<PAGE>
As filed with the Securities and Exchange Commission
on June 30, 1998
Registration No. 33-64352; 811-7780
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post -Effective Amendment No. 9 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
(Check appropriate box or boxes)
STAGECOACH TRUST
(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 Avenue, N.W.
Washington, D.C. 20006
It is proposed that this filling will become effective (check appropriate box):
[X] Immediately upon filing pursuant to Rule 485(b), or [ ] on _________,
pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1), or [ ] on _________,
pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2), or [ ] 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.
This Post-Effective Amendment to the Registrant's Registration Statement has
also been executed by Master Investment Portfolio (a registered investment
company with separate series in which certain of the Registrant's series invest
substantially all of their assets) and its trustees and principal officer.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment is being filed to add to Stagecoach Trust's
Registration Statement the audited financial statements and certain related
financial information for the fiscal year ended February 28, 1998 for the
LifePath Opportunity (formerly LifePath 2000), LifePath 2010, LifePath 2020,
LifePath 2030 and LifePath 2040 Funds and corresponding Master Portfolios, and
to make certain other non-material changes to the Registration Statement.
<PAGE>
LIFEPATH FUNDS
--------------
Retail Classes
--------------
Cross Reference Sheet
---------------------
Form N-1A Item Number
- - ---------------------
Part A Prospectus Captions
- - ------ -------------------
1 Cover Page
2 Summary of Fund Expenses
3 Financial Highlights
How to Read the Financial Highlights
4 General Investment Risks
Key Information
Organization and Management of the Funds
(Name of) Fund
5 Organization and Management of the Funds
Summary of Expenses
6 Additional Services and Other Information
7 Additional Services and Other Information
Exchanges
Your Account
8 Additional Services and Other Information
Exchanges
Your Account
9 Not Applicable
Part B Statement of Additional Information Captions
- - ------ --------------------------------------------
10 Cover Page
11 Table of Contents
12 Historical Fund Information
13 Additional Permitted Investment Activities
Appendix
Investment Restrictions
Risk Factors
14 Management
15 Management
16 Fund Expenses
Independent Auditors
Management
17 Portfolio Transactions
18 Capital Stock
Other
19 Additional Purchase and Redemption Information
Determination of Net Asset Value
20 Federal Income Taxes
21 Management
22 Performance Calculations
23 Financial Information
<PAGE>
Part C Other Information
- - ------ -----------------
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE>
LIFEPATH FUNDS
--------------
Institutional Classes
---------------------
Cross Reference Sheet
---------------------
Form N-1A Item Number
- - ---------------------
Part A Prospectus Captions
- - ------ -------------------
1 Cover Page
2 Summary of Fund Expenses
3 Financial Highlights
4 Description of the Funds
Appendix
5 Management of the Funds
6 Management of the Funds
Dividends and Distributions
Taxes
Performance Information
General Information
7 Investing in the Funds
Exchange Privilege
Dividends and Distributions
8 How to Redeem Shares
9 Not Applicable
Part B Statement of Additional Information Captions
- - ------ --------------------------------------------
10 Cover Page
11 Table of Contents
12 Management of the Trust
13 Investment Objectives and Management Policies
Additional Permitted Investment Activities
Appendix
14 Management of the Trust
15 Information About the Funds
Capital Stock
16 Management of the Trust
Independent Auditors
Counsel
17 Portfolio Transactions
18 Capital Stock
19 Purchase and Redemption of Shares
Determination of Net Asset Value
20 Dividends, Distributions and Taxes
21 Management Arrangements
22 Performance Information
23 Financial Information
Financial Statements
Part C Other Information
- - ------ -----------------
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE>
June 30, 1998
STAGECOACH FUNDS/R/
Stagecoach
LifePath Funds
Prospectus
LifePath Please read this Prospectus and keep it for
Opportunity Fund future reference. It is designed to provide you
with important information and to help you
LifePath 2010 Fund decide if the Fund's goals match your own.
LifePath 2020 Fund These securities have not been approved or
disapproved by the U.S. Securities and Exchange
LifePath 2030 Fund Commission, any state securities commission or
any other regulatory authority, nor have any of
LifePath 2040 Fund these authorities passed upon the accuracy or
adequacy of this Prospectus. Any representation
Class A, Class B and to the contrary is a criminal offense.
Class C
Fund shares are NOT deposits or other
Investment Advisor obligations of, or issued, endorsed or
Barclays Global guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fund Advisors Fargo Bank"), Barclays Global Investors, N.A.
("BGI"), or any of their affiliates. Fund shares
Co-Administrators are NOT insured or guaranteed by the U.S.
Wells Fargo Bank Government, the Federal Deposit Insurance
Stephens Inc. Corporation ("FDIC"), the Federal Reserve Board
or any other governmental agency. AN INVESTMENT
Distributor IN A FUND INVOLVES CERTAIN RISKS, INCLUDING
Stephens Inc. POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
About This Prospectus
- - --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a Fund operates and invests its
assets and also contains fee and expense information.
What is different about this Prospectus?
We have rewritten our Prospectus in "Plain English" and grouped some of the most
important Fund information together to make it easier to read and understand.
How is the Fund information organized?
After important summary information and the expense fee table, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- - --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
What is the Fund trying to achieve? How do we intend to invest
your money? What makes a Fund different from the other Funds
offered in this Prospectus? Look for the arrow icon to find out.
- - --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of a Fund's key permitted investments and practices.
- - --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for the Fund? This will include the
factors described in "General Investment Risks" together with
any special risk factors for the Fund.
- - --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Provides additional information about the Fund.
- - --------------------------------------------------------------------------------
Why is italicized print used throughout the Prospectus?
Words appearing in italicized print and highlighted in color are defined in the
Glossary.
What else do I need to understand about these Funds?
Each Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most recent
Annual or Semi-Annual Report. You can order copies of these documents without
charge by calling 1-800-222-8222. The Statement of Additional Information and
other information for the Funds is also available on the SEC's web site
(http://www.sec.gov).
<PAGE>
<TABLE>
<S> <C> <C>
Table of Contents
Key Information 4
Summary of Expenses 6
- - --------------------------------------------------------------------------------
The Funds LifePath Opportunity Fund 10
This section contains LifePath 2010 Fund 10
important information
about the individual LifePath 2020 Fund 10
Funds.
LifePath 2030 Fund 10
LifePath 2040 Fund 10
General Investment Risks 20
- - --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 25
Turn to this section for Reduced Sales Charges 28
information on how to
open and maintain Your Account 31
your account, including
how to buy, sell and How to Buy Shares 33
exchange Fund shares.
Selling Shares 34
Exchanges 36
Additional Services and
Other Information 37
- - --------------------------------------------------------------------------------
Reference Organization and
Management of the Funds 41
Look here for details
on the organization How to Read the Financial
of the Funds and term Highlights 44
definitions.
Glossary 46
</TABLE>
<PAGE>
Key Information
- - --------------------------------------------------------------------------------
Summary of the Stagecoach LifePath Funds
The Funds described in this Prospects pursue a strategy of allocating and
reallocating investments among varios asset classes to capture returns and
reduce risk consistent with a stated investment horizon. Each Fund has a
different investment objective intended to meet different investment needs. You
should consider each Fund's objective, investment practices, permitted
investments and risks carefully before investing in a Fund. The investment
objective of each Fund is fundamental and may not be changed without the
approval of a majority of shareholders.
Should you consider investing in these Funds? Yes, if:
* you are investing with a general time horizon in mind or if you wish to use
a time horizon as a measure of the investment risk you are willing to
accept;
* you are looking for the diversification an asset allocation strategy
provides; and
* you are willing to accept the risks of investing, including the risk that
share prices may rise and fall.
You should not invest in these Funds if:
* you are looking for FDIC insurance coverage or guaranteed rates of return;
* you are unwilling to accept the risk that you may lose money on your
investment; or
* you are looking for an investment limited to a single asset class.
Who are "We"?
In this Prospectus, "We" generally means the Stagecoach fund family,
consisting of the funds offered by Stagecoach Trust and Stagecoach Funds, Inc.
"We" sometimes refers to Barclays Global Fund Advisors in their role as the
Investment Advisor or other companies hired by the Funds to perform services.
The section on "Organization and Management of the Funds" further explains how
the Funds are organized.
Who are "You"?
In this Prospectus, "You" means the potential investor or the shareholder.
4 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
What are the "Funds"?
In this Prospectus, the "Funds" refers to the Stagecoach Funds listed on the
cover of this Prospectus. The "Funds" also may refer to other mutual funds
offered by Stagecoach Funds, Inc.
What is a "Master/Feeder Fund Arrangement" and why is it used?
The Funds in this prospectus are feeder funds in a master/feeder fund
arrangement. In a master/feeder fund arrangement, a "feeder" fund invests all of
its assets in a "master" fund that has an identical investment objective and
policies as the feeder fund. Feeder funds investing in the same master fund can
reduce their expenses through sharing the costs of managing a large pool of
assets. References to the activities of the LifePath Funds are understood to be
references to the master fund (also described as the "Master Portfolio") as
applicable. See "Additional Services and Information" on page 37 for additional
details.
Key Terms
An "asset class" is a broad category of investments such as "bonds" or
"equities". "Allocation" refers to the distribution of portfolio assets among
two or more asset classes. The LifePath Funds offered in this Prospectus are
managed using a computer model that recommends the allocation of assets
according to a Fund's investment objective and risk tolerance.
Dividends
We pay dividends, if any, quarterly, and distribute capital gains, if any, at
least annually.
Stagecoach LifePath Funds Prospectus 5
<PAGE>
LifePath Funds Summary of Expenses
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
SHAREHOLDER TRANSACTION EXPENSES
====================================================================================================================================
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in a Fund. These tables do not reflect any charges
that may be imposed by Wells Fargo Bank or other institutions in connection with
an account through which you hold Fund shares. See "Organization and Management
of the Funds" for more details.
- - ------------------------------------------------------------------------------------------------------------------------------------
LifePath Opportunity LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
--------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class C
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge
on a purchase (as a
percentage of
offering price) 4.50% None 4.50% None 4.50% None 4.50% None 4.50% None None
- - ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge
on reinvested
dividends None None None None None None None None None None None
- - ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on:
Redemption during
first year None 5.00% None 5.00% None 5.00% None 5.00% None 5.00% 1.00%
Redemption after
first year None 4.00% None 4.00% None 4.00% None 4.00% None 4.00% None
- - ------------------------------------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None None None None None None
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
====================================================================================================================================
Expenses shown reflect contract amounts and amounts payable by each Fund or
Master Portfolio. No expenses are waived for the Funds. The expenses shown under
"Other Expenses" and "Total Fund Operating Expenses" have been estimated or
restated to reflect current fees. Long-term shareholders may pay more than the
equivalent of the maximum front-end sales charge allowed by the National
Association of Securities Dealers, Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
LifePath Opportunity LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
--------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class C
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.25% 0.75% 0.25% 0.75% 0.25% 0.75% 0.25% 0.75% 0.25% 0.75% 0.75%
- - ------------------------------------------------------------------------------------------------------------------------------------
Management fee 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
- - ------------------------------------------------------------------------------------------------------------------------------------
Other expenses 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating
Expenses 1.30% 1.80% 1.30% 1.80% 1.30% 1.80% 1.30% 1.80% 1.30% 1.80% 1.80%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach LifePath Funds Prospectus Stagecoach LifePath Funds Prospectus 7
<PAGE>
LifePath Funds Summary of Expenses (continued)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
EXAMPLE OF EXPENSES-THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
====================================================================================================================================
You would pay the following expenses on a $1,000 investment assuming a 5% annual
return and that you redeem your shares at the end of each period.
- - ------------------------------------------------------------------------------------------------------------------------------------
LifePath Opportunity LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
--------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class C
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
1 year $ 58 $ 68 $ 58 $ 68 $ 58 $ 68 $ 58 $ 68 $ 58 $ 68 $ 28
- - ------------------------------------------------------------------------------------------------------------------------------------
3 years $ 84 $ 87 $ 84 $ 87 $ 84 $ 87 $ 84 $ 87 $ 84 $ 87 $ 57
- - ------------------------------------------------------------------------------------------------------------------------------------
5 years $113 $117 $113 $117 $113 $117 $113 $117 $113 $117 $ 97
- - ------------------------------------------------------------------------------------------------------------------------------------
10 years $195 $186 $195 $186 $195 $186 $195 $186 $195 $186 $ 212
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
EXAMPLE OF EXPENSES-THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
====================================================================================================================================
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and that you do not redeem your shares at the end of each
period.
LifePath Opportunity LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
--------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class C
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
1 year $ 58 $ 18 $ 58 $ 18 $ 58 $ 18 $ 58 $ 18 $ 58 $ 18 $ 18
- - ------------------------------------------------------------------------------------------------------------------------------------
3 years $ 84 $ 57 $ 84 $ 57 $ 84 $ 57 $ 84 $ 57 $ 84 $ 57 $ 57
- - ------------------------------------------------------------------------------------------------------------------------------------
5 years $113 $ 97 $113 $ 97 $113 $ 97 $113 $ 97 $113 $ 97 $ 97
- - ------------------------------------------------------------------------------------------------------------------------------------
10 years $195 $186 $195 $186 $195 $186 $195 $186 $195 $186 $ 212
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Stagecoach LifePath Funds Prospectus Stagecoach LifePath Funds Prospectus 9
<PAGE>
LifePath Funds
- - --------------------------------------------------------------------------------
Investment Advisor: Barclays Global Funds Advisors
- - --------------------------------------------------------------------------------
[LOGO OF INVESTMENT OBJECTIVES
ARROW]
Each LifePath Fund seeks to provide investors with an asset allocation
strategy designed to maximize assets for retirement or for other
purposes consistent with the quantitatively measured risk that
investors, on average, may be willing to accept given their investment
time horizons. Investors are encouraged to select a particular LifePath
Fund based on their investment time horizon. Specifically:
* LifePath Opportunity Fund is managed for investors who have retired
or who are planning to retire (or begin to withdraw substantial
portions of their investment) approximately in the year 2000.
The Fund also may be appropriate for investors with a shorter time
horizon. The Fund does not terminate in the Year 2000, but will
continue with the lowest risk profile of all the LifePath Fund. It is
expected that when the LifePath 2010 Fund's target date arrives, the
LifePath 2010 Fund will be combined with the LifePath Opportunity Fund
under the same investment strategy. The LifePath Opportunity Fund will
continue to follow an asset allocation strategy that will invest
approximately 20% equity securities, with the remainder in debt
securities and cash.
* LifePath 2010 Fund is managed for investors planning to retire or
begin to withdraw substantial portions of their investment
approximately in the year 2010.
* LifePath 2020 Fund is managed for investors planning to retire or
begin to withdraw substantial portions of their investment
approximately in the year 2020.
* LifePath 2030 Fund is managed for investors planning to retire or
begin to withdraw substantial portions of their investment
approximately in the year 2030.
* LifePath 2040 Fund is managed for investors planning to retire or
begin to withdraw substantial portions of their investment
approximately in the year 2040.
INVESTMENT POLICIES
The LifePath Funds were the first Funds of their kind to offer a
flexible investment strategy designed to change over specific time
10 Stagecoach LifePath Funds Prospectus
<PAGE>
- - -------------------------------------------------------------------------------
horizons. Typically, long-term investment goals are pursued with a more
aggressive mix of equities and fixed-income securities than short-term
goals. The allocation of each Fund gradually grows more conservative as
the year in the Fund's title approaches. You are encouraged to choose
the LifePath Fund whose title year most closely matches the year during
which you expect to begin regularly redeeming shares. Keep in mind,
however, that the year in each Fund's title also serves as a guide to
the relative aggressiveness of each Fund, where the LifePath 2040 Fund
has the most aggressive asset allocation and the LifePath Opportunity
Fund has the least aggressive asset allocation. If you have a low risk
tolerance, you may not wish to invest in the LifePath 2040 Fund, for
example, even if you do not expect to retire for another forty years.
Conversely, you may feel comfortable choosing a more aggressive LifePath
Fund for a near-term investment goal.
We allocate and reallocate assets among a wide range of U.S. and
international common stocks, fixed-income securities and money market
instruments according to the recommended mix suitable for each Fund's
risk level. Under normal conditions, the LifePath Opportunity Fund will
typically invest 80% of its assets in fixed-income classes and up to 20%
in equities as it seeks stable income production and reduced volatility.
The more aggressive Funds may invest in up to 100% stocks, but as their
title year approaches, their allocation will increasingly resemble the
current allocation of the LifePath Opportunity Fund.
The LifePath Opportunity Fund will not terminate when it reaches the
year 2000. Instead, the Fund will enter its "post target" strategy
during which it will seek to maximize total return consistent with
assuming the lowest risk of any LifePath series. The Fund will continue
to follow an asset allocation strategy among three broad investment
classes: equity and debt securities of domestic and foreign issuers and
cash in the form of money market instruments. However, unlike the
remaining LifePath Funds with target dates, during its post target
strategy the LifePath Opportunity Fund will no longer reduce its
investment risk through time. Instead, the Fund is expected to have a
long-term average mix of approximately 20% equity securities, with the
remainder in debt securities and cash. In the same manner as all
LifePath Funds, the LifePath Opportunity Fund will continue to employ a
tactical asset allocation component, which will
Stagecoach LifePath Funds Prospectus 11
<PAGE>
- - --------------------------------------------------------------------------------
alter the investment mix to account for changing expected risks
and opportunities. When other LifePath Funds reach their target
date, it is expected that shareholders will be asked to approve
combining such Funds with the LifePath Opportunity Fund.
- - --------------------------------------------------------------------------------
[LOGO OF PERMITTED INVESTMENTS
PERCENTAGE
SIGN] We do not select individual securities based on traditional
investment analysis. Instead, we allocate investments across as
many as 17 asset classes, as represented by the indexes listed
below and money market instruments.
We use a statistical method know as "sampling" in order to try
to recreate the total return of the following stock indexes as
closely as possible:
* The S&P/BARRA Value Stock Index, which consists primarily of
large-capitalization U.S. stocks with lower than average price-
to-book ratios;
* The S&P/BARRA Growth Stock Index, which consists primarily of
large-capitalization U.S. stocks with higher than average price-
to-book ratios;
* The Intermediate Capitalization Value Index, which consists
primarily of medium-capitalization U.S. stocks with lower than
average price-to-book ratios;
* The Intermediate Capitalization Growth Index, which consists
primarily of medium-capitalization U.S. stocks with higher than
average price-to-book ratios;
* The Intermediate Capitalization Utility Stock Index, which
consists primarily of medium-capitalization U.S. utility stocks;
* The Micro Capitalization Market Index, which consists
primarily of small-capitalization U.S. stocks;
* The Small Capitalization Value Stock Index, which consists
primarily of small-capitalization U.S. stocks with lower than
average price-to-book ratios;
* The Small Capitalization Growth Stock Index, which consists
primarily of small-capitalization U.S. stocks with higher than
average price-to-book ratios;
* The Morgan Stanley Capital International Japan Index,
consisting of primarily large-capitalization Japanese stocks;
and
* The Morgan Stanley Capital International Europe, Australia,
Far East exJapan Index, consisting primarily of non-Japanese
foreign stocks.
