -------------------------------------------------------------------
As of June 30, 1999 the Registrant did not directly or indirectly
control, and was not under common control with, any other person or entity.
Item 25. Indemnification
---------------
The following paragraphs of Article VIII of the Registrant's
Articles of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and
Officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law, and (2) its other employees
and agents to such extent as shall be authorized by the Board of Directors or
the Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of these
Articles of Incorporation of the Corporation shall limit or eliminate the right
to indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal. Nothing contained herein shall be
construed to authorize the Corporation to indemnify any Director or officer of
the Corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Any indemnification by the Corporation
shall be consistent with the requirements of law, including the 1940 Act.
(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no Director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that nothing herein shall be
construed to protect any Director or officer of the Corporation against any
liability to which such Director or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. No amendment, modification or
repeal of this Article VIII shall adversely affect any right or protection of a
Director or officer that exists at the time of such amendment, modification or
repeal.
Item 26. Business and Other Connections of Investment Advisor.
----------------------------------------------------
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned
subsidiary of Wells Fargo & Company, currently serves as investment advisor to
several of the Registrant's investment portfolios and to certain other
registered open-end management investment companies. Wells Fargo Bank's business
is that of a national banking association with respect to which it conducts a
variety of commercial banking and trust activities.
To the knowledge of Registrant, none of the directors or
executive officers of Wells Fargo Bank, except those set forth below, is or has
been at any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
executive officers also hold various positions with and engage in business for
Wells Fargo & Company. Set forth below are the names and principal businesses of
the directors and executive officers of Wells Fargo Bank who are or during the
past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or trustee. All the directors
of Wells Fargo Bank also serve as directors of Wells Fargo & Company.
</TABLE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle, Hastie, McGee, Willis & Greene
Director 455 Market Street
San Francisco, CA 94105
Director of Armstrong World Industries, Inc.
5037 Patata Street
South Gate, CA 90280
Director of Eastman Chemical Corporation
12805 Busch Place
Santa Fe Springs, CA 90670
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
Michael R. Bowlin Chairman of the Board of Directors, Chief Executive
Officer,
Director Chief Operating Officer and President of
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and Chief Executive Officer of
Director First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road Suite 400
Phoenix, AZ 85016
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
Director of Terra Industries, Inc.
1321 Mount Pisgah Road
Walnut Creek, CA 94596
William S. Davilla President (Emeritus) and a Director of
Director The Vons Companies, Inc.
618 Michillinda Ave.
Arcadia, CA 91007
Director of Pacific Gas & Electric Company
788 Taylorville Road
Grass Valley, CA 95949
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Company
P.O. Box 1000
Lebec, CA 93243
Director of The Bakersfield Californian
1707 I Street
P.O. Box 440
Bakersfield, CA 93302
Trustee of Whittier College
13406 East Philadelphia Ave.
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Board of Wells Fargo & Company
Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Phelps Dodge Corporation
2600 North Central Ave.
Phoenix, AZ 85004
Director of Safeway, Inc.
4th and Jackson Streets
Oakland, CA 94660
Robert K. Jaedicke Professor (Emeritus) of Accounting
Director Graduate School of Business at Stanford University
MBA Admissions Office
Stanford, CA 94305
Director of Bailard Biehl & Kaiser
Real Estate Investment Trust, Inc.
2755 Campus Dr.
San Mateo, CA 94403
Director of Boise Cascade Corporation
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Enron Corporation
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Director of Homestake Mining Company
650 California Street
San Francisco, CA 94108
Thomas L. Lee Chairman and Chief Executive Officer of
Director The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622
Director of Calmat Co.
501 El Charro Road
Pleasanton, CA 94588
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Ellen Newman President of Ellen Newman Associates
Director 323 Geary Street
Suite 507
San Francisco, CA 94102
Chair (Emeritus) of the Board of Trustees
University of California at San Francisco Foundation
250 Executive Park Blvd.
Suite 2000
San Francisco, CA 94143
Director of the California Chamber of Commerce
1201 K Street
12th Floor
Sacremento, CA 95814
Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street Rm. 3700
San Francisco, CA 94108
Carl E. Reichardt Director of Columbia/HCA Healthcare Corporation
Director One Park Plaza
Nashville, TN 37203
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Retired Chairman of the Board of Directors and Chief
Executive Officer of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Donald B. Rice President and Chief Executive Officer of Teledyne, Inc.
Director 2049 Century Park East
Los Angeles, CA 90067
Retired Secretary of the Air Force
Director of Vulcan Materials Company
One MetroPlex Drive
Birmingham, AL 35209
Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
Director 44141 Yucca Avenue
Lancaster, CA 93534
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Retired Chairman of the Board and Chief Executive Officer of
Director Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817
Director of Edison International
and Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate
633 West Fifth Street
Los Angeles, CA 90071
Chang-Lin Tien Chancellor of the University of California at Berkeley
Director
Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025
John A. Young President, Chief Executive Officer and Director of
Director Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 9434
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
Director of Lucent Technologies
25 John Glenn Drive
Amherst, NY 14228
Director of Novell, Inc.
11300 West Olympic Blvd.
Los Angeles, CA 90064
Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
San Francisco, CA 94080
William F. Zuendt President of Wells Fargo & Company
President 420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corporation
5400 Bayfront Plaza, P.O. Box 58145
Santa Clara, CA 95052
Director of the California Chamber of Commerce
Prior to May 1, 1996, Barclays Global Fund Advisors ("BGFA"), a
wholly-owned subsidiary of Barclays Global Investors, N.A. ("BGI", formerly,
Wells Fargo Institutional Trust Company), served as sub-advisor to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and to certain other open-end management investment companies. From May 1, 1996
to December 15, 1997 BGFA served as sub-advisor to the corresponding Asset
Allocation, U.S. Government Allocation and Corporate Stock Master Portfolios of
Master Investment Trust, in which such funds invested substantially all of their
assets. These Funds currently invest directly in a portfolio of securities and
no longer invest in the Master Portfolios. BGFA currently serves as sub-advisor
to these Funds.