12 Stagecoach LifePath Funds Prospectus
<PAGE>
- - -------------------------------------------------------------------------------
We seek exposure to the U.S. fixed-income markets by investing in
securities representative of the following indexes:
* The Lehman Brothers Long-Term Government Bond Index, which consists
of all U.S. Government bonds with maturities of at least ten years;
* The Lehman Brothers Intermediate-Term Government Bond Index, which
consists of all U.S. Government bonds with maturities of less than ten
years but more than one year;
* The Lehman Brothers Long-Term Corporate Bond Index, which consists of
all investment-grade U.S. corporate bonds with maturities of at least
ten years;
* The Lehman Brothers Intermediate-Term Corporate Bond Index, which
consists of all investment-grade U.S. corporate bonds with maturities of
less than ten years but more than one year; and
* The Lehman Brothers Mortgage-Backed Securities Index, which consists
of all fixed-coupon mortgage pass throughs issued by or backed by the
U.S. Government or its agencies.
We seek foreign debt market exposure through investment in securities
representative of the Solomon Brothers Non-U.S. World Government Bond
Index, which consists of a range of foreign government bonds with
maturities of greater than one year.
We also invest in high-quality money market instruments, including U.S.
Government obligations, obligations of foreign and domestic banks,
short-term corporate debt instruments and repurchase agreements.
We may also invest in stocks of U.S. and foreign issuers not included in
the indexes listed above. Foreign equity exposure may be through stocks
purchased on foreign exchanges or through American Depository Receipts
or similar instruments sold on U.S. exchanges.
In addition, under normal market conditions, we may invest:
* in call and put options on stock indexes, stock index futures,
options on stock index futures, interest rate and interest rate futures
contracts as a substitute for a comparable market position in stocks;
and
* in interest rate and index swaps.
We are not required to keep a minimum investment in any of the asset
classes, nor are we prohibited from investing substantially all
Stagecoach LifePath Funds Prospectus 13
<PAGE>
of our assets in a single class. The allocation may shift at any
time. As part of our investment strategy, we may invest varying
portions of our assets in money market instruments. In addition,
we may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, repurchase
agreements and other short-term investments, to maintain
liquidity or when we believe it is in the best interest of
shareholders to do so. Each Fund is a diversified portfolio.
- - --------------------------------------------------------------------------------
[LOGO OF IMPORTANT RISK FACTORS
EXCLAMATION
POINT] You should consider both the General Investment Risks beginning
on page 20 and the specific risks listed below. They are all
important to your investment choice.
We may incur a higher than average portfolio turnover ratio due
to allocation shifts recommended by the investment model.
Foreign obligations may entail additional risks. The value of
investments in options on stock indexes is affected by price
level movements for a particular index, rather than price
movements for an individual issue.
- - --------------------------------------------------------------------------------
[LOGO OF ADDITIONAL FUND FACTS
ADDITION
SIGN] The allocations across asset classes are recommended by a
proprietary investment model that analyzes extensive financial
and economic data, including relative risk and return
statistics. We have broad latitude in allocating the Funds'
investments and in refining the model. No person is primarily
responsible for recommending either the asset mix or the mix of
securities within a class. We may invest in fewer asset classes
than listed above, particularly for any Fund with less than $150
million in total assets.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 6.
14 Stagecoach LifePath Funds Prospectus
<PAGE>
LifePath Funds Financial Highlights
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
The following information has been derived from the Financial Highlights of the
Class A and B shares in the Funds' financial statements for the fiscal year
ended February 28, 1998. The financial statements are incorporated by reference
into the SAI and have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report dated April 3, 1998 also is incorporated by reference
into the SAI. This information should be read in conjunction with the financial
statements and notes thereto. Financial information is not provided for the
Class B shares of the LifePath Opportunity Fund or the Class C shares of the
LifePath 2040 Fund because those shares were not offered during the periods
presented.
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
LifePath Opportunity Fund LifePath 2010 Fund
Class A Shares -Commenced Class A Shares -Commenced
on March 1, 1994 on March 1, 1994
--------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Feb. 28, 1998 Feb. 28, 1997 Feb. 28, 1996 Feb. 28, 1995 Feb. 28, 1998 Feb. 28, 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.71 $ 10.64 $ 9.92 $ 10.00 $ 12.20 $ 11.42
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.43 0.42 0.40 0.34 0.36 0.34
Net realized and
unrealized gain
(loss) on investments 0.81 0.28 0.86 (0.14) 1.82 0.95
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (loss) 1.24 0.70 1.26 0.20 2.18 1.29
- - ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net
investment income (0.44) (0.42) (0.41) (0.27) (0.38) (0.34)
From net realized
capital gain (0.68) (0.21) (0.13) (0.01) (0.84) (0.17)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.12) (0.63) (0.54) (0.28) (1.22) (0.51)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.83 $ 10.71 $ 10.64 $ 9.92 $ 13.16 $ 12.20
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 11.99% 6.74% 12.98% 2.10% 18.45% 11.60%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000) $67,609 $84,949 $100,700 $54,617 $89,659 $82,971
Number of shares
outstanding,
end of period (000) 6,272 7,934 9,406 5,503 6,815 6,801
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/1/:
Ratio of expenses
to average net assets 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
Ratio of net
investment income to
average net assets 3.83% 3.93% 4.00% 4.62% 2.85% 3.16%
- - ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/2/ 39% 108% 84% 17% 46% 73%
- - ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate
paid/3/ $0.0300 $0.0401 N/A N/A $0.0304 $0.0404
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Ratios include expenses charged to the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by other
auditors.
/3/ The Average Commission Rate Paid reflects activity by the Master Portfolio.
This amount may vary depending on, among other things, the mix of trades,
trading practices and commission rate structures.
16 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=======================================================================================================
FOR A SHARE OUTSTANDING
=======================================================================================================
Class B Shares- LifePath 2020 Fund
Commenced on Class A Shares -Commenced
March 3, 1997 on March 1, 1994
---------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Feb. 28, 1996 Feb. 28, 1995 Feb. 28, 1998 Feb. 28, 1998
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 9.99 $ 10.00 $ 12.02 $ 12.98
- - -------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.32 0.34 0.19 0.28
Net realized and
unrealized gain
(loss) on investments 1.58 (0.02) 1.88 2.73
- - -------------------------------------------------------------------------------------------------------
Total from investment
operations (loss) 1.90 0.32 2.07 3.01
- - -------------------------------------------------------------------------------------------------------
Less distributions:
From net
investment income (0.33) (0.28) (0.15) (0.29)
From net realized
capital gain (0.14) (0.05) (0.84) (1.00)
- - -------------------------------------------------------------------------------------------------------
Total distributions (0.47) (0.33) (0.99) (1.29)
- - -------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.42 $ 9.99 $ 13.10 $ 14.70
- - -------------------------------------------------------------------------------------------------------
Total return (not
annualized) 19.40% 3.31% 17.64% 23.97
- - -------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000) $67,178 $36,764 $ 6,248 $166,198
Number of shares
outstanding,
end of period (000) 5,883 3,679 477 11,304
- - -------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/1/:
Ratio of expenses
to average net assets 1.20% 1.20% 1.70% 1.20
Ratio of net
investment income to
average net assets 3.06% 4.40% 2.15% 2.05
- - -------------------------------------------------------------------------------------------------------
Portfolio turnover rate/2/ 39% 24% 46% 41
- - -------------------------------------------------------------------------------------------------------
Average commission rate
paid/3/ N/A N/A $0.0304 $0.0300
- - -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Ratios include expenses charged to the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by other
auditors.
/3/ The Average Commission Rate Paid reflects activity by the Master Portfolio.
This amount may vary depending on, among other things, the mix of trades,
trading practices and commission rate structures.
Stagecoach LifePath Funds Prospectus 17
<PAGE>
LifePath Funds Financial Highlights
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
LifePath 2020 Fund Class A Class B Shares LifePath 2030 Fund
Shares-Commenced on Commenced on Class A Shares-Commenced on
March 1, 1994 March 3, 1997 March 1, 1994
----------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Feb. 28, 1997 Feb. 29, 1996 Feb. 28, 1995 Feb. 28, 1998 Feb. 28, 1998 Feb. 28, 1997 Feb. 28, 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.98 $ 10.17 $ 10.00 $ 12.79 $ 13.83 $ 12.34 $ 10.17
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.27 0.27 0.28 0.14 0.23 0.22 0.21
Net realized and
unrealized gain/
(loss) on investments 1.43 2.03 0.12 2.74 3.54 1.83 2.45
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.70 2.30 0.40 2.88 3.77 2.05 2.66
- - ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net
investment income (0.28) (0.28) (0.23) (0.12) (0.23) (0.23) (0.22)
From net realized
capital gain (0.42) (0.21) 0.00 (1.00) (0.86) (0.33) (0.27)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.70) (0.49) (0.23) (1.12) (1.09) (0.56) (0.49)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 12.98 $ 11.98 $ 10.17 $ 14.55 $ 16.51 $ 13.83 $ 12.34
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 14.65% 22.94% 4.12% 23.05% 28.01% 17.01% 26.53%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000) $146,226 $122,488 $ 66,036 $12,129 $26,131 $101,078 $ 83,012
Number of shares
outstanding,
end of period (000) 11,264 10,224 6,494 884 7,642 7,307 6,728
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/1/:
Ratio of expenses
to average net assets 1.20% 1.20% 1.20% 1.70% 1.20% 1.20% 1.20%
Ratio of net
investment income to
average net assets 2.33% 2.45% 3.64% 1.33% 1.50% 1.81% 1.92%
- - ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/2/ 61% 49% 28% 41% 27% 42% 39%
- - ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate
paid/3/ $0.0451 N/A N/A $0.0300 $0.0302 $0.0364 N/A
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Ratios include expenses charged to the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by other
auditors.
/3/ The Average Commission Rate Paid reflects activity by the Master Portfolio.
This amount may vary depending on, among other things, the mix of trades,
trading practices and commission rate structures.
18 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
Class B Shares LifePath 2040 Fund Class B Shares
Commenced on Class A Shares-Commenced on Commenced on
March 3, 1997 March 1, 1994 March 3, 1997
----------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Feb. 28, 1995 Feb. 28, 1998 Feb. 28, 1998 Feb. 28, 1997 Feb. 29, 1996 Feb. 28, 1995 Feb. 28, 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.00 $ 13.63 $ 14.50 $ 12.84 $ 10.37 $ 10.00 $ 14.29
- - ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.26 0.10 0.13 0.16 0.15 0.18 0.03
Net realized and
unrealized gain/
(loss) on investments 0.13 3.50 4.17 2.35 2.82 0.34 4.06
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.39 3.60 4.30 2.51 2.97 0.52 4.09
- - ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net
investment income (0.22) (0.09) (0.14) (0.16) (0.16) (0.15) (0.03)
From net realized
capital gain 0.00 (0.86) (1.59) (0.69) (0.34) 0.00 (1.59)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.22) (0.95) (1.73) (0.85) (0.50) (0.15) (1.62)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.17 $ 16.28 $ 17.07 $ 14.50 $ 12.84 $ 10.37 $ 16.76
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return (not
annualized) 4.03% 26.93% 30.66% 20.17% 28.91% 5.26% 29.47%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of
period (000) $41,153 $12,469 $248,195 $189,560 $142,738 $56,737 $30,754
Number of shares
outstanding,
end of period (000) 4,045 766 14,537 13,073 11,114 5,472 1,835
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets (annualized)/1/:
Ratio of expenses
to average net assets 1.20% 1.70% 1.20% 1.20% 1.20% 1.20% 1.70%
Ratio of net
investment income to
average net assets 3.35% 0.76% 0.82% 1.22% 1.29% 2.35% 0.08%
- - ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/2/ 40% 27% 34% 48% 29% 5% 34%
- - ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate
paid/3/ N/A $0.0302 $0.0248 $0.0351 N/A N/A $0.0248
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Ratios include expenses charged to the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by other
auditors.
/3/ The Average Commission Rate Paid reflects activity by the Master Portfolio.
This amount may vary depending on, among other things, the mix of trades,
trading practices and commission rate structures.
Stagecoach LifePath Funds Prospectus 19
<PAGE>
General Investment Risks
- - --------------------------------------------------------------------------------
Understanding the risks involved in mutual fund investing will help you make an
informed decision that takes into account your tolerance and preferences. You
should carefully consider risks common to all mutual funds, including the
Stagecoach Funds. Chief among these risks are the following:
* Unlike bank deposits such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
* We cannot guarantee that we will meet our investment objectives.
* We do not guarantee the performance of a Fund, nor can we assure you that
the market value of your investment will not decline. We will not "make
good" any investment loss you may suffer, nor can anyone we contract with to
perform certain functions, such as selling agents or investment advisors,
offer or promise to make good any such losses.
* Share prices-and therefore the value of your investment-will increase and
decrease with changes in the value of the underlying securities and other
investments. This is referred to as volatility.
* Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
* An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Funds invest in securities that involve particular kinds of risk.
* The Funds invest in equities which are subject to equity market risk. This
is the risk that stock prices will fluctuate and can decline and reduce the
value of the portfolio. Certain types of stock and certain stocks selected
for a Fund's portfolio may underperform or decline in value more than the
overall market. As of the date of this Prospectus, the equity market, as
measured by the S&P 500 Index and other commonly used indexes, is trading at
or close to record levels. There can be no guarantee that these performance
levels will continue.
* The Funds invest in debt instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer
or changes in the credit rating of a security may affect its value. Interest
rate risk is the possibility that interest rates may increase and reduce the
resale value of securities in a Fund's portfolio. Debt instruments with
longer maturities are generally more sensitive to interest rate changes than
those with shorter maturities. Changes in market interest rates do not
affect the rate payable on debt instruments held in a Fund, unless the
instrument has adjustable or
20 Stagecoach LifePath Funds Prospectus
<PAGE>
- - -------------------------------------------------------------------------------
variable rate features. Changes in market interest rates may also extend or
shorten the duration of certain types of instruments, such as asset-backed
securities, thereby affecting their value and the return on your investment.
* The Funds invest in smaller companies, foreign companies (including
investments made through American Depository Receipts and similar
instruments), and emerging markets that are subject to additional risks,
including less liquidity and greater volatility. A Fund's investment in
foreign and emerging markets may also be subject to special risks associated
with international trade, including currency, political, regulatory and
diplomatic risk.
* The Funds may invest a portion of their assets in U.S. Government
obligations. It is important to recognize that the U.S. Government does not
guarantee the market value or current yield of those obligations. Not all
U.S. Government obligations are backed by the full faith and credit of the
U.S. Treasury, and the U.S. Government's guarantee does not extend to the
Fund itself.
* The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
What follows is a general list of the types of risks (some of which are
described above) that may apply to a given Fund and a table showing some of the
additional investment practices that each Fund may use. Additional information
about these practices is available in the Statement of Additional Information.
Counter-Party Risk- The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk- The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Currency Risk- The risk that a change in the exchange rate between U.S. dollars
and a foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency.
Stagecoach LifePath Funds Prospectus 21
<PAGE>
General Investment Risks
- - -------------------------------------------------------------------------------
Diplomatic Risk- The risk that an adverse change in the diplomatic
relations between the United States and another country, and between
other countries, might reduce the value or liquidity of investments in
either country.
Experience Risk- The risk presented by a new or innovative security. The risk is
that insufficient experience exists to forecast how the security's value might
be affected by various economic conditions.
Information Risk- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk- The risk that changes in interest rates can reduce the value
of an existing security. Generally, when interest rates increase, the value of a
debt security decreases. The effect is usually more pronounced for securities
with longer dates to maturity.
Leverage Risk- The risk that a practice may increase a Fund's exposure to Market
Risk, Interest Rate Risk or other risks by, in effect, increasing assets
available for investment.
Liquidity Risk- The risk that a security cannot be sold, or cannot be sold
without adversely affecting the price.
Market Risk- The risk that the value of a stock, bond or other security will be
reduced by market activity. This is a basic risk associated with all securities.
Political Risk- The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's industry,
government or markets.
Regulatory Risk- The risk that changes in government regulations will adversely
affect the value of a security. Also the risk that an insufficiently regulated
market might permit inappropriate trading practices.
Year 2000 Risks- Many computer software systems in use today cannot distinguish
the Year 2000 from the Year 1900. Most of the services provided to the Funds
depend on the smooth functioning of computer systems. Any failure to adapt these
systems in time could hamper the Funds' operations and services. The Funds'
principal service providers have advised the funds that they are working on
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations, the companies
or entities in which the Funds invests also could be adversely impacted by the
Year 2000 issue. The extent of such impact cannot be predicted.
22 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Investment Practice/Risk
The following table lists some of the additional investment practices of
the Funds, including some not disclosed in the Investment Objective and
Investment Policies sections of the Prospectus. The risks indicated
after the description of the practice are NOT the only potential risks
associated with that practice, but are among the more prominent. Market
risk is assumed for each. See the Investment Objective and Investment
Policies for each Fund or the Statement of Additional Information for
more information on these practices.
Remember, each LifePath Fund has the same investment practices and
available asset classes. The degree to which these practices and
classes, and their attendant risks, are present in each Fund depends
upon how aggressive a Fund's allocation mix is. Funds with a longer
maturity horizon are more aggressive than Funds with a shorter maturity
horizon and are generally more volatile.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in a
particular Fund. See the "Important Risk Factors" in the summary for
each Fund. You should also see the Statement of Additional Information
for additional information about the investment practices and risks
particular to each Fund.
Investment practices and risk levels are carefully monitored. We attempt
to ensure that the risk exposure for each Fund remains within the
parameters of its objective.
Stagecoach LifePath Funds Prospectus 23
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================
INVESTMENT PRACTICE: RISK:
===========================================================================
<S> <C> <C>
Floating and Variable Rate Debt
Instruments with interest Interest Rate and *
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- - ---------------------------------------------------------------------------
Repurchase Agreements
A transaction in which Credit and *
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed
upon time and price,
usually with interest.
- - ---------------------------------------------------------------------------
Other Mutual Funds
The temporary investment Market Risk *
in shares of another
mutual fund. A pro
rata portion of the other
fund's expenses, in
addition to the expenses
paid by the Fund, will be
borne by Fund shareholders.
- - ---------------------------------------------------------------------------
Foreign Securities
Securities in a dollar- Information, Political, *
denominated debt of non-US. Regulatory, Diplomatic
companies of foreign Liquidity and Currency
government. Risk
- - ---------------------------------------------------------------------------
Options
The right or obligation to Credit, Information and
receive or deliver a security Liquidity Risk
or cash payment depending on
the security's price or the
performance of an index or
benchmark.
-------------------------------------------------------------------------
Stock Index Futures *
Options on a Stock Index Futures *
Index Swaps *
Interest Rate Futures *
Interest Rate Futures Options *
Interest Rate Swaps *
- - ---------------------------------------------------------------------------
Loans of Portfolio Securities
The practice of loaning Credit, Leverage and *
securities to brokers, Counter-Party Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in
accordance with existing
investment policies.
- - ---------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an Counter-Party Risk *
equivalent of 20% of Leverage Risk
assets from banks for
temporary purposes to meet
shareholder redemptions.
- - ---------------------------------------------------------------------------
Illiquid Securities
A security that cannot be Liquidity Risk *
readily sold, or cannot be
readily sold without
negatively affecting its fair
price. Limited to 15% of
assets.
- - ---------------------------------------------------------------------------
</TABLE>
24 Stagecoach LifePath Funds Prospectus
<PAGE>
A Choice of Share Classes
- - --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
* Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
* Class B Shares - with a contingent deferred sales charge (CDSC) that
diminishes over time, and higher on-going expenses than Class A shares.
* Class C Shares - with a 1.00% contingent deferred sales charge (CDSC) on
redemptions made within one year of purchase, and higher on-going expenses
than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B or Class C shares. Please note that Class B shares convert
to Class A shares after six years to avoid the higher on-going expenses assessed
against Class B shares.
Class C shares are available for the LifePath 2040 Fund. They are similar to
Class B shares, with some important differences. Unlike Class B shares, Class C
shares do not convert to Class A shares. The higher on-going expenses will be
assessed as long as you hold the shares. The choice between Class B and Class C
shares may depend on how long you intend to hold Fund shares before redeeming
them.
Please see the expenses listed for each Fund and the following charge schedule
before making your decision. You should also review the "Reduced Sales Charges"
section of this Prospectus. You may wish to discuss this choice with your
financial consultant.
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
Stagecoach LifePath Funds Prospectus 25
<PAGE>
A Choice of Share Classes
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=================================================================================================================
CLASS A SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SHEDULE:
=================================================================================================================
AMOUNT FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS DEALER ALLOWANCE AS %
OF PURCHASE % OF PUBLIC OFFERING PRICE % OF NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- - ------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- - ------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.125%
- - ------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- - ------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- - ------------------------------------------------------------------------------------------------------------------
$1,000,000 and over /1/ 0.00% 0.00% 1.00%
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Please note that Class A shares of other Funds listed in other prospectuses have
different loads and breakpoints levels.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at NAV and agree that if you redeem
your shares within six years of the purchase date, you will pay a contingent
deferred sales charge (CDSC) based on how long you have held your shares.
Certain exceptions apply (see "Class B and Class C share CDSC Reductions" and
"Waivers for Certain Parties"). The CDSC schedule is as follows:
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
Redemptions Within 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
- - --------------------------------------------------------------------------------
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
- - --------------------------------------------------------------------------------
The CDSC percentage you pay is based on the lower of the NAV of the shares on
the date of the original purchase, or the NAV of the shares on the date of
redemption. The distributor pays sales commissions of up to 4.00% of the
purchase price of Class B shares to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held for
six years, the CDSC expires and the B shares are converted to A shares to reduce
your future on-going expenses.
26 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a
contingent deferred sales charge (CDSC) of 1.00%.
The CDSC percentage you pay is based on the lower of the NAV on the date of the
original purchase, or the NAV on the date of redemption. The distributor pays
sales commissions of up to 1.00% of the purchase price of Class C shares to
selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Stagecoach LifePath Funds Prospectus 27
<PAGE>
Reduced Sales Charges
- - ------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C shares, particularly if you intend to invest greater
amounts. You should consider whether you are eligible for any of these potential
reductions when you are deciding which share class to buy.
Class A Share Reductions:
* You pay no sales charges on Fund shares you buy with reinvested
distributions.
* You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
* By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint
within the next 13 months. We will hold in escrow shares equal to
approximately 5% of the amount you intend to buy. If you do not invest the
amount specified in the LOI before the expiration date, we will redeem
enough escrowed shares to pay the difference between the reduced sales load
you paid and the sales load you should have paid. Otherwise, we will release
the escrowed shares when you have invested the agreed amount.
* Rights of Accumulation (ROA) allow you to combine the amount you invest with
the total NAV of shares you own in other Stagecoach front-end load Funds in
order to reach breakpoint levels for a reduced load. We give you a discount
on the entire amount of the investment that puts you over the breakpoint
level.
* If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have 120
days to reinvest the proceeds of that redemption with no sales charge into a
Fund that charges the same or a lower front-end sales charge. If you use
such a redemption to purchase shares of a Fund with a higher front-end sales
charge, you will have to pay the difference between the lower and higher
charge.
* You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for which
Wells Fargo Bank acts as trustee provided the distribution occurred within
the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
28 Stagecoach LifePath Funds Prospectus
<PAGE>
- - -------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
* a family unit, consisting of a husband and wife and children under the age
of twenty-one or single trust estate;
* a trustee or fiduciary purchasing for a single fiduciary relationship; or
* the members of a "qualified group" which consists of a "Company" (as defined
in the 1940 Act), and related parties of such a "Company", which has been in
existence for at least six months and which has a primary purpose other than
acquiring Fund shares at a discount.
------------------------------------------------------------------------
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in a Stagecoach Fund in
installments over the next year, by signing a letter of intent you would
pay only a 3.50% sales load on the entire purchase. Otherwise, you might
pay 4.50% on the first $50,000, then 4.00% on the next $49,999!
------------------------------------------------------------------------
Stagecoach LifePath Funds Prospectus 29
<PAGE>
Reduced Sales Charges
- - --------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions:
* You pay no CDSC on Funds shares you purchase with reinvested distributions.
* We waive the CDSC for all redemptions made because of scheduled or mandatory
distributions for certain retirement plans. (See your retirement plan
disclosure for details.)
* We waive the CDSC for redemptions made in the event of the shareholder's
death or for a disability suffered after purchasing shares. ("Disability" is
defined by the Internal Revenue Code of 1986.)
* We waive the CDSC for redemptions made at the Company's direction in order
to, for example, complete a merger or close an account whose value has
fallen below the minimum balance.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
* Current and retired employees, trustees and officers of:
* Stagecoach Trust and its affiliates;
* Wells Fargo Bank and its affiliates;
* Stephens and its affiliates; and
* Broker-Dealers who act as selling agents.
* The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews, fathers-
in-law, mothers-in-law, brothers-in-law and sisters-in-law of either the
spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom the
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
30 Stagecoach LifePath Funds Prospectus
<PAGE>
Your Account
- - --------------------------------------------------------------------------------
This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
* By opening an account directly with the Fund (simply complete and return
a Stagecoach Funds application with proper payment);
* Through a brokerage account with an approved selling agent; or
* Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
* $1,000 per Fund minimum initial investment; or
* $100 per Fund minimum initial investment if you use the AutoSaver option.
* $100 per Fund for all investments after your first.
* We may waive the minimum for Funds you purchase through certain
retirement, benefit and pension plans, through certain packaged investment
products, or for certain classes of shareholders as permitted by the
Securities and Exchange Commission. Check the specific disclosure
statements and applications for the program through which you intend to
invest.
Important Information:
* Read this Prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your selling agent or by calling 1-800-222-8222.
* We process requests to buy or sell shares each business day as of the
close of regular trading on the New York Stock Exchange, which is usually
1:00 PM Pacific Time. Any request we receive in proper form before the
close of regular trading on the New York Stock Exchange is processed the
same day. Requests we receive after the close are processed the next
business day.
* As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
Stagecoach LifePath Funds Prospectus 31
<PAGE>
Your Account
- - --------------------------------------------------------------------------------
* We determine the Net Asset Value (NAV) of each class of the Funds' shares
each business day as of the close of regular trading on the New York
Stock Exchange. We determine the NAV by subtracting the Fund class'
liabilities from its total assets, and then dividing the result by the
total number of outstanding shares of that class. Each Fund's assets are
generally valued at current market prices. See the Statement of
Additional Information for further disclosure.
* We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
* You may have to complete additional paperwork for certain types of
account registrations, such as a trust. Please speak to Stagecoach
Investor Services (1-800-222-8222) if you are investing directly with
Stagecoach Funds, or speak to your selling agent if you are buying shares
through a brokerage account.
* Once an account has been opened, you can add additional Funds under the
same registration without completing a new application.
* We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We may reserve the right to delay payment of a
redemption for up to 15 days so that we may be reasonably certain that
investments made by check have been collected.
32 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
By Mail
================================================================================
If you are buying shares for the first time:
- - --------------------------------------------------------------------------------
Complete a stagecoach Funds application. Be sure to indicate |
the Fund name and the share class into which you intend to | Mail to:
invest. | Stagecoach Funds
- - -------------------------------------------------------------| PO Box 7066
| San Francisco,CA
Enclose a check for at least $1,000 made out in the full | 94120-9201
name and share class of the Fund. For example, "LifePath |
2020 Fund, Class B." |
- - -------------------------------------------------------------|
You may start your account with $100 if you elect the |
AutoSaver option on the application. |
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
If you are buying additional shares:
- - --------------------------------------------------------------------------------
Make a check payable to the full name and share class of your| Mail to:
Fund for at least $100. Be sure to write your account number| Stagecoach Funds
on the check as well. | PO Box 7066
- - -------------------------------------------------------------| San Francisco,CA
Enclose the payment stub/card from your statement if | 94120-9201
available. |
- - --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
If you are buying for the first time:
- - --------------------------------------------------------------------------------
If you do not currently have an account, complete a | Mail to:
Stagecoach Funds application. You must wire at least $1,000.| Stagecoach Funds
Be sure to indicate the Fund name and the share class into | PO Box 7066
which you intend to invest. | San Francisco,CA
- - -------------------------------------------------------------| 94120-9201
Mail the completed application. |
- - -------------------------------------------------------------|
You may also fax the completed applicaiton (with original to | Fax to:
follow). | 1-415-546-0280
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
If you are buying additional shares:
- - --------------------------------------------------------------------------------
Instruct your wiring bank to transmit | Wire to:
at least $100 according to the | Wells Fargo Bank, N.A.
instructions given to the right. | San Francisco, California
Be sure to have the wiring bank include |
your current account number and the name | Bank Routing Number:
your account is registered in. | 121000248
- - --------------------------------------------|
| Wire Purchase Account Number:
| 4068-000587
|
| Attention:
| Stagecoach Funds (Name of Fund
| and Share Class)
| Account Name:
| (Registration Name Indicated
| on Application)
|-----------------------------------
Stagecoach LifePath Funds Prospectus 33
<PAGE>
Your Account
- - --------------------------------------------------------------------------------
================================================================================
BY PHONE:
================================================================================
If you are buying shares for the first time:
- - --------------------------------------------------------------------------------
You can only make your first purchase of a Fund |
by phone if you already have an existing | CALL:
Stagecoach Account. | 1-800-222-8222
- - ---------------------------------------------------------|
Call Investor Services and instruct the representative |
to either: |
* transfer at least $1,000 from a linked settlement |
account, or |
* exchange at least $1,000 worth of shares from an |
existing Stagecoach Fund. Please see "Exchanges" |
for special rules. |
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
If you are buying additional shares:
- - --------------------------------------------------------------------------------
Call Investor Services and instruct the representative |
to either: |
* transfer at least $100 from a linked settlement | Call:
account, or | 1-800-222-8222
* exchange at least $100 worth of shares from another |
Stagecoach Fund. |
- - --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Fund by mail or telephone. For Funds held through
brokerage and other types of accounts, please consult your selling agent.
================================================================================
BY MAIL
================================================================================
Write a letter stating your account registration, |
your account number, the Fund you wish to redeem |
and the dollar amount ($100 or more) of the redemption |
you wish to receive (or write "Full Redemption"). |
- - --------------------------------------------------------|
Make sure all the account owners sign the request. |
- - --------------------------------------------------------| Mail to:
You may request that redemption proceeds be sent | Stagecoach Funds
you by check, by ACH transfer into a bank account, | PO Box 7066
or by wire ($5,000 minimum). Please call Investor | San Francisco, CA
Services regarding requirements for linking bank | 94120-9201
accounts or for wiring funds. We reserve the right |
to charge a fee for wiring funds although it is not |
currently our practice to do so. |
- - --------------------------------------------------------|
Signature Guarantees are required for mailed redemption |
requests over $5,000. You can get a signature guarantee |
at financial institutions such as a bank or brokerage |
house. We do not accept notarized signatures. |
- - --------------------------------------------------------------------------------
34 Stagecoach LifePath Funds Prospectus
<PAGE>
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption of at least |
$100. Be prepared to provide your account number and Tax |
Identification Number. |
- - -----------------------------------------------------------|
Unless you have instructed us otherwise, only one account |
owner needs to call in redemption requests. |
- - -----------------------------------------------------------|
You may request that redemption proceeds be sent to you by |
check, by transfer into an ACH-linked bank account, or by |
wire ($5,000 minimum). Please call Investor Services |
regarding requirements for linking bank accounts or for |
wiring funds. We reserve the right to charge a fee for |
wiring funds although it is not currently our practice to |
do so. | Call:
- - -----------------------------------------------------------| 1-800-222-8222
Telephone privileges are automatically made available to |
you unless you specifically decline them on your |
application or subsequently in writing. |
- - -----------------------------------------------------------|
|
Phone privileges allow us to accept transaction |
instructions by anyone representing themselves as the |
shareholder and who provides reasonable confirmation of |
their identity, such as providing the Taxpayer |
Identification Number on the account. We will not be |
liable for any losses incurred if we follow telephone |
instructions we reasonably believe to be genuine. |
- - -----------------------------------------------------------|
|
Telephone requests are not accepted of the address on your |
account was changed by phone in the last 15 days. |
- - --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the New York Stock Exchange are processed on the same business day.
- - --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- - --------------------------------------------------------------------------------
We determine the NAV each day as of the close of regular trading on the New
York Stock Exchange, which is generally 1:00 pm Pacific time.
- - --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supercede the directions in this
Prospectus.
- - --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to 15 days so that
we may be reasonably certain that investments made by check have been collected.
Payments of redemptions may also be delayed under extraordinary circumstances or
as permitted by the Securities and Exchange Commission in order to protect
remaining shareholders. Payments of redemptions also may be delayed up to seven
days under normal circumstances, although it is not our policy to delay such
payments.
- - --------------------------------------------------------------------------------
Generally, we pay redemption requests in cash, unless the redemption request is
for more than $250,000 or 1% of the net assets of the Fund by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits, it may be to the detriment of existing shareholders to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- - --------------------------------------------------------------------------------
Stagecoach LifePath Funds Prospectus 35
<PAGE>
Exchanges
- - --------------------------------------------------------------------------------
Exchanges between Stagecoach Funds are two transactions: a sale of one Fund and
the purchase of another. In general, the same rules and procedures that apply to
sales and purchases apply to exchanges. There are, however, additional factors
you should keep in mind while making or considering an exchange:
* You should carefully read the Prospectus for the Fund into which you wish to
exchange.
* Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
* If you exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.5% schedule.)
* If you are making an initial investment into a new Fund through an exchange,
you must exchange at least the minimum first purchase amount of the Fund you
are redeeming, unless your balance has fallen below that amount due to
market conditions.
* Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
* If you are exchanging from a higher-load fund to a lower or no-load fund,
then back to the higher load fund, it is up to you to inform Stagecoach
Funds that you have already paid the higher load.
* Exchanges between Class B shares, between Class C shares or between either
Class B or Class C shares and a Stagecoach Money Market Fund will not
trigger the CDSC. The new shares will continue to age according to their
original schedule while in the new Fund and will be charged the CDSC
applicable to the original shares upon redemption. This also applies to
exchanges of Class C shares that are subject to a CDSC.
* Exchanges from any share class to a money market fund can only be re-
exchanged for the original share class.
* In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes to a Fund's exchange privileges.
* You may make exchanges between like share classes. You may also exchange
from an A, B or C share classes and non-Institutional class shares to a non-
Institutional money market fund.
36 Stagecoach LifePath Funds Prospectus
<PAGE>
Additional Services and Other Information
- - --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
* AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Stagecoach Investor
Services at 1-800-222-8222 if you wish to change or add linked accounts.
* Systematic Withdrawal Program - Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
fifth business day prior to the end of each month and either send you the
proceeds by check or transfer it into your linked bank account. In order to
set up a Systematic Withdrawal Program, you:
* must have a Fund account valued at $10,000 or more;
* must have distributions reinvested; and
* may not be simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the
linked account you specified is closed.
Dividend and Capital Gain Distribution Options
You may choose to do any of the following:
* Automatic Reinvestment Option - Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
* Fund Purchase Plan - Uses your distributions to buy shares at NAV of another
Stagecoach Fund of the same share class or a Money Market Fund. You must
have already satisfied the minimum investment requirements of the Fund into
which your distributions are being transferred in order to participate.
* Automatic Clearing House Option - Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the ACH
system. If your specified bank account is closed, we will reinvest your
distributions.
Stagecoach LifePath Funds Prospectus 37
<PAGE>
Additional Services and Other Information
- - --------------------------------------------------------------------------------
* Check Payment Option - Allows you to receive checks for distributions mailed
to your address of record or to another name and address which you have
specified in written, signature guaranteed instructions. If checks remain
uncashed for six months or are undeliverable by the Post Office, we will
reinvest the distributions at the earliest date possible.
------------------------------------------------------------------------
Two Things to Keep In Mind About Distributions
Remember, distributions have the effect of reducing the NAV per share by
the amount distributed. Also, distributions on new shares shortly after
purchase would be in effect a return of capital, although the
distribution may still be taxable to you.
------------------------------------------------------------------------
Taxes
The following discussion regarding taxes is based on laws that were in effect as
of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Funds and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult your
tax advisor about your specific tax situation. Federal income tax considerations
are discussed further in the Statement of Additional Information.
We will pass on to you net investment income and net short-term capital gains
earned by a Fund as dividend distributions. These are taxable to you as ordinary
income. We will pass on to you any net capital gains earned by a Fund as 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.