The directors and officers of BGFA consist primarily of persons
who during the past two years have been active in the investment management
business of the former sub-advisor to the Registrant, Wells Fargo Nikko
Investment Advisors ("WFNIA") and, in some cases, the service business of BGI.
To the knowledge of the Registrant, except as set forth below, none of the
directors or executive officers of BGFA is or has been at any time during the
past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature.
Name and Position Principal Business(es) During
at BGFA at Least the Last Two Fiscal Years
- ------- -------------------------------
Frederick L.A. Grauer Director of BGFA and Co-Chairman and
Director of BGI
Director 45 Fremont, San Francisco, CA 94105
Patricia Dunn Director of BGFA and Co- Chairman and
Director of BGI
Director 45 Fremont, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of
BGFA and Chief
Chairman and Director Executive Officer of BGI 45 Fremont,
San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers
Trust Company from 1988-1997
505 Market Street, San
Francisco, CA 94105
</TABLE>
Prior to January 1, 1996 WFNIA served as sub-advisor to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and as advisor or sub-advisor to various other open-end management investment
companies.
For additional information, "Organization and Management of the
Fund(s)" in the Prospectuses for the Funds as well as "Management" in the
Statements of Additional Information of such Funds. For information as to the
business, profession, vocation or employment of a substantial nature of each of
the officers and management committees of WFNIA, reference is made to WFNIA's
Form ADV and Schedules A and D filed under the Investment Advisors Act of 1940,
File No. 801-36479, incorporated herein by reference.
Item 27. Principal Underwriters.
----------------------
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment advisor for any other registered investment
companies, but does act as principal underwriter for Life & Annuity Trust,
Barclays Global Investors Funds, Inc., Stagecoach Trust, Nations Fund, Inc.,
Nations Fund Trust, Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc.
and Nations Institutional Reserves, Nations Annuity Trust, and is the exclusive
placement agent for Nations Master Investment Trust and Master Investment
Portfolio, all of which are registered open-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisors Act of 1940 (file No. 501-15510).
(c) Not applicable.
Item 28. Location of Accounts and Records.
--------------------------------
(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its
services as investment advisor, administrator and custodian and transfer and
dividend disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) WFNIA and Wells Fargo Institutional Trust Company, N.A.
maintain all Records relating to their services as sub-advisor and custodian,
respectively, for the period prior to January 1, 1996, at 45 Fremont Street, San
Francisco, California 94105.
(d) BGFA and BGI maintain all Records relating to their services
as sub-advisor and custodian, respectively, for the period beginning January 1,
1996 at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as
sub-administrator and distributor at 111 Center Street, Little Rock, Arkansas
72201.
Item 29. Management Services.
-------------------
Other than as set forth under the captions "Organization and
Management of the Fund(s)" in the Prospectuses for the Funds as well as
"Management" in the Statements of
Additional Information of such Funds, the Registrant is not a party to any
management-related service contract.
Item 30. Undertakings.
------------
Not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Amendment to its Registration Statement on Form N-1A to be signed on its
behalf by the undersigned, thereto duly authorized in the City of Little Rock,
State of Arkansas on the 1st day of October, 1999.
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement on Form N-1A pursuant to rule 485(b) under the Securities Act of 1933,
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized in the City of Little
Rock, State of Arkansas on the 1st day of November, 1999.
STAGECOACH FUNDS, INC.
By /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement on Form N-1A has been signed below by
the following persons in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
* Director, Chairman and President
---------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 11/1/99
---------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Director
---------------------------
(Jack S. Euphrat)
* Director
---------------------------
(Thomas S. Goho)
* Director
---------------------------
(Peter G. Gordon)
* Director
---------------------------
(Joseph N. Hankin)
* Director
---------------------------
(W. Rodney Hughes)
* Director
---------------------------
(Tucker Morse)
*By /s/ Richard H. Blank, Jr.
---------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
November 3, 1999
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
Exhibit Number DESCRIPTION
EX-99.B(i) Opinion and Consent of Counsel
EX-99.B(j) Consent of Independent Auditors
[MORRISON & FOERSTER LLP LETTERHEAD]
November 3, 1999
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Stagecoach Funds, Inc.
--------------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 58 and Amendment No. 59 to the
Registration Statement on Form N-1A (SEC File Nos. 33-42927 and 811-6419) (the
"Registration Statement") of Stagecoach Funds, Inc. (the "Company") relating to
the income and tax-free income Funds of the Company.
We have been requested by the Company to furnish this opinion as Exhibit
(i) to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its income and
tax-free income Funds. We have also verified with the Company's transfer agent
the maximum number of shares issued by the Company through June 30, 1999.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company, upon completion of
such corporate action as is deemed necessary or appropriate, will be duly and
validly authorized by such corporate action and assuming delivery by sale or in
accord with the Company's dividend reinvestment plan in accordance with the
description set forth in the Fund's current prospectus under the Securities Act
of 1933, as amended, the Shares will be legally issued, fully paid and
nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to the description of advice rendered by our firm under the heading
"Counsel" in the Statement of Additional Information, which is included as part
of the Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Stagecoach Funds, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
references to our firm under the headings "Financial Highlights" in the
Prospectuses and "Independent Auditors" in the Statements of Additional
Information.
/s/KPMG LLP
KPMG LLP
San Francisco, California
November 3, 1999