In general, all distributions will be taxable to you when paid, even if they are
paid in additional Fund Shares. However, distributions declared in October,
November and December and distributed by the following January will be taxable
as if they were paid on December 31 of the year in which they were declared. We
will notify you as to the status of your Fund distributions.
If you buy shares of a Fund shortly before it distributes its annual gains, your
distribution from the Fund will, in effect, be a taxable return of part of your
investment. Similarly, if you buy shares of a Fund that holds appreciated
securities in its portfolio, you will receive a taxable return of part of your
investment if and when the Fund sells the appreciated securities and realizes
the gain. Some of the Funds have built up, or have the potential to build up,
high levels of unrealized appreciation.
38 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will be subject to back-up withholding.
Historical Fund Information
The Company was organized as an unincorporated Massachusetts business trust on
May 14, 1993. The Class B shares of the LifePath Opportunity Fund and the Class
C shares of the LifePath 2040 Fund commenced operations as of June 30, 1998. The
Class B Shares of the other Funds commenced operations on March 3, 1997.
Each Fund invests all of its assets in a Master Portfolio of Master Investment
Portfolio ("MIP") with the same investment objective. To achieve its investment
objective, a Fund may decide to move all of its assets into a different master
fund, or to hire an investment adviser to actively manage the Fund's assets. No
action would be taken unless the Trust's Board of Trustees first determines it
is in the best interests of the Fund.
Wells Fargo & Company, the parent company of Wells Fargo Bank, has signed a
definitive agreement to merge with Norwest Corporation. The proposed merger is
subject to certain regulatory approvals and must be approved by shareholders of
both holding companies. The merger is expected to close in the second half of
1998. The combined company will be called Wells Fargo & Company. Wells Fargo
Bank has advised the Funds that the merger will not reduce the level or quality
of advisory and other services provided by Wells Fargo Bank to the Funds.
Share Class- This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds may offer additional share classes with
different expenses and returns than those described here. Call Stephens at
1-800-643-9691 for information on these or other investment options in
Stagecoach Funds.
Conversion of Class B shares- We will convert Class B shares into Class A shares
at the month end following the six-year anniversary of their original purchase.
This is done to avoid the higher on-going Rule 12b-1 fees assessed to Class B
shares. The conversion is done at NAV and, since it is unlikely that Class A and
Class B shares of the same Fund will have the same NAV on a given date, the
conversion is on a dollar-value basis, not a share-for-share basis.
Stagecoach LifePath Funds Prospectus 39
<PAGE>
Additional Services and Other Information
- - --------------------------------------------------------------------------------
Minimum Account Value- Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements- We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees- Stephens, as the Funds'
distributor, will pay the portion of the Class A share sales charge shown as the
Dealer Allowance to the selling agent, if any. Stephens also compensates
selling agents for the sale of Class B and Class C shares and is reimbursed
through Rule 12b-1 fees and contingent deferred sales charges. Selling agents
may receive different compensation for sales of Class A, Class B and Class C
shares of the same Fund.
Statement of Additional Information- Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
each Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor Services
at 1-800-222-8222.
Glass-Steagall Act- Morrison & Foerster LLP, counsel to the Funds and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel has
pointed out that future judicial or administrative decisions, or future federal
or state laws may prevent these entities from continuing in their roles.
Voting Rights- All shares of the Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
40 Stagecoach LifePath Funds Prospectus
<PAGE>
Organization and Management of the Funds
- - --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for the Funds.
The Board of Trustees of Stagecoach supervises the Funds' activities and
approves the selection of various companies hired to manage the Funds'
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders it may
make a change in one of these companies.
================================================================================
SHAREHOLDERS
================================================================================
Financial Services Firms and Selling Agents
================================================================================
Advise current and prospective shareholders on their Fund investments
- - --------------------------------------------------------------------------------
|
================================================================================
TRANSFER AND
DISTRIBUTOR & DIVIDED DISBURSING SHAREHOLDER
CO-ADMINISTRATOR CO-ADMINISTRATOR AGENT SERVICING AGENTS
================================================================================
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Funds, Manages the Funds' Maintains records Provide services
distributes shares, business activities of shares and to customers
and manages the supervises the
Funds' business paying of dividends
activities
- - --------------------------------------------------------------------------------
|
================================================================================
INVESTMENT ADVISOR
================================================================================
Barclay Global Fund Advisors, 45 Fremont Street, San Francisco, CA
Manages the Funds' investment activities
- - --------------------------------------------------------------------------------
|
================================================================================
CUSTODIAN
================================================================================
Investors Bank & Trust Company, 200 Clarendon Street, Boston MA
Provides safekeeping for the Funds' assets
- - --------------------------------------------------------------------------------
|
================================================================================
BOARD OF TRUSTEES
================================================================================
Supervises the Funds' activities
- - --------------------------------------------------------------------------------
Stagecoach LifePath Funds Prospectus 41
<PAGE>
Organization and Management of the Funds
- - --------------------------------------------------------------------------------
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing board
members, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Barclays Global Fund Advisors ("BGFA"), a wholly owned subsidiary of Barclays
Global Investors and an indirect subsidiary of Barclays Bank PLC, is the advisor
for each of the LifePath Master Portfolios. BGFA was created from the
reorganization of Wells Fargo Nikko Investment Advisors, a former affiliate of
Wells Fargo Bank. As of April 30, 1998, BGFA managed or provided investment
advice for assets aggregating in excess of $575 billion. For providing advisory
services to the Master Portfolios, BGFA is entitled to receive 0.55% of each
Master Portfolio's net assets.
The Administrator
Wells Fargo Bank is the administrator of the Funds. Wells Fargo Bank is paid
.03% of each Fund's assets for these services. Prior to August 1, 1998, Wells
Fargo Bank and Stephens together received an "all-in" fee of 0.10% of each
Fund's assets for these services.
The Distributor and Co-Administrator
Stephens Inc. is the Fund's distributor and co-administrator. Stephens Inc.
receives .04% of each Fund's assets for its role as co-administrator. Stephens
Inc. also receives all loads. CDSCs and distribution plan fees. It uses a
portion of these amounts to compensate selling agents for their role in
marketing the Funds' shares.
42 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Distribution Plan
We have adopted distribution plans for the Funds. These plans authorize payment
for distribution-related expenses, and compensation for distribution-related
services, including on-going compensation to selling agents. Each Fund may
participate in joint distribution activities with other Stagecoach Funds. The
cost of these activities is generally allocated among the Funds. Funds with
higher asset levels pay a higher proportion of these costs. The fees paid under
these plans are as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Class A Class B Class C
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
LifePath Opportunity Fund .25% .75% N/A
- - --------------------------------------------------------------------------------
LifePath 2010 Fund .25% .75% N/A
- - --------------------------------------------------------------------------------
LifePath 2020 Fund .25% .75% N/A
- - --------------------------------------------------------------------------------
LifePath 2030 Fund .25% .75% N/A
- - --------------------------------------------------------------------------------
LifePath 2040 Fund .25% .75% .75%
- - --------------------------------------------------------------------------------
</TABLE>
MIP 12b-1 Plan
MIP's Board of Trustees has adopted, on behalf of each Master Portfolio, a
"defensive" distribution plan under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Plan"). The Plan does not result in any additional expenses
being borne by a Master Portfolio or a Fund. The Plan was intended as a
precaution designed to address the possibility that certain ongoing payments by
Barclays to Wells Fargo Bank in connection with the sale of a former affiliate
of Wells Fargo Bank may be characterized as indirect payments by each Master
Portfolio to finance activities primarily intended to result in the sale of
interests in such Master Portfolio. The Plan provides that if any portion of a
Master Portfolio's advisory fees (up to 0.25% of the average daily net assets of
each Master Portfolio on an annual basis) were deemed to constitute an indirect
payment for activities that are primarily intended to result in the sale of
interests in a Master Portfolio, such payment would be authorized pursuant to
the Plan.
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have
agreements with various shareholder servicing agents to process purchase and
redemption requests, to service shareholder accounts, and to provide other
related services. For these services each Fund pays 0.20% of its
average net assets.
Stagecoach LifePath Funds Prospectus 43
<PAGE>
How to Read the Financial Highlights
- - --------------------------------------------------------------------------------
After the description of each Fund, there are charts showing important financial
information about the Fund. The charts are called the "Financial Highlights" and
are designed to help you understand the past performance of the Fund. The
financial statements from which these Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, except as indicated. The financial statements
are included in each Fund's most recent Annual Report and are available free of
charge by calling 1-800-222-8222. For the year ended February 28, 1995, the
Master Portfolio was audited by other auditors.
Here is an explanation of some terms that will help you read these charts.
Net Asset Value (NAV)- The net value of one share of a class of a Fund. See the
Glossary for a fuller definition.
Net Investment Income- Net investment income is calculated by subtracting the
aggregate Fund expenses from the Fund's investment income. The number in the
financial highlights is the net investment income of a class divided by the
number of outstanding shares of that class. The amount
distributed to shareholders is listed under the heading "Less Distributions-
Dividends from Net Investment Income."
Net Realized and Unrealized Gains (Loss) on Investments- We continually buy and
sell investments. The profit on an investment sold for more than its purchase
price is a realized capital gain while a loss on an investment sold for less
than its purchase price is a realized capital loss. An unrealized gain or loss
occurs when an investment gains or loses value but is not sold. The amount of
capital gain or loss per share that was paid to shareholders is listed under the
heading "Less Distributions-Distributions From Net Realized Gains."
Net Assets- The value of the investments in a Fund's portfolio (after accounting
for expenses) that are attributable to a particular class of the Fund.
Ratio of Expenses to Average Net Assets-This ratio reflects the amount paid by a
Fund to cover the costs of its daily operations, and includes advisory,
administration and other operating expenses. It is expressed as a percentage of
the average daily net assets of a class.
Ratio of Net Investment Income (Loss) to Average Net Assets-This ratio is the
result of dividing net investment income (or loss) by average net assets.
44 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Portfolio Turnover- Portfolio turnover reflects the trading activity in the
Fund's portfolio and is expressed as a percentage of a Fund's investment
portfolio. For example, a Fund with a 50% portfolio turnover has sold and bought
half of its investment portfolio during the given period.
Average Commission Rate Paid- The average brokerage commission paid by a Fund
when it buys or sells shares of securities. The rate is expressed on a per share
basis and the amount paid may vary depending upon trading practices or other
conditions.
Total Return- The annual return on an investment, including any
appreciation or decline in share value, assumes reinvestment of all dividends
and capital gains, reflects fee waivers, and excludes sales loads.
Stagecoach LifePath Funds Prospectus 45
<PAGE>
Glossary
- - --------------------------------------------------------------------------------
We provide the following definitions to assist you in reading this prospectus.
For a more complete understanding of these terms, you should consult your
financial adviser.
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and perform
other tasks.
American Depository Receipts ("ADRs")
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically
held in bank vaults. The ADR's owner is entitled to any capital gains or
dividends. ADRs are one way of owning an equity interest in foreign companies.
Annual/Semi-Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "Total Return".
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "Total Return".
Debt Instruments
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage-backed
securities and can include securities in which the right to receive interest and
principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by a Fund on its shares.
46 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Diversified
A diversified fund, as defined by the Investment Company Act of 1940, is one
that invests in cash, Government securities, other investment companies and no
more than 5% of its total assets in a single issuer. These policies must apply
to 75% of the Fund's total assets.
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S. dollars.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer durations typically
more sensitive to interest rate changes than shorter durations.
Emerging Markets
Markets associated with a country that is considered by the International
Finance Corporation, the International Bank for Reconstruction and Development
and the international financial community to have an "emerging" stock market.
Such markets may be under-capitalized, have less-developed legal and financial
systems or may have less stable currencies than markets in the developed world.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally-sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting 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.
Lehman Brothers 20+ Bond Index
An unmanaged index composed of U.S. Treasury bonds with 20 years or longer dates
to maturity.
Stagecoach LifePath Funds Prospectus 47
<PAGE>
Glossary
- - --------------------------------------------------------------------------------
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
Nationally Recognized Rating Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value (NAV)
The value of a single Fund share. It is determined by adding together all of a
Fund's assets, subtracting expenses and other liabilities, then dividing by the
total number of shares. The NAV is calculated separately for each class of the
Fund, and is determined as of the close of regular trading on each business day
the New York Stock Exchange is open, typically 1:00 p.m. Pacific Time.
Non-Diversified
Any fund that does not have a policy as described under "diversified" in this
Glossary.
Options
An option is the right to buy or sell a security based on an agreed upon price
at a specified time. For example, an option may give the holder of a stock the
right to sell the stock to another party, allowing the seller to profit if the
price has fallen below the agreed price. Options can also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them to
sell a Fund's shares.
Shareholder Servicing Agent
Anyone appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
48 Stagecoach LifePath Funds Prospectus
<PAGE>
- - --------------------------------------------------------------------------------
Signature Guarantee
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
S&P, S&P 500 Index
One of the largest nationally recognized ratings organizations. Standard and
Poor's also publishes various indexes or lists of companies representative of
sectors of the US economy.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Tax Payer Identification Number
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
Total Return
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Fund.
Turnover Ratio
The percentage of the securities held in a Fund's portfolio, other than short-
term securities, that were bought or sold within a year.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Stagecoach LifePath Funds Prospectus 49
<PAGE>
STAGECOACH FUNDS/R/
You may wish to review the following documents:
Statement of Additional Information
supplements the disclosures made by this Prospectus. The Statement of Additional
Information has been filed with the SEC and is incorporated by reference into
this Prospectus and is legally part of this Prospectus.
Annual/Semi-Annual Report
provides certain financial and other important information for the most recent
reporting period and each Fund's portfolio of investments.
These are available free of
charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
========================================================================
STAGECOACH FUNDS:
------------------------------------------------------------------------
* are not insured by the FDIC.
* are not obligations or deposits of Wells Fargo Bank, nor guaranteed
by the Bank.
* involve investment risk, including possible loss of principal.
========================================================================
[LOGO OF RECYCLED PAPER] SC LP P (06/98)
Printed on Recycled Paper
<PAGE>
STAGECOACH FUNDS(R)
STAGECOACH LIFEPATH(TM) FUNDS
INSTITUTIONAL CLASS
The LIFEPATH FUNDS consist of five asset allocation funds (the "LifePath
Funds") offered by Stagecoach Trust (the "Trust"), an open-end, management
investment company. The LifePath Funds seek to provide investors with an asset
allocation strategy designed to maximize assets for retirement or for other
purposes consistent with the quantitatively measured risk that investors, on
average, may be willing to accept given their investment time horizons.
INSTITUTIONAL SHARES OF THE FUNDS ARE NO LONGER BEING OFFERED FOR SALE, ALTHOUGH
A LIMITED NUMBER OF SUCH SHARES REMAIN OUTSTANDING AS OF THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS PROVIDES INFORMATION TO THE EXISTING SHAREHOLDERS OF
INSTITUTIONAL CLASS SHARES OF THE FUNDS.
Investors are encouraged to select a particular LifePath Fund based on the
decade of their anticipated retirement or when they anticipate beginning to
withdraw substantial portions of their investment.
. LIFEPATH OPPORTUNITY FUND is managed for investors planning to retire (or
begin to withdraw substantial portions of their investment) approximately in
the year 2000.
. LIFEPATH 2010 FUND is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2010.
. LIFEPATH 2020 FUND is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2020.
. LIFEPATH 2030 FUND is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2030.
. LIFEPATH 2040 FUND is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2040.
Please read this Prospectus and retain it for future reference. A Statement of
Additional Information ("SAI") dated June 30, 1998 has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference into
this Prospectus. For a free copy, write to the Trust c/o Wells Fargo Bank, N.A.
- - -- Investor Services, P.O. Box 7066, San Francisco, California 94120-7066, or
call 1-800-222-8222. The SAI and other information is available on the SEC's web
site (http://www.sec.gov). If you hold shares in an IRA, please call 1-800-BEST-
IRA (1-800-237-8472) for information or assistance.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY WELLS FARGO BANK, N.A., BARCLAYS GLOBAL FUND ADVISORS OR ANY OF
THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE
AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED JUNE 30, 1998
<PAGE>
The LifePath Funds also offer Class A, Class B and Class C shares. Investors
may be eligible to invest in the Class A, Class B or Class C shares. A free copy
of the current Prospectus for the Class A, Class B and Class C shares is
available by writing to the Trust c/o Wells Fargo Bank, N.A. -- Investor
Services, P.O. Box 7066, San Francisco, California 94120-7066 or by calling 1-
800-222-8222.
Each Fund invests all of its assets in a separate series (each, a "Master
Portfolio") of Master Investment Portfolio ("MIP"), an open-end, management
investment company, rather than in a portfolio of securities. Each Fund has the
same investment objective as the Master Portfolio bearing the corresponding
name, and each Fund's investment experience corresponds directly with the
relevant Master Portfolio's investment experience. References to the investments
and investment policies and risks of the Funds in this prospectus, unless
otherwise indicated, should be understood as references to the investments and
investment policies and risks of the corresponding Master Portfolios. Interests
in a Master Portfolio may be purchased only by investment companies or
accredited investors.
_______________
BARCLAYS GLOBAL FUND ADVISERS SERVES AS EACH MASTER PORTFOLIO'S INVESTMENT
ADVISER, AND TOGETHER WITH ITS AFFILIATES, PROVIDES OTHER SERVICES FOR WHICH IT
IS COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH BARCLAYS GLOBAL FUND
ADVISORS, SERVES AS THE TRUST'S CO-ADMINISTRATOR AND AS DISTRIBUTOR OF EACH
FUND'S SHARES.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES............................................ 1
FINANCIAL HIGHLIGHTS................................................ 3
DESCRIPTION OF THE FUNDS............................................ 7
MANAGEMENT OF THE FUNDS............................................. 14
DESCRIPTION OF SHARES............................................... 16
HOW TO REDEEM SHARES................................................ 16
EXCHANGE PRIVILEGE.................................................. 18
SHARE VALUE......................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................. 19
PERFORMANCE INFORMATION............................................. 20
GENERAL INFORMATION................................................. 21
APPENDIX............................................................ A-1
</TABLE>
<PAGE>
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<S> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price)................................................................ None
Maximum Sales Charge on Reinvested
Dividends.......................................................................................... None
Maximum Deferred Sales Charge on Redemptions.......................................................... None
Exchange Fees......................................................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
LifePath LIFEPATH LIFEPATH LIFEPATH LIFEPATH
Opportunity Fund 2010 Fund 2020 Fund 2030 Fund 2040 Fund
---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Master Portfolio
Management Fees/1/..... .55% .55% .55% .55% .55%
Other Expenses........... .40% .40% .40% .40% .40%
--- --- --- --- ---
TOTAL FUND OPERATING
EXPENSES................ .95% .95% .95% .95% .95%
</TABLE>
/1/ A portion of these fees is covered by a "defensive" Rule 12b-1 Distribution
Plan that does not result in additional expenses to the Funds or Master
Portfolios. (See "Management of the Funds -- MIP 12b-1 Plan" for further
information.)
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in
Institutional Class shares of the Fund, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
LifePath
Opportunity LifePath LifePath LifePath LifePath
Fund 2010 Fund 2020 Fund 2030 Fund 2040 Fund
----------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1 Year......... $ 10 $ 10 $ 10 $ 10 $ 10
3 YEARS........ $ 30 $ 30 $ 30 $ 30 $ 30
5 YEARS........ $ 53 $ 53 $ 53 $ 53 $ 53
10 YEARS........ $ 117 $ 117 $ 117 $ 117 4 117
</TABLE>
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help a shareholder understand the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The foregoing tables reflect expenses at both the Fund and Master
Portfolio levels. The tables do not reflect any charges that may be imposed by
Wells Fargo Bank or other shareholder servicing agents directly on customers
accounts in connection with an investment in a Fund.
ANNUAL FUND OPERATING EXPENSES are based on each Fund's actual expenses for
the fiscal year ended February 28, 1998. The tables do not reflect any fee
waivers or expense reimbursement arrangements. Barclays Global Fund Advisors
("BGFA"), Wells Fargo Bank, N.A. ("Wells Fargo Bank") and Stephens Inc.
("Stephens"), at
1
<PAGE>
their sole discretion may waive or reimburse all or a portion of their
respective fees charged to, or expenses paid by, a Fund or Master Portfolio. Any
such waivers or reimbursements would reduce a Fund's or Master Portfolio's total
expenses and accordingly, have a favorable impact on its performance. Fees are
not currently waived for the LifePath Funds. For more complete descriptions of
the various costs and expenses you can expect to incur as an investor in the
Funds, please see "Management of the Funds."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the above
tables and an assumed annual rate of return of 5%. This annual rate of return
should not be considered an indication of actual or expected performance of a
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
With regard to the combined fees and expenses of the Funds and Master
Portfolios, the Trust's Board of Trustees has considered whether the various
costs and benefits of investing each Fund's assets in the corresponding Master
Portfolio rather than directly in a portfolio of securities would be more or
less than if the Fund invested in portfolio securities directly. The Trust's
Board of Trustees believes that the aggregate per share expenses of a Fund and
its corresponding Master Portfolio will not be more than the expenses such Fund
would incur if it directly acquired and managed the type of securities held by
its corresponding Master Portfolio. The Trust's Board of Trustees believes that
if other investors invest their assets in the Master Portfolios, certain
economic efficiencies may be realized with respect to the Master Portfolios. For
example, fixed expenses that otherwise would have been borne solely by a Fund
would be spread across a larger assets base provided by more than one fund
investing in a Master Portfolio. There can be no assurance that these economic
efficiencies will be achieved.
The Trust also offers Class A, Class B and Class C shares of the LifePath
Funds. In addition, MasterWorks Funds Inc., an open-end, series investment
company, currently offers series of shares which invest in the Master
Portfolios. The expenses, and accordingly the investment returns, of the Class
A, Class B and Class C shares, and the MasterWorks series may differ from those
of the Institutional Class shares. Information about these other investment
options in the Master Portfolios may be obtained by calling Stephens at 1-800-
643-9691. For additional information see "Management of the Funds."
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights of
the Institutional Class shares in the Funds' financial statements for the fiscal
year ended February 28, 1998. The financial statements are incorporated by
reference into the SAI and have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report dated April 3, 1998 also is incorporated by
reference into the SAI. This information should be read in conjunction with the
financial statements and notes thereto. The SAI has been incorporated by
reference into this Prospectus.
<TABLE>
<CAPTION>
LifePath Opportunity Fund
---------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1998 1997 1996 1995
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period........ $ 9.79 $10.67 $ 9.94 $10.00
Income from investment operations:
Net investment income....................... 0.39 1.29 0.42 0.35
Net realized and unrealized gain/(loss)
on investments........................... (0.79) (0.60) 0.86 (0.12)
------ ------ ------- ------
Total from investment operations............ 1.18 0.69 1.28 0.23
Less distributions:
From net investment income.................. (0.00) (1.36) (0.42) (0.28)
From net realized capital gains............. (0.68) (0.21) (0.13) (0.01)
------ ------ ------- ------
Total Distributions......................... (0.68) (1.57) (0.55) (0.29)
------ ------ ------- ------
Net Asset Value, end of period.............. $10.29 $ 9.79 $ 10.67 $ 9.94
====== ====== ======= ======
Total Return (not annualized)............... 12.25% 7.23% 13.19% 2.38%
Ratios/Supplemental Data:
Net assets, end of period (000)............. $ 14 $ 12 $17,262 $7,499
Number of shares outstanding,
end of period (000)...................... 1 1 1,618 754
Ratios to average net assets (annualized)/1/
Ratio of expenses to average net assets..... 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income to
average net assets....................... 4.06% 4.17% 4.23% 4.89%
Portfolio Turnover Rate/2/.................. 39% 108% 84% 17%
</TABLE>
__________
/1/ Ratios include expenses charged by the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio.
For the year ended February 28, 1995, the Master Portfolio was audited by
other auditors.
3
<PAGE>
<TABLE>
<CAPTION>
LifePath 2010 Fund
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1998 1997 1996 1995
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period........... $10.94 $11.47 $ 10.02 $ 10.00
Income from investment operations:
Net investment income.......................... 0.38 1.57 0.34 0.33
Net realized and unrealized gain/(loss)
on investments.............................. (1.59) (0.36) 1.60 0.01
------ ------ ------- -------
Total from investment operations............... 1.97 1.21 1.94 0.34
Less distributions:
From net investment income..................... (0.40) (1.57) (0.35) (0.27)
From net realized capital gains................ (0.84) (0.17) (0.14) (0.05)
------ ------ ------- -------
Total Distributions............................ (1.24) (1.74) (0.49) (0.32)
------ ------ ------- -------
Net Asset Value, end of period................. $11.67 $10.94 $ 11.47 $ 10.02
====== ====== ======= =======
Total Return (not annualized).................. 18.75% 11.89% 19.69% 3.53%
Ratios/Supplemental Data:
Net assets, end of period (000) $ 29 $ 49 $34,458 $13,028
Number of shares outstanding,
end of period (000)......................... 3 4 3,004 1,300
Ratios to average net assets (annualized)/1/
Ratio of expenses to average net assets 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income to
average net assets.......................... 3.14% 3.41% 3.27% 4.61%
Portfolio Turnover Rate/2/..................... 46% 73% 39% 24%
</TABLE>
__________
/1/ Ratios include expenses charged by the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by
other auditors.
4
<PAGE>
<TABLE>
<CAPTION>
LifePath 2020 Fund
----------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1998 1997 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period............... $12.28 $11.98 $ 10.17 $ 10.00
Income from investment operations:
Net investment income.............................. 0.30 0.96 0.29 0.30
Net realized and unrealized gain/(loss)
on investments.................................. 2.58 0.72 2.03 0.12
------ ------ ------- -------
Total from investment operations................... 2.88 1.68 2.32 0.42
Less distributions:
From net investment income......................... (0.31) (0.96) (0.30) (0.25)
From net realized capital gains.................... (1.00) (0.42) (0.21) 0.00
------ ------ ------- -------
Total Distributions................................ (1.31) (1.38) (0.51) (0.25)
------ ------ ------- -------
Net Asset Value, end of period..................... $13.85 $12.28 $ 11.98 $ 10.17
====== ====== ======= =======
Total Return (not annualized)...................... 24.27% 15.14% 23.18% 4.39%
Ratios/Supplemental Data:
Net assets, end of period (000).................... $ 86 $ 69 $40,570 $16,618
Number of shares outstanding,
end of period (000)............................. 6 6 3,385 1,634
Ratios to average net assets (annualized)/1/
Ratio of expenses to average net assets............ 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income
to average net assets........................... 2.30% 2.57% 2.68% 3.88%
Portfolio Turnover Rate/2/......................... 41% 61% 49% 28%
</TABLE>
__________
/1/ Ratios include expenses charged by the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by
other auditors.
5
<PAGE>
<TABLE>
<CAPTION>
LifePath 2030 Fund
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1998 1997 1996 1995
------------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period............. $13.70 $12.37 $ 10.18 $10.00
Income from investment operations:
Net investment income............................ 0.26 0.49 0.23 0.29
Net realized and unrealized gain/(loss)
on investments................................ 3.37 1.66 2.47 0.14
------ ------ ------- ------
Total from investment operations................. 3.63 2.15 2.70 0.43
Less distributions:
From net investment income....................... (0.38) (0.49) (0.24) (0.25)
From net realized capital gains.................. (0.86) (0.33) (0.27) 0.00
------ ------ ------- ------
Total Distributions.............................. (1.24) (0.82) (0.51) (0.25)
------ ------ ------- ------
Net Asset Value, end of period................... $16.09 $13.70 $ 12.37 $10.18
====== ====== ======= ======
Total Return (not annualized).................... 27.48% 18.13% 26.88% 4.42%
Ratios/Supplemental Data:
Net assets, end of period (000).................. $ 47 $ 41 $25,447 $9,682
Number of shares outstanding,
end of period (000)........................... 3 3 2,058 951
Ratios to average net assets (annualized)/1/
Ratio of expenses to average net assets.......... 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income to
average net assets............................ 1.74% 2.06% 2.15% 3.59%
Portfolio Turnover Rate/2/....................... 27% 42% 39% 40%
</TABLE>
__________
/1/ Ratios include expenses charged by the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by other
auditors.
6
<PAGE>
<TABLE>
<CAPTION>
LifePath 2040 Fund
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1998 1997 1996 1995
----------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period........... $13.94 $12.86 $ 10.37 $10.00
Income from investment operations:
Net investment income.......................... 0.16 0.63 0.17 0.20
Net realized and unrealized gain/(loss)
on investments.............................. 4.02 1.78 2.84 0.34
------ ------ ------- ------
Total from investment operations............... 4.18 2.41 3.01 0.54
Less distributions:
From net investment income..................... (0.18) (0.64) (0.18) (0.17)
From net realized capital gains................ (1.59) (0.69) (0.34) 0.00
------ ------ ------- ------
Total Distributions............................ (1.77) (1.33) (0.52) (0.17)
------ ------ ------- ------
Net Asset Value, end of period................. $16.35 $13.94 $ 12.86 $10.37
====== ====== ======= ======
Total Return (not annualized).................. 31.02% 19.89% 29.32% 5.55%
Ratios/Supplemental Data:
Net assets, end of period (000)................ $ 27 $ 20 $33,386 $9,976
Number of shares outstanding,
end of period (000)......................... 2 1 2,596 962
Ratios to average net assets (annualized)/1/
Ratio of expenses to average net assets........ 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income
to average net assets....................... 1.07% 1.47% 1.53% 2.61%
Portfolio Turnover Rate/2/..................... 34% 48% 29% 5%
</TABLE>
__________
/1/ Ratios include expenses charged by the Master Portfolio.
/2/ The Portfolio Turnover Rate reflects activity by the Master Portfolio. For
the year ended February 28, 1995, the Master Portfolio was audited by
other auditors.
DESCRIPTION OF THE FUNDS
GENERAL
The Trust is a "series fund," which is a mutual fund divided into separate
portfolios. Each portfolio is treated as a separate entity for certain matters
under the Investment Company Act of 1940, as amended (the "1940 Act"), and for
other purposes, and a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. Each LifePath Fund is comprised of three
classes of shares -- Class A, Class B and Institutional Class shares. The
LifePath 2040 Fund also offers Class C shares. As described below, for certain
matters, Trust shareholders vote together as a group, as to others they vote
separately by portfolio, and, in certain instances, they vote by class of shares
within a portfolio. In addition, because of differences between the fees and
expenses borne by the Class A, Class B, Class C and Institutional Class shares,
the net asset value of the shares will typically differ. This Prospectus
describes the Institutional Class shares of the LifePath Opportunity, LifePath
2010, LifePath 2020, LifePath 2030 and LifePath 2040 Funds, each of which is
diversified. As of June 24, 1998, the LifePath 2000 Fund changed its name to
the LifePath Opportunity Fund. INSTITUTIONAL SHARES OF THE FUNDS ARE NO LONGER
BEING OFFERED FOR SALE, ALTHOUGH A LIMITED NUMBER OF SUCH SHARES REMAIN
OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS PROVIDES
INFORMATION TO THE EXISTING SHAREHOLDERS OF INSTITUTIONAL CLASS SHARES OF THE
FUNDS.
Each LifePath Fund invests all of its assets in a separate Master Portfolio of
MIP with the same investment objective as the Fund. For simplicity, references
to the investments and investment policies and risks of the Funds, unless
otherwise indicated, should be understood as references to the investments and
investment policies and risks of the Master Portfolios.
7
<PAGE>
MASTER/FEEDER STRUCTURE
Each Fund is a feeder fund in a master/feeder structure, which means it
invests all of its assets in a separate Master Portfolio of MIP with the same
investment objective as such Fund. See "Investment Objectives" and "Management
Policies" below. MIP is organized as a trust under the laws of the State of
Delaware. See "Management of the Funds." In addition to selling its shares to a
Fund, each Master Portfolio may sell its shares to certain other mutual funds or
other qualified investors. Information regarding additional options, if any, for
investment in shares of a Master Portfolio is available from Stephens and may be
obtained by calling 1-800-643-9691. The expenses and, correspondingly, the
returns of other investment options in MIP are expected to differ from those of
the Funds.
The Board of Trustees believes that, if other investors invest their assets in
a Master Portfolio of MIP, certain economic efficiencies may be realized with
respect to such Master Portfolio. For example, fixed expenses that otherwise
would have been borne solely by a Fund would be spread across a larger asset
base provided by more than one fund investing in the Master Portfolio. There can
be no assurance that these economic efficiencies will be achieved. The Fund and
other entities investing in a Master Portfolio will each be liable for all
obligations of the Master Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and MIP itself is unable to meet its
obligations. Accordingly, the Trust's Board of Trustees believes that none of
the Funds nor their shareholders will be adversely affected by reason of
investing their assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from such Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses across a larger asset base) that
the Trust's Board believes should be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relatively novel
nature of the master/feeder structure, accounting and operational difficulties
could occur.
Each Master Portfolio's investment objective and other fundamental policies,
which are the same as those of the corresponding Fund, cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of such
Master Portfolio's outstanding voting interests. Whenever a Fund, as a Master
Portfolio interestholder, is requested to vote on matters pertaining to any
fundamental policy of such Master Portfolio, the Fund will hold a meeting of its
shareholders to consider such matters and such Fund will cast its votes in
proportion to the votes received from Fund shareholders. A Fund will vote Master
Portfolio interests for which it receives no voting instructions in the same
proportion as the votes received from Fund shareholders. In addition, certain
policies of the Master Portfolio which are non-fundamental could be changed by
vote of a majority of MIP's Trustees without shareholder vote. If a Master
Portfolio's investment objective or fundamental or non-fundamental policies are
changed, the Fund investing in that Master Portfolio could subsequently change
its objective or policies to correspond to those of the Master Portfolio or the
Fund could redeem its Master Portfolio shares and either seek a new investment
company in which to invest with a matching objective or retain its own
investment adviser to manage such Fund's portfolio in accordance with its
objective. In the latter case, the Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in that Fund. A Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in a non-fundamental policy of such Fund or Master Portfolio, to the
extent possible.
Each class of the Funds has identical rights with respect to the series of
which they are a part, except that there are certain matters which affect one
class but not another. Currently, there is a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act with respect to the Class A and Class B shares but not
the Institutional Class shares. In addition, certain purchase, exchange and
dividend reinvestment options available to Class A and Class B shareholders are
not available to Institutional Class shareholders. On all such matters the
shareholders of the affected class vote as a class.
8
<PAGE>
INVESTMENT OBJECTIVES
Each LifePath Fund seeks to provide long-term investors with an asset
allocation strategy designed to maximize assets for retirement or for other
purposes consistent with the quantitatively measured risk investors, on average,
may be willing to accept given their investment time horizons. Specifically:
. LifePath Opportunity Fund is managed for investors planning to retire (or
begin to withdraw substantial portions of their investment) approximately in the
year 2000.
. LifePath 2010 Fund is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2010.
. LifePath 2020 Fund is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2020.
. LifePath 2030 Fund is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2030.
. LifePath 2040 Fund is managed for investors planning to retire (or begin to
withdraw substantial portions of their investment) approximately in the year
2040.
ABOUT THE FUNDS
Investors are encouraged to invest in a particular LifePath Fund based on the
decade of anticipated retirement or when participants anticipate beginning to
withdraw substantial portions of their account. For example, the LifePath
Opportunity Fund is designed for investors in their 50s and 60s who plan to
retire (or begin to withdraw substantial portions of their investment) in
approximately 2000; the LifePath 2010 Fund is designed for investors in their
40s and 50s who plan to retire (or begin to withdraw as described above) in
approximately 2010; and so on. In addition, when making an investment decision,
investors should evaluate their risk profile, recognizing, for example, that the
LifePath 2040 Fund is designed for investors with a high tolerance for risk
while the LifePath Opportunity Fund is designed for investors with a low
tolerance for risk. The LifePath Funds were the first mutual funds of their kind
to offer a flexible investment strategy designed to change over specific time
horizons.
The LifePath Funds follow an asset allocation strategy among three broad
investment classes: equity securities and debt instruments of issuers located
throughout the world and cash in the form of money market instruments. Each
LifePath Fund invests varying percentages of its portfolio in equity securities,
debt instruments and money market instruments. The later-dated Funds tend to be
more heavily invested in equity securities and generally bear more risk than the
earlier-dated Funds. The later-dated Funds generally have an expectation of
greater total return. The investment class weightings of the LifePath 2040 Fund
at a given time might be 100%, 0% and 0% among equity securities, debt
securities and cash, respectively, while the weightings of the LifePath
Opportunity Fund might be 25%, 50% and 25%, respectively. These weightings will
change periodically. The difference in the investment class weightings is based
on the statistically determined risk that investors, on average, may be willing
to accept given their investment time horizons in an effort to maximize assets
in anticipation of retirement or for other purposes. As each LifePath Fund
approaches its designated time horizon, it generally is managed more
conservatively, on the premise that individuals investing for retirement desire
to reduce investment risk in their retirement accounts as they age.
The LifePath Opportunity Fund also may be appropriate for investors with a
shorter time horizon. The Fund does not terminate in the Year 2000 but will
continue with the lowest risk profile of all the LifePath Funds. It is expected
that when the LifePath 2010 Fund's target date arrives, the LifePath 2010 Fund
will be combined with the LifePath Opportunity Fund under the same investment
strategy. The LifePath Opportunity Fund will continue to follow an asset
allocation strategy that will invest approximately 20% equity securities, with
the remainder in debt securities and cash.
9
<PAGE>
As of February 28, 1998, asset allocations in the LifePath Funds were
approximately as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
LifePath LifePath LifePath LifePath LifePath
Opportunity 2010 2020 2030 2040
---------------- -------- -------- -------- --------
Equity Securities
Domestic.............................. 19% 38% 55% 66% 80%
International......................... 5% 10% 15% 19% 20%
Debt Securities......................... 51% 42% 25% 12% 0%
Cash.................................... 25% 10% 5% 3% 0%
</TABLE>
The relative weightings for each of the various investment classes are
expected to change over time, with the LifePath 2040 Fund adopting in the 2030s
characteristics similar to the LifePath Opportunity Fund today. BGFA may in the
future refine the Model, or the financial and economic data analyzed by the
Model, in ways that could result in changes to recommended allocations.
MANAGEMENT POLICIES
The LifePath Funds contain both "strategic" and "tactical" components. The
strategic component of the Funds evaluates the risk that investors, on average,
may be willing to accept given their investment time horizons. The strategic
component thus determines the changing investment risk level of each LifePath
Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Fund without regard to time horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes.
The LifePath Funds may invest in a wide range of U.S. and foreign investments
and market sectors and may shift their allocations among investments and sectors
from time to time. To manage the LifePath Funds, BGFA employs a proprietary
investment model (the "Model") that analyzes extensive financial and economic
data, including risk correlation and expected return statistics. The Model
selects indices representing segments of the global equity and debt markets and
the Funds invest to create market exposure by purchasing representative samples
of the indices in an attempt to replicate their performance.
The Model has broad latitude to allocate the Funds' investments among equity
securities, debt securities and money market instruments. The LifePath Funds are
not managed as balanced portfolios and are not required to maintain a portion of
their investments in each of the permitted investment categories at all times.
Until a LifePath Fund attains an asset level of approximately $100 to $150
million, the Model allocates assets across fewer of the investment categories
identified below than it otherwise would. As a LifePath Fund approaches this
minimum asset level, the Model adds investment categories from among those
identified below, thereby approaching the desired investment mix over time.
Each LifePath Fund's investments are compared from time to time to the Model's
recommended allocation. Recommended reallocations are implemented subject to
BGFA's assessment of current economic conditions and investment opportunities.
BGFA may change from time to time the criteria and methods it uses to implement
the recommendations of the Model. Recommended reallocations are implemented in
accordance with trading policies designed to take advantage of market
opportunities and reduce transaction costs. The asset allocation mix selected by
the Model is a primary determinant in the respective LifePath Fund's investment
performance.
BGFA manages other portfolios which also invest in accordance with the Model.
The performance of each of those other portfolios is likely to vary from the
performance of each LifePath Fund. Such variation in performance is primarily
due to different equilibrium asset mix assumptions used for the various
portfolios, timing differences in the implementation of the Model's
recommendations and differences in expenses and liquidity requirements. The
overall management of each LifePath Fund is based on the recommendation of the
Model, and no person is primarily responsible for recommending the mix of asset
classes in each Fund or the mix of securities within the asset classes.
Decisions relating to the Model are made by BGFA's investment committee.
10
<PAGE>
EQUITY SECURITIES -- The LifePath Funds seek U.S. equity market exposure
through investment in securities representative of the following indices of
common stock:
. The S&P/BARRA Value Stock Index (consisting of primarily large-
capitalization U.S. stocks with lower-than-average price/book ratios).
. The S&P/BARRA Growth Stock Index (consisting of primarily large-
capitalization U.S. stocks with higher-than-average price/book ratios).
. The Intermediate Capitalization Value Stock Index (consisting of primarily
medium-capitalization U.S. stocks with lower-than-average price/book
ratios).
. The Intermediate Capitalization Growth Stock Index (consisting of
primarily medium-capitalization U.S. stocks with higher-than-average
price/book ratios).
. The Intermediate Capitalization Utility Stock Index (consisting of
primarily medium-capitalization U.S. utility stocks).
. The Micro Capitalization Market Index (consisting of primarily small-
capitalization U.S. stocks).
. The Small Capitalization Value Stock Index (consisting of primarily small-
capitalization U.S. stocks with lower-than-average price/book ratios).
. The Small Capitalization Growth Stock Index (consisting of primarily
small-capitalization U.S. stocks with higher-than-average price/book
ratios).
The LifePath Funds seek foreign equity market exposure through investment in
foreign equity securities, American Depositary Receipts or European Depositary
Receipts of issuers whose securities are representative of the following
indices of foreign equity securities:
. The Morgan Stanley Capital International (MSCI) Japan Index (consisting of
primarily large-capitalization Japanese stocks).
. The Morgan Stanley Capital International Europe, Australia, Far East Index
(MSCI EAFE) Ex-Japan Index (consisting of primarily large-capitalization
foreign stocks, excluding Japanese stocks).
The LifePath Funds also may seek U.S. and foreign equity market exposure
through investment in equity securities of U.S. and foreign issuers that are
not included in the indices listed above.
DEBT SECURITIES -- The LifePath Funds seek U.S. debt market exposure through
investment in securities representative of the following indices of U.S. debt
securities:
. The Lehman Brothers Long-Term Government Bond Index (consisting of all
U.S. Government bonds with maturities of at least ten years).
. The Lehman Brothers Intermediate-Term Government Bond Index (consisting of
all U.S. Government bonds with maturities of less than ten years and
greater than one year).
. The Lehman Brothers Long-Term Corporate Bond Index (consisting of all U.S.
investment-grade corporate bonds with maturities of at least ten years).
. The Lehman Brothers Intermediate-Term Corporate Bond Index (consisting of
all U.S. investment-grade corporate bonds with maturities of less than ten
years and greater than one year).
11
<PAGE>
. The Lehman Brothers Mortgage-Backed Securities Index (consisting of all
fixed-coupon mortgage pass-throughs issued by the Federal National
Mortgage Association, Government National Mortgage Association and Federal
Home Loan Mortgage Corporation with maturities greater than one year).
The LifePath Funds seek foreign debt market exposure through investment in
securities representative of the following index of foreign debt securities:
. The Salomon Brothers Non-U.S. World Government Bond Index (consisting of
foreign government bonds with maturities of greater than one year).
Each U.S. and foreign debt security is expected to be part of an issuance with
a minimum outstanding amount at the time of purchase of approximately $50
million and $100 million, respectively. Each security in which a LifePath
Master Portfolio invests must be rated at least Baa by Moody's Investors
Service, Inc. ("Moody's"), or BBB by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff") or, if
unrated, deemed to be of comparable quality by BGFA. See "Risk Considerations"
below.
MONEY MARKET INSTRUMENTS -- The money market instruments held by each Fund
generally consist of high-quality money market instruments, including U.S.
Government obligations, obligations of domestic and foreign banks, short-term
corporate debt instruments and repurchase agreements. See "Appendix" below for
a more complete description of the money market instruments in which each Fund
may invest.
RISK CONSIDERATIONS
General
Since the investment characteristics and, therefore, investment risks directly
associated with such characteristics of each LifePath Fund correspond to those
of the Master Portfolio in which such Fund invests, the following is a
discussion of the risks associated with the investments of the Master
Portfolios. Once again, unless otherwise specified, references to the investment
policies and risks of a Fund also should be understood as references to the
investment policies and risks of the corresponding Master Portfolio.
The net asset value per share of each class of a LifePath Fund is neither
insured nor guaranteed, is not fixed and should be expected to fluctuate.
Equity Securities
The stock investments of the LifePath Funds are subject to equity market risk.
Equity market risk is the possibility that common stock prices will fluctuate or
decline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline. Throughout the first six months of 1998, the stock market,
as measured by the S&P 500 Index and other commonly used indices, was trading at
or close to record levels. There can be no guarantee that these performance
levels will continue.
Debt Securities
The debt instruments in which the LifePath Funds invest are subject to credit
and interest rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Funds invest. The value of the debt instruments generally changes inversely
to market interest rates. Debt securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also affect the value of these investments.
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
12
<PAGE>
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.
Foreign Securities
The LifePath Funds may invest in debt obligations and equity securities of
foreign issuers and may invest in American Depositary Receipts ("ADRs") and
European Depositary Receipts ("EDRs") of such issuers. Investing in the
securities of issuers of any foreign country, including through ADRs and EDRs,
involves special risks and considerations not typically associated with
investing in U.S. companies. These include differences in accounting, auditing
and financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political, social and monetary or diplomatic developments
that could affect U.S. investments in foreign countries. Additionally,
dispositions of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including withholding taxes.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher
custodial fees than apply to domestic custodial arrangements and transaction
costs of foreign currency conversions. Changes in foreign exchange rates also
will affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. A Fund's performance may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between the
currencies of different nations, by exchange control regulations and by
indigenous economic and political developments.
Other Investment Considerations
Because the Master Portfolios may shift investment allocations significantly
from time to time, their performance may differ from funds which invest in one
asset class or from funds with a stable mix of assets. Further, shifts among
asset classes may result in relatively high turnover and transaction (i.e.,
brokerage commission) costs. Portfolio turnover also can generate short-term
capital gains tax consequences. During those periods in which a high percentage
of a Master Portfolio's assets are invested in long-term bonds, the Master
Portfolio's exposure to interest-rate risk will be greater because the longer
maturity of such securities means they are generally more sensitive to changes
in market interest rates than short-term securities.
Each LifePath Fund also may lend its portfolio securities and enter into
futures transactions, each of which involves risk. The futures contracts and
options on futures contracts that each Fund may purchase may be considered
derivatives. Derivatives are financial instruments whose values are derived, at
least in part, from the prices of other securities or specified assets, indices
or rates. Each Fund may use some derivatives as part of its short-term liquidity
holdings and/or as substitutes for comparable market positions in the underlying
securities. 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. A Fund may not use derivatives to create leverage without establishing
adequate "cover" in compliance with SEC leverage rules.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by a LifePath Fund and one or more of these investment companies or
accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a LifePath Fund or the
price paid or received by such Fund.
13
<PAGE>
MANAGEMENT OF THE FUNDS
General
The Trust has not retained the services of an investment adviser because each
Fund's assets are invested in a Master Portfolio that has retained investment
advisory services (see "Investment Adviser"). Each LifePath Fund bears a pro
rata portion of the fees paid to the corresponding Master Portfolio.
BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Trust's Trustees, except for Peter G. Gordon and Joseph
N. Hankin, are also MIP's Trustees and also serve as Directors of MasterWorks
Funds Inc., another open-end investment company whose LifePath Fund series are
wholly invested in the Master Portfolios. The Trust's Board, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust, has adopted procedures to address potential conflicts of
interest that may arise as a result of the structure of the Boards. Additional
information regarding the Officers and Trustees of the Trust and MIP is included
in the SAI under "Management of the Trust."
INVESTMENT ADVISER
BGFA serves as investment adviser to each LifePath Master Portfolio. BGFA
provides investment guidance and policy direction in connection with the
management of each Master Portfolio's assets. BGFA is an indirect subsidiary of
Barclays Bank PLC ("Barclays") and is located at 45 Fremont Street, San
Francisco, California 94105. As of April 30, 1998, BGFA and its affiliates
provided investment advisory services for approximately $575 billion of assets.
MIP has agreed to pay to BGFA a monthly fee at the annual rate of 0.55% of each
LifePath Master Portfolio's average daily net assets as compensation for its
advisory services.
BGFA, Barclays and their affiliates may deal, trade and invest for their own
account in the types of securities in which a Master Portfolio may invest and
may have deposit, loan and commercial banking relationships with the issuers of
securities purchased by a Master Portfolio. BGFA has informed MIP that in making
investment decisions the Adviser does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to the Trust and MIP and special counsel to
BGFA, has advised the Trust, MIP and BGFA that BGFA and its affiliates may
perform the services contemplated by the Investment Advisory Contracts and this
Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
CO-ADMINISTRATORS
Wells Fargo Bank and Stephens serve as co-administrators to the Trust. Wells
Fargo Bank and Stephens generally supervise all aspects of the operation of the
Trust other than providing investment advice. The administration services
provided to the LifePath Funds also include coordination of the other services
provided to the LifePath Funds, compilation of information for reports to the
SEC and 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 Board of Trustees and officers.
Stephens also furnishes office space and certain facilities to conduct the
Trust's business and compensates the Trust's Trustees, officers and employees
who are affiliated with Stephens. Wells Fargo Bank and Stephens may delegate the
performance of their administrative
14
<PAGE>
duties to third parties. In addition, except as noted below, Wells Fargo Bank
and Stephens have assumed all ordinary expenses incurred by a LifePath Fund
other than the fees payable by such Fund pursuant to the Trust's various service
contracts. For providing co-administration services to the Trust, the Trust has
agreed to pay Wells Fargo Bank and Stephens a monthly fee at the annual rate of
0.10% of each LifePath Fund's average daily net assets. Stephens previously
provided substantially the same services as sole administrator to the Funds.
Wells Fargo Bank has delegated certain of its duties as co-administrator to
Investors Bank & Trust Company ("IBT"). IBT, as sub-administrator, is
compensated by Wells Fargo Bank for performing certain administration services.
DISTRIBUTOR
Stephens is the distributor of the Funds' shares. Stephens is a full service
broker/dealer and investment advisory firm located at 111 Center Street, Little
Rock, Arkansas 72201. Stephens and its predecessor have been providing
securities and investment services for more than 60 years, including
discretionary portfolio management services since 1983. Stephens currently
manages investment portfolios for pension and profit sharing plans, individual
investors, foundations, insurance companies and university endowments. Stephens
does not receive a fee in connection with the distribution of the Institutional
Class shares.
CUSTODIAN
IBT acts as custodian to each Fund and Master Portfolio. The principal
business address of IBT is 200 Clarendon Street, Boston, MA 02116. IBT is not
entitled to receive compensation for its custodial services so long as IBT is
entitled to receive compensation for providing sub-administration services.
Prior to October 21, 1996, Wells Fargo Bank acted as the Funds' custodian, but
was not entitled to receive compensation for its custodial services.
TRANSFER AGENT
Wells Fargo Bank serves as the Company's transfer and dividend disbursing
agent (the "Transfer Agent"). Wells Fargo Bank provides transfer agency services
at 525 Market Street, San Francisco, California 94105.
MIP 12B-1 PLAN
MIP's Board of Trustees has adopted, on behalf of each Master Portfolio, a
"defensive" distribution plan under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Plan"). The Plan does not result in any additional expenses
being borne by a Master Portfolio or a Fund. The Plan was adopted by a majority
of MIP's Board of Trustees (including a majority of those Trustees who are not
"interested persons" of MIP as defined in the 1940 Act) on October 10, 1995. The
Plan was intended as a precaution designed to address the possibility that
certain ongoing payments by Barclays to Wells Fargo Bank in connection with the
sale of a former affiliate of Wells Fargo Bank may be characterized as indirect
payments by each Master Portfolio to finance activities primarily intended to
result in the sale of interests in such Master Portfolio. The Plan provides that
if any portion of a Master Portfolio's advisory fees (up to 0.25% of the average
daily net assets of each Master Portfolio on an annual basis) were deemed to
constitute an indirect payment for activities that are primarily intended to
result in the sale of interests in a Master Portfolio, such payment would be
authorized pursuant to the Plan.
EXPENSES
Under the Co-Administration Agreement, Wells Fargo Bank and Stephens have
agreed to assume the operating expenses of each LifePath Fund, except for
extraordinary expenses and those fees and expenses payable pursuant to the
various service contracts described above that are borne by the Trust.
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DESCRIPTION OF SHARES
General
Institutional Shares are no longer being offered to investors. Investors who
wish to invest in the Funds may purchase Class A, Class B or Class C shares of
the Funds. Investors wishing to obtain information and a prospectus describing
the Class A, Class B or Class C shares or to obtain information about the
Institutional Shares may call 1-800-776-0179.
STATEMENTS AND REPORTS
The Funds, or a Shareholder Servicing Agent on their behalf, will typically
send you a confirmation or statement of your account after every transaction
that affects your share balance or your Fund account registration. The Funds do
not issue share certificates. A statement with tax information for the previous
year will be mailed to you each year, and also will be filed with the Internal
Revenue Service ("IRS"). At least twice a year, you will receive financial
statements.
HOW TO REDEEM SHARES
GENERAL
You may redeem Fund shares on any day the Fund is open for business (a
"Business Day"). The Fund is open for business Monday through Friday, and is
closed on federal bank and NYSE holidays. The redemption price of the shares is
the next determined NAV of the Institutional Class calculated after the Trust
has received a redemption request in proper form.
The Trust ordinarily remits redemption proceeds, from a Fund within seven days
after a redemption order is received in proper form, absent extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by the Master
Portfolio in which such Fund invests of securities owned by the Master Portfolio
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or a period during which
the Securities and Exchange Commission by order permits deferral of redemptions
for the protection of Fund shareholders. In addition, the Trust may defer
payment of a shareholder's redemption until reasonably satisfied that such
shareholder's investments made by check have been collected (which can take up
to ten (10) days from the purchase date). Payment of redemption proceeds may be
made in portfolio securities.
All redemptions of shares generally are made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
each Fund shareholder during any 90-day period of up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is a
fundamental policy of the Funds that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Trustees reserves the right to have a Fund make payment,
in whole or in part, in securities or other assets, in case of an emergency or
any time a cash distribution would impair the liquidity of the Fund to the
detriment of the existing shareholders. In this event, the securities would be
valued in the same manner as the securities of the Fund are valued. If the
recipient were to sell such securities, he or she would incur brokerage costs in
converting such securities in cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Trust reserves the right to close an investor's account and send the proceeds to
such investor if the balance falls below $1,000 because of a redemption
(including a redemption of Fund shares after an investor has made only the
$1,000 minimum initial investment). However, investors will be given 30 days'
notice to make an additional investment to increase their account balance to
$1,000 or more. Plan Accounts are not subject to minimum Fund account balance
requirements.
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Redemption orders that are received by the Transfer Agent before the close of
regular trading on the NYSE generally are executed at the net asset value
determined as of the close of regular trading on the NYSE on that day.
Redemption orders that are received by the Transfer Agent after the close of
trading on the NYSE are executed on the next Business Day.
BENEFIT PLANS, IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT PLANS
Investors in these types of plans are subject to restrictions on withdrawing
their money under the Code. Each type of plan has established withdrawal
procedures that are disclosed to investors at the time of purchase. Investors
may obtain more information by contacting their employer and/or their
Shareholder Servicing Agent. The redemption procedures outlined in the remainder
of this section do not apply to investors in employee benefit plans or
retirement plans, nor do the minimum-balance requirements outlined above.
Investors in these types of plans should contact their Shareholder Servicing
Agent regarding redemption procedures applicable to them.
REDEMPTIONS BY ELIGIBLE INDIVIDUAL AND CORPORATE INVESTORS
Redemptions by Mail
1. Write a letter of instruction. Indicate the Class and the dollar amount or
number of Fund shares to be redeemed, the Fund account number and Taxpayer
Identification Number ("TIN").
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all owners must sign.
3. If shares to be redeemed have a value of $5,000 or more, or redemption
proceeds are to be paid to someone other than you at your address of record
or your Approved Bank Account, the signature(s) must be guaranteed by an
"eligible guarantor institution," which generally includes a commercial
bank whose deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"), a trust company, a member firm of a domestic stock
exchange, a savings association, or a credit union that is authorized by
its charter to provide a signature guarantee. Signature guarantees by
notaries public are not acceptable. Further documentation may be requested
from corporations, administrators, executors, personal representatives,
trustees or custodians.
4. Mail the redemption letter to the Transfer Agent at the mailing address set
forth under on the inside back cover of this prospectus.
Unless other instructions are given in proper form, a check for the redemption
proceeds is sent to your address of record.
Redemptions by Telephone
Telephone redemption or exchange privileges are made available to shareholders
automatically upon opening an account, unless the shareholder specifically
declines the privileges. These privileges authorize the Transfer Agent to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Transfer Agent to be genuine. The Trust
requires the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine and,
if it does not follow such procedures, the Trust or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Trust nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine.
During times of drastic economic or market conditions investors may experience
difficulty in contacting the Transfer Agent by telephone to request a redemption
or exchange of Fund shares. In such cases, investors should consider using the
other redemption procedures that are available. Use of these other redemption
procedures may result in your redemption request being processed at a later time
than it would have been if telephone redemption had been used. During the delay,
the NAV of the Institutional Class shares of a LifePath Fund may fluctuate.
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Expedited Redemptions by Mail or Telephone
Investors may request an expedited redemption of Fund shares by letter, in
which case receipt of redemption proceeds, but not the Fund's receipt of a
redemption request, would be expedited. Telephone redemption or exchange
privileges were made available automatically upon the opening of an account
unless you declined the privilege. Investors also may request an expedited
redemption of Fund shares by telephone on any Business Day, in which case both
the receipt of redemption proceeds and the Fund's receipt of a redemption
request would be expedited. Investors may call 1-800-222-8222 to request
expedited redemption by telephone. Investors may mail an expedited redemption
request to the Transfer Agent at the mailing address set forth under "Management
of the Funds Transfer Agent."
Upon request, net redemption proceeds of expedited redemptions of $5,000 or
more are wired or credited to an investor's Approved Bank Account or wired to
the Selling Agent designated in the Account Application. The Trust reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of an
expedited redemption are to be paid to someone else, to an address other than
that of record, or to an Approved Bank Account or Selling Agent that has not
been predesignated in the Account Application, the expedited redemption request
must be made by letter and the signature(s) on the letter must be guaranteed,
regardless of the amount of the redemption. If an expedited redemption request
is received by the Transfer Agent by the close of the NYSE on a Business Day,
redemption proceeds are transmitted to the appropriate Approved Bank Account or
Selling Agent on the next Business Day (assuming the investment check has
cleared as described above), absent extraordinary circumstances. Such
extraordinary circumstances could include those described above as potentially
delaying redemptions, and also could include situations involving an unusually
heavy volume of wire transfer orders on a national or regional basis or
communication or transmittal delays that could cause a brief delay in the wiring
or crediting of funds. A check for proceeds of less than $5,000 is mailed to
your address of record or, at your election, credited to your Approved Bank
Account.
During periods of drastic economic or market activity or changes, investors
may experience problems implementing an expedited redemption by telephone. In
the event investors are unable to reach the Transfer Agent by telephone, they
should consider using overnight mail to implement an expedited redemption. The
Trust reserves the right to modify or terminate the expedited telephone
redemption privilege at any time.
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to purchase, in exchange for shares
of the Institutional Class of a Fund, shares of a Fund of MasterWorks Funds Inc.
("MasterWorks"), an open-end, series investment company, provided such shares
are offered for sale in the investor's state of residence. Before any exchange
into a fund offered by another prospectus, the investor must obtain and should
review a copy of the current prospectus of the fund into which the exchange is
being made. Prospectuses may be obtained from Stephens.
Shares are exchanged at the next determined net asset value; however, a sales
load may be charged with respect to exchanges into a fund sold with a sales
load. No fees currently are charged shareholders directly in connection with
exchanges although the Trust reserves the right, upon not less than 60 days'
written notice, to charge shareholders a nominal exchange fee in accordance with
rules promulgated by the Securities and Exchange Commission. The Trust reserves
the right to limit the number of exchanges made by a shareholder and to reject
in whole or in part any exchange request when management believes that such
action would be in the best interests of the Fund and its shareholders. Any such
rejection will be made by management on a prospective basis only, upon notice to
the shareholder given not later than 10 days following such shareholder's most
recent exchange. The exchange privilege may be modified or terminated at any
time upon 60 days' written notice to shareholders.
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SHARE VALUE
Net asset value ("NAV") per share is determined on each day the Fund is open
as of the close of regular trading on the New York Stock Exchange ("NYSE")
(currently 1:00 p.m., Pacific Time). The Funds are open on each day the NYSE is
open for business (a "Business Day").
The NAV of a share of each class of the LifePath Funds is the value of total
net assets attributable to such class divided by the number of outstanding
shares of that class. The value of the net assets per class is determined daily
by adjusting the net assets per class at the beginning of the day by the value
of each class's shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each class by attributing to each class a pro rata share of daily
income and common expenses, and by assigning class-specific expenses to each
class as appropriate. The NAV of each class of shares is expected to fluctuate
daily and is expected to differ. The Master Portfolio's investments are valued
each Business Day generally by using available market quotations or at fair
value determined in good faith by BGFA pursuant to guidelines approved by MIP's
Board of Trustees. For further information regarding the methods employed in
valuing each Master Portfolio's investments, see "Determination of Net Asset
Value" in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Trust intends to qualify each Fund every year as a regulated investment
company pursuant to Subchapter M of the Code as long as such qualification is in
the best interest of each Fund's shareholders. In addition, net capital gains,
net investment income, and operating expenses will be determined separately for
each Fund. By complying with the applicable provisions of the Code, each Fund
will not be subject to federal income tax with respect to its net investment
income and net realized capital gains distributed to its shareholders. Each Fund
declares and pays dividends quarterly of substantially all of its net investment
income. Each Fund makes distributions from any net realized gains at least once
a year, in all events in a manner consistent with the provisions of the 1940 Act
and the Code. No Fund will make distributions from net realized gains unless
capital loss carryovers, if any, have been utilized or have expired. Since the
Trust is no longer offering Institutional Shares of the LifePath Funds for sale,
dividends and distributions are automatically paid out in cash.
Dividends and capital gain distributions have the effect of reducing the net
asset value per share by the amount distributed on the record date. Although
such a dividend or distribution paid to an investor on newly issued shares
shortly after purchase would represent, in substance, a return of capital, the
dividend or distribution would consist of net investment income or net realized
capital gain and, accordingly, would be taxable to the investor.
Dividends paid by a Fund derived from net investment income and distributions
from any net realized short-term gains of such Fund generally are taxable to
taxable U.S. investors as ordinary income. Distributions from any net realized
long-term gains generally are taxable to taxable U.S. investors as long-term
capital gain for federal income tax purposes, regardless of how long
shareholders have held their shares.
Dividends paid by a Fund to a foreign investor generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefits of a lower rate specified in a tax treaty. Capital gain
distributions paid by a Fund to a foreign investor, as well as the proceeds of
any redemptions from a foreign investor's Fund account, regardless of the extent
to which gain or loss may be recognized, will generally not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign investor certifies a
non-U.S. residency status.
Notice as to the tax status of an investor's dividends and capital gain
distributions will be mailed to such investor annually. Each investor also will
receive periodic summaries of such investor's account which will include
information as to dividends and capital gain distributions, if any, paid during
the year.
If a shareholder fails to certify that the taxpayer identification number
("TIN") furnished in connection with opening an account is correct and that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a federal
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income tax return, federal regulations may require the Trust to withhold
("backup withholding") and remit to the IRS 31% of taxable dividends, capital
gain distributions from net realized securities gains and redemption proceeds,
regardless of the extent to which gain or loss may have been realized, paid to
such shareholder. Furthermore, the IRS may notify the Trust to institute backup
withholding if the IRS determines a shareholder's TIN is incorrect or if a
shareholder has failed to properly report taxable dividend and interest income
on a federal income tax return. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a tax payment on the record owner's federal
income tax return.
MIP is organized as a trust under Delaware law. Under MIP's method of
operation as a partnership, MIP and each Master Portfolio is not subject to any
income tax. However, each investor in a Master Portfolio is allocated its share
(as determined in accordance with the governing instruments of MIP) of such
Master Portfolio's ordinary income and capital gain in determining its income
tax liability. The determination of such share will be made in accordance with
the Code and regulations promulgated thereunder.
It is expected that each Fund will qualify as a "regulated investment company"
under Subchapter M of the Code as long as such qualification is in the best
interests of its shareholders. Such qualification generally relieves the Fund of
any liability for federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. In addition, each Fund is
subject to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of investment income and capital gains.
The foregoing discussion regarding dividends, distributions, and taxes is
based on tax laws and federal regulations which were in effect as of the date of
this Prospectus and summarizes only some of the important federal income tax
considerations generally affecting a Fund and its shareholders. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations as well as with
respect to state and local taxes. Further tax information is contained in the
SAI.
PERFORMANCE INFORMATION
For purposes of advertising, performance of the LifePath Funds may be
calculated on the basis of average annual total return, cumulative total return
and/or yield of a class of shares.
Average annual total return of a class of shares is calculated pursuant to a
standardized formula which assumes that an investment in that class of shares of
the Fund was purchased with an initial payment of $1,000 and that the investment
was redeemed at the end of a stated period of time, after giving effect to the
reinvestment of dividends and distributions during the period. The return of a
class of shares is expressed as a percentage rate which, if applied on a
compounded annual basis, would result in the redeemable value of the investment
in a class of shares at the end of the period. Advertisements of the performance
of a class of shares of a LifePath Fund includes the Fund's average annual total
return of a class of shares for one, five and ten year periods, or for shorter
time periods depending upon the length of time during which such Fund has
operated.
Cumulative total return of a class of shares is computed on a per share basis
and assumes the reinvestment of dividends and distributions. Cumulative total
return of a class of shares generally is expressed as a percentage rate which is
calculated by combining the income and principal changes for a specified period
and dividing by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of a class of
shares or may include the value of a hypothetical investment in a class of
shares at the end of the period which assumes the application of the percentage
rate of total return.
The performance of the LifePath Funds may be advertised in terms of yield. The
yield on shares of these Funds is calculated by dividing each Fund's net
investment income per share earned during a specified period (usually 30 days)
by its net asset value per share on the last day of such period and annualizing
the result.
Performance of a class of shares varies from time to time, and past results
are no indication of future performance. Investors should remember that
performance is a function of the type and quality of portfolio securities held
by the Master Portfolio in which the Fund invests and is affected by operating
expenses. Performance
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information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Bank Rate Monitor, Bond 20-Bond Index, Moody's Bond Survey Bond
Index, Lehman Brothers Aggregate Bond Index and components thereof,
IBC/Donoghue's Money Fund Report, Standard & Poor's 500 Stock Index, Wilshire
5000 Index, the Dow Jones Industrial Average, CDA Investment Technologies, Inc.,
Wiesenberger Investment Companies Service, Mutual Fund Values; Mutual Fund
Forecaster, Schabacker Investment Management, Inc., Morningstar, Inc. and other
industry publications.
Total return and yield quotations are computed separately for each class of
the Funds' shares. Because of the difference in fees and expenses borne by a
class of shares of the Funds, the performance of each class can be expected, at
any given time, to differ from the performance of another class of shares.
Additional information about the performance of each Fund is contained in the
Annual Report, which may be obtained free of charge by calling the Trust at 1-
800-222-8222.
GENERAL INFORMATION
The Trust was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Trust Agreement") dated May 14, 1993. The Trust is authorized to
issue an unlimited number of shares of beneficial interest. Each LifePath Fund
offers Class A, Class B and Institutional Class shares. The LifePath 2040 Fund
also offers Class C shares. Each share has one vote. INSTITUTIONAL CLASS SHARES
ARE NO LONGER OFFERED TO THE PUBLIC, ALTHOUGH A LIMITED NUMBER OF SUCH SHARES
WERE OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS.
To date, the Board of Trustees has authorized the creation of ten separate
portfolios of shares, including the five Funds offered hereby. All consideration
received by the Trust for shares of one of the portfolios and all assets in
which such consideration is invested belong to that portfolio (subject only to
the rights of creditors of the Trust) and are subject to the liabilities related
thereto. The income attributable to, and the expenses of, one portfolio are
treated separately from those of the other portfolios. The Trust has the ability
to create, from time to time, new portfolios without shareholder approval.
Under the terms of a License Agreement between the Trust and Wells Fargo Bank,
Wells Fargo Bank has granted the Trust a non-exclusive license to use the name
"Stagecoach." If the License Agreement is terminated, the Trust, at the request
of Wells Fargo Bank, will cease using the name "Stagecoach." BGFA has granted
the Trust a non-exclusive license to use the name "LifePath." If the license
agreement is terminated, the Trust, at BGFA's request, will cease using the
"LifePath" name.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a Trustee. The
Trust Agreement provides for indemnification from the Trust's property for all
losses and expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust itself is unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying such liability is entitled to reimbursement from
the general assets of the Trust. The Trustees intend to conduct the operations
of the Trust in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust. As described under
"Management of the Trust" in the SAI, the Trust ordinarily does not hold
shareholder meetings; however, shareholders under certain circumstances have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
Each LifePath Fund currently invests all of its assets in a LifePath Master
Portfolio of MIP with a corresponding investment objective. Whenever a Fund, as
a Master Portfolio's interestholder, is requested to vote on matters submitted
to interestholders of the Master Portfolio, the Funds will hold a meeting of its
shareholders to consider
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such matters and the Fund will cast its votes in proportion to the votes
received from Fund shareholders. Each LifePath Fund will vote Master Portfolio
shares for which it receives no voting instructions in the same proportion as
the votes received from Fund shareholders. If a Master Portfolio's investment
objective or policies are changed, the corresponding LifePath Fund could
subsequently change its objective or policies to correspond to those of the
Master Portfolio. The Fund may also elect to redeem its interests in the Master
Portfolios and either seek a new investment company with a substantially
matching objective in which to invest or retain its own investment adviser to
manage the Fund's portfolio in accordance with its objective. In the latter
case, the Fund's inability to find a substitute investment company in which to
invest or equivalent management services could adversely affect shareholders'
investments in the Fund.
Investor inquiries may be made by writing to the Trust c/o Wells Fargo Bank,
N.A. -- Investor Services, P.O. Box 7066, San Francisco, California 94120-9517
or by calling 1-800-222-8222.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE TRUST'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS' SHARES AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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APPENDIX
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus, each Fund through its investment
in the corresponding Master Portfolio may invest in the securities described
below. To avoid the need to refer to both the Funds and the Master Portfolios in
every instance, the following sections generally refer to the Funds only.
REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE LIFEPATH
FUNDS, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE
INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE CORRESPONDING MASTER
PORTFOLIOS.
U.S. GOVERNMENT OBLIGATIONS -- The LifePath Funds may invest in various types
of U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities. Payment of principal and interest on U.S.
Government obligations (i) may be backed by the full faith and credit of the
United States (as with U.S. Treasury obligations 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, 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 where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
SECURITIES OF NON-U.S. ISSUERS -- The Funds may invest in certain securities
of non-U.S. issuers as discussed below.
Obligations of Foreign Governments, Supranational Entities and Banks -- Each
--------------------------------------------------------------------
LifePath Fund may invest in U.S. dollar-denominated short-term obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are determined by
BGFA to be of comparable quality to the other obligations in which such Fund may
invest. The Funds may also invest in debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of each
Fund's assets invested in obligations of foreign governments and supranational
entities will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries.
Each Fund may invest a portion of its total assets in high-quality, short-term
(one year or less) debt obligations of foreign branches of U.S. banks or U.S.
branches of foreign banks that are denominated in and pay interest in U.S.
dollars.
Foreign Equity Securities and Depositary Receipts -- Each LifePath Fund's
-------------------------------------------------
assets may be invested in equity securities of foreign issuers and in American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such
issuers.
ADRs and EDRs may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-United States banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in the United States securities markets and EDRs and CDRs in
bearer form are designed for use in Europe. Each LifePath Fund may invest in
ADRs, EDRs and CDRs through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying security and a
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depositary, whereas a depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Holders of unsponsored
depositary receipts generally bear all the costs of such facilities and the
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts in
respect of the deposited securities.
FLOATING- AND VARIABLE-RATE OBLIGATIONS -- Each LifePath Fund may purchase
debt instruments with interest rates that are periodically adjusted at specified
intervals or whenever a benchmark rate or index changes. These adjustments
generally limit the increase or decrease in the amount of interest received on
the debt instruments. Floating- and variable-rate instruments are subject to
interest-rate risk and credit risk.
MORTGAGE-RELATED SECURITIES -- Each LifePath Fund may invest in mortgage-
related securities ("MBSs"), which are securities representing interests in a
pool of loans secured by mortgages. The resulting cash flow from these mortgages
is used to pay principal and interest on the securities. MBSs are assembled for
sale to investors by various government-sponsored enterprises such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") or are guaranteed by such governmental agencies
as the Government National Mortgage Association ("GNMA"). Regardless of the type
of guarantee, all MBSs are subject to interest rate risk (i.e., exposure to loss
due to changes in interest rates).
GNMA MBSs include GNMA Mortgage Pass-Through Certificates (also known as
"Ginnie Maes") which are guaranteed as to the full and timely payment of
principal and interest by GNMA and such guarantee is backed by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development and, as such, Ginnie Maes are backed
by the full faith and credit of the federal government. In contrast, MBSs issued
by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie
Maes") which are solely the obligations of FNMA and are neither backed by nor
entitled to the full faith and credit of the federal government). FNMA is a
government-sponsored enterprise which is also a private corporation whose stock
trades on the NYSE. Fannie Maes are guaranteed as to timely payment of principal
and interest by FNMA. MBSs issued by FHLMC include FHLMC Mortgage Participation
Certificates ("Freddie Macs" or "PCs"). FHLMC is a government-sponsored
enterprise whose MBSs are solely obligations of FHLMC. Therefore, Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank and do
not constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. FHLMC guarantees timely payment of interest, but only ultimate
payment of principal due under the obligations it issues. FHLMC may, under
certain circumstances, remit the guaranteed payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after the guarantee becomes payable.
FUTURES CONTRACTS AND OPTIONS TRANSACTIONS -- Each LifePath Fund may use
futures as a substitute for a comparable market position in the underlying
securities.
A futures contract is an agreement between two parties, a buyer and a seller,
to exchange a particular commodity or financial statement at a specific price on
a specific date in the future. An option transaction generally involves a right,
which may or may not be exercised, to buy or sell a commodity or financial
instrument at a particular price on a specified future date. Futures contracts
and options are standardized and traded on exchanges, where the exchange serves
as the ultimate counterparty for all contracts. Consequently, the primary credit
risk on futures contracts is the creditworthiness of the exchange. Futures
contracts are subject to market risk (i.e., exposure to adverse price changes).
Although each of the indicated Funds intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting a Fund to substantial
A-2
<PAGE>
losses. If it is not possible, or if a Fund determines not to close a futures
position in anticipation of adverse price movements, the Fund will be required
to make daily cash margin payments.
Stock Index Futures and Options on Stock Index Futures -- Each LifePath Fund
------------------------------------------------------
may invest in stock index futures and options on stock index futures as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, each Fund intends to purchase and
sell futures contracts on the stock index for which it can obtain the best price
with consideration also given to liquidity. There can be no assurance that a
liquid market will exist at the time when a Fund seeks to close out a futures
contract or a futures option position. Lack of a liquid market may prevent
liquidation of an unfavorable position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures Contracts
------------------------------------------------------------------------------
- - -- Each LifePath Fund may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Funds may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate their options positions. No assurance can be given that such closing
transactions can be effected or the degree of correlation between price
movements in the options on interest rate futures and price movements in the
Funds' portfolio securities which are the subject of the transaction.
Interest-Rate and Index Swaps -- Each LifePath Fund may enter into interest-
-----------------------------
rate and index swaps in pursuit of their investment objectives. Interest-rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating-
rate payments on fixed-rate payments). Index swaps involve the exchange by a
Fund with another party of cash flows based upon the performance of an index of
securities or a portion of an index of securities that usually include dividends
or income. In each case, the exchange commitments can involve payments to be
made in the same currency or in different currencies. A Fund will usually enter
into swaps on a net basis. In so doing, the two payment streams are netted out,
with a Fund receiving or paying, as the case may be, only the net amount of the
two payments. If a Fund enters into a swap, it will maintain a segregated
account on a gross basis, unless the contract provides for a segregated account
on a net basis. If there is a default by the other party to such a transaction,
a Fund will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by a
Fund. These transactions generally do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to swaps generally is limited to the net amount of payments that a Fund is
contractually obligated to make. There is also a risk of a default by the other
party to a swap, in which case a Fund may not receive net amount of payments
that a Fund contractually is entitled to receive.
Foreign Currency and Futures Transactions -- Foreign currency transactions may
-----------------------------------------
occur on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market or on a forward basis. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a set price on
a future date which must be more than two days from the date of the contract.
The forward foreign currency market offers less protection against default than
is available when trading currencies on an exchange, since a forward currency
contract is not guaranteed by an exchange or clearinghouse. Therefore, a default
on a forward currency contract would deprive a LifePath Fund of unrealized
profits or force such Fund to cover its commitments for purchase or resale, if
any, at the current market price.
Each LifePath Fund may combine forward currency exchange contracts with
investments in securities denominated in other currencies.
Each LifePath Fund also may maintain short positions in forward currency
exchange transactions, which would involve the Fund agreeing to exchange an
amount of a currency it did not currently own for another currency at a
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<PAGE>
future date in anticipation of a decline in the value of the currency sold
relative to the currency such Fund contracted to receive in the exchange.
Unlike trading on domestic futures exchanges, trading on foreign futures
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and generally is subject to greater risks than trading on domestic
exchanges. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. BGFA, however, considers on an ongoing basis the
creditworthiness of such counterparties. In addition, any profits that a
LifePath Fund might realize in trading could be eliminated by adverse changes in
the exchange rate; adverse exchange rate changes also could cause a Fund to
incur losses. Transactions on foreign exchanges may include both futures
contracts which are traded on domestic exchanges and those which are not. Such
transactions may also be subject to withholding and other taxes imposed by
foreign governments.
INVESTMENT COMPANY SECURITIES -- Each Master Portfolio may invest in
securities issued by other investment companies which principally invest in
securities of the type in which the Master Portfolio invests. Under the 1940
Act, a Master Portfolio's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Master Portfolio's net assets with respect to
any one investment company and (iii) 10% of the Master Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other expenses.
The Fund may also purchase shares of exchange listed closed-end funds.
ILLIQUID SECURITIES -- Each LifePath Fund may invest up to 15% of the value of
its net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
privately issued securities and other securities that are subject to legal or
contractual restrictions on resale, floating- and variable-rate demand
obligations as to which the Master Portfolio cannot exercise a demand feature on
not more than seven days' notice and as to which there is no secondary market
and repurchase agreements providing for settlement more than seven days after
notice.
SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS -- Each LifePath Fund may
invest in the following high-quality money market instruments on an ongoing
basis to provide liquidity, for temporary purposes when there is an unexpected
level of shareholder purchases or redemptions or when "defensive" strategies are
appropriate: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, 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 that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA or Wells Fargo Bank; (iv) non-convertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of not more than one year that are rated at least "Aa" by Moody's or "AA" by
S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, at the time of
investment have more than $10 billion, or the equivalent in other currencies, in
total assets and in the opinion of BGFA are of comparable quality to obligations
of U.S. banks which may be purchased by the Master Portfolio.
Bank Obligations -- Each Fund may invest in bank obligations, including
----------------
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations of domestic banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and domestic and foreign branches of foreign
banks, domestic savings and loan associations and other banking institutions.
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
A-4
<PAGE>
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by a Fund will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments -- Each Fund may
----------------------------------------------------------
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corporations
to finance short-term credit needs. Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a commercial bank acting as
agent for the payee of such notes whereby both parties have the right to vary
the amount of the outstanding indebtedness on the notes. The investment adviser
and/or sub-adviser to each Fund monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand.
Each Fund also may invest in non-convertible corporate debt securities (e.g.,
bonds and debentures) with not more than one year remaining to maturity at the
date of settlement. A Fund will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The investment adviser and/or sub-adviser to each Fund
will consider such an event in determining whether the Fund should continue to
hold the obligation. To the extent the Fund continues to hold such obligations,
it may be subject to additional risk of default.
Repurchase Agreements -- Each Fund may enter into repurchase agreements
---------------------
wherein the seller of a security to a Fund agrees to repurchase that security
from the Fund at a mutually-agreed upon time and price. The period of maturity
is usually quite short, often overnight or a few days, although it may extend
over a number of months. A Fund may enter into repurchase agreements only with
respect to securities that could otherwise be purchased by the Fund, and all
repurchase transactions must be collateralized. A Fund may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by BGFA.
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 a 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 adviser.
BORROWING MONEY -- As a fundamental policy, each Fund is permitted to borrow
to the extent permitted under the 1940 Act. However, each Fund currently intends
to borrow money only for temporary or emergency (not leveraging) purposes, and
may borrow up to one-third of the value of its total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of a Fund's total assets, the Fund will not make any
investments.
LOANS OF PORTFOLIO SECURITIES -- Each Fund may lend securities from their
portfolios to brokers, dealers and financial institutions (but not individuals)
in order to increase the return on such Fund's portfolio. The value of the
A-5
<PAGE>
loaned securities may not exceed one-third of a Fund's total assets and loans of
portfolio securities are fully collateralized based on values that are market-
to-market daily. The Funds will not enter into any portfolio security lending
arrangement having a duration of longer than one year. The principal risk of
portfolio lending is potential default or insolvency of the borrower. In either
of these cases, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities. The
Funds may pay reasonable administrative and custodial fees in connection with
loans of portfolio securities and may pay a portion of the interest or fee
earned thereon the borrower or a placing broker.
CONVERTIBLE SECURITIES -- Each LifePath Fund may purchase fixed-income
convertible securities, such as bonds or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a non-convertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
RATINGS -- The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, BGFA also evaluates such obligations and the
ability of their issuers to pay interest and principal. Each Fund relies on
BGFA's judgment, analysis and experience in evaluating the creditworthiness of
an issuer. In this evaluation, BGFA takes into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, the quality of the issuer's management and regulatory matters. It
also is possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events.
CERTAIN FUNDAMENTAL POLICIES
Each Fund and Master Portfolio may (i) borrow money to the extent permitted
under the 1940 Act; (ii) invest up to 5% of its total assets in the obligations
of any single issuer, except that up to 25% of the value of the total assets of
such Fund or Master Portfolio may be invested and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities may be
purchased, without regard to any such limitation; and (iii) invest up to 25% of
the value of its total assets in the securities of issuers in a particular
industry or group of closely related industries, provided there is no limitation
on the purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. This paragraph describes fundamental policies
that cannot be changed as to a Fund or Master Portfolio without approval by the
holders of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund or Master Portfolio, as the case may be. See "Investment
Objectives and Management Policies -- Investment Restrictions" in the SAI.
A-6
<PAGE>
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Fund and Master Portfolio may (i) pledge, hypothecate, mortgage or
otherwise encumber its assets, but only to secure permitted borrowings; and (ii)
invest up to 15% of the value of its net assets in repurchase agreements
providing for settlement in more than seven days after notice and in other
illiquid securities. See "Investment Objectives and Management Policies --
Investment Restrictions" in the SAI.
A-7
<PAGE>
DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas
INVESTMENT ADVISER
Barclays Global Fund Advisors
San Francisco, California
CO-ADMINISTRATOR,
TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank, N.A.
San Francisco, California
CUSTODIAN
Investors Bank & Trust Company
Boston, Massachusetts
LEGAL COUNSEL
Morrison & Foerster LLP
Washington, D.C.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
San Francisco, California
FOR MORE INFORMATION ABOUT THE FUNDS WRITE OR CALL:
Stagecoach Funds
c/o Wells Fargo Bank, N.A. -- Transfer Agent
525 Market Street
San Francisco, California 94105
1-800-776-0179
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
STAGECOACH TRUST
Telephone: 1-800-643-9691
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1998
LIFEPATH 2000/TM/ FUND
LIFEPATH 2010/TM/ FUND
LIFEPATH 2020/TM/ FUND
LIFEPATH 2030/TM/ FUND
LIFEPATH 2040/TM/ FUND
Class A, Class B and Class C
Stagecoach Trust (the "Trust") is an open-end management investment company.
This Statement of Additional Information ("SAI"), contains additional
information about the LIFEPATH 2000, LIFEPATH 2010, LIFEPATH 2020, LIFEPATH 2030
and LIFEPATH 2040 FUNDS. Each Fund offers Class A and Class B shares. The
LifePath 2040 Fund also offers Class C shares.
This SAI is not a prospectus and should be read in conjunction with the Funds'
Prospectus, also dated July 1, 1998, as it may be revised from time to time. A
copy of the Funds' Prospectus may be obtained without charge by writing Stephens
Inc. ("Stephens") at 111 Center Street, Little Rock, Arkansas 72201, or by
calling at 1-800-643-9691.
As described in the Prospectus, each Fund invests all of its assets in a
separate master portfolio (each, a "Master Portfolio") of Master Investment
Portfolio ("MIP"), an open-end, series investment company. Each Fund has the
same investment objective as the corresponding Master Portfolio. Barclays
Global Fund Advisors ("BGFA") serves as investment adviser to each Master
Portfolio. References to the investments, investment policies and risks of the
Funds, unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the corresponding Master
Portfolios.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Historical Fund Information....................................................... 1
Investment Restrictions........................................................... 2
Additional Permitted Investment Activities........................................ 4
Risk Factors...................................................................... 19
Management........................................................................ 21
Management Arrangements........................................................... 24
Performance Calculations.......................................................... 30
Determination of Net Asset Value.................................................. 36
Additional Purchase and Redemption Information.................................... 37
Federal Income Taxes.............................................................. 38
Capital Stock..................................................................... 43
Portfolio Transactions............................................................ 46
Information About the Funds....................................................... 48
Counsel........................................................................... 48
Independent Auditors.............................................................. 49
Financial Information............................................................. 49
Appendix.......................................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Trust was organized as an unincorporated business trust under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust (the "Trust Agreement") dated May 14, 1993. The Trust is authorized to
issue an unlimited number of shares of beneficial interest. Each LifePath Fund
of the Trust offers Class A, Class B and Institutional Class shares. The
LifePath 2040 Fund also offers Class C shares. Each share has one vote.
Institutional Class shares are no longer offered to the public, although a
limited number of such shares were outstanding as of the date of this
Prospectus.
Under the terms of a License Agreement between the Trust and Wells Fargo Bank,
Wells Fargo Bank has granted the Trust a non-exclusive license to use the name
"Stagecoach." If the License Agreement is terminated, the Trust, at the request
of Wells Fargo Bank, will cease using the name "Stagecoach."
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a Trustee.
The Trust Agreement provides for indemnification from the Trust's property for
all losses and expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust itself is unable to meet its obligations, a possibility which
management believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying such liability is entitled to reimbursement from
the general assets of the Trust. The Trustees intend to conduct the operations
of the Trust in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust. As described under
"Management of the Trust" in the SAI, the Trust ordinarily does not hold
shareholder meetings; however, shareholders under certain circumstances have the
right to call a meeting of shareholders for the purpose of voting to remove
Trustees.
Each LifePath Fund currently invests all of its assets in a LifePath Master
Portfolio of MIP with a corresponding investment objective. Whenever a Fund, as
a Master Portfolio's interestholder, is requested to vote on matters submitted
to interestholders of the Master Portfolio, the Funds will hold a meeting of its
shareholders to consider such matters and the Fund will cast its votes in
proportion to the votes received from Fund shareholders. Each LifePath Fund
will vote Master Portfolio shares for which it receives no voting instructions
in the same proportion as the votes received from Fund shareholders. If a
Master Portfolio's investment objective or policies are changed, the
corresponding LifePath Fund could subsequently change its objective or policies
to correspond to those of the Master Portfolio. The Fund may also elect to
redeem its interests in the Master Portfolios and either seek a new investment
company with a substantially matching objective in which to invest or retain its
own investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, the Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund.
1
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
- - -------------------------------
Each LifePath Fund seeks to achieve its investment objective by investing all
of its assets in a corresponding master portfolio of Master Investment Portfolio
("MIP"), with a substantially similar investment objective and policies. Each
Fund has adopted the following fundamental investment restrictions, which can
not be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the outstanding
voting securities of such Fund.
The LifePath Funds may not:
(1) purchase securities of any issuer (except securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, more than 5% of the value of
the Fund's total assets would be invested in the securities of any one issuer or
the Fund would hold more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of the Fund's total assets may be invested without
regard to these limitations;
(2) invest in commodities, except that each Fund or Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, and futures
contracts, including those relating to indices and options on futures contracts
or indices;
(3) purchase, hold or deal in real estate, or oil, gas or other mineral leases
or exploration or development programs, but each Fund or Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate;
(4) borrow money, except as permitted by applicable law (for purposes of this
investment restriction, a Fund's or Master Portfolio's entry into options,
forward contracts, futures contracts, including those relating to indices and
options on futures contracts or indices shall not constitute borrowing to the
extent certain segregated accounts are established and maintained by the Fund or
Master Portfolio as described in "Risk Factors" below);
(5) make loans, except as permitted by applicable law, including through the
purchase of debt obligations and the entry into repurchase agreements, each Fund
or Master Portfolio may lend its portfolio securities in an amount not to exceed
one-third of the value of its total assets;
(6) underwrite securities of other issuers, except to the extent that the
purchase of securities directly from the issuer thereof or from an underwriter
for an issuer and the later disposition of such securities in accordance with
the Fund's investment program may be deemed to be an underwriting;
2
<PAGE>
(7) invest 25% or more of its total assets in the securities of issuers in any
particular industry or group of closely related industries, except that, in the
case of each Fund or Master Portfolio, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(8) issue senior securities, except as permitted by applicable law;
(9) purchase securities on margin, but each Fund or Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indices, and options on futures
contracts or indices;
(10) make investments for the purpose of exercising control or management.
Non-Fundamental Investment Policies
-----------------------------------
The Funds have adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without shareholder approval.
(1) The Funds may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, a Fund's investment in such securities currently is limited
to , subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest can be expected to charge
fees for operating expenses, such as investment advisory and administration
fees, that would be in addition to those charged by a Fund.
(2) The Funds may not invest or hold more than 15% of their respective net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) The Funds may lend portfolio securities to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of the
respective Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Funds
will not enter into any portfolio security lending arrangement having a duration
of longer than one year.
The Funds do not invest in the following types of derivatives that generally
are considered to be potentially volatile: capped floaters, leveraged floaters,
range floaters, dual index floaters or inverse floaters. Additionally, the
Funds will not invest in securities whose interest rate reset
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provisions materially lag short-term interest rates, such as Cost of Funds Index
Floaters or other derivative instruments the Funds consider to have the
potential for excessive volatility.
The LifePath Funds contain both "strategic" and "tactical" components, with
the strategic component weighted more heavily than the tactical component. The
strategic component of the Funds evaluates the risk that investors, on average,
may be willing to accept given their investment time horizons. The strategic
component thus determines the changing investment risk level of each LifePath
Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Fund without regard to horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes.
Set forth below are descriptions of certain investments and additional
investment policies of the Funds.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
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
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amount of the instrument upon maturity. The other short-term obligations may
include uninsured, direct obligations, bearing fixed, floating- or variable-
interest rates.
Fixed-Income Securities.
-----------------------
Investors should be aware that even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. Long-term securities are
affected to a greater extent by interest rates than shorter-term securities.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a portfolio security has been changed to a rating below investment grade, the
particular LifePath Master Portfolio considers all circumstances deemed relevant
in determining whether to continue to hold the security. Certain securities
that may be purchased by the LifePath Master Portfolio, such as those rated
"Baa" by Moody's and "BBB" by S&P, Fitch and Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Securities which
are rated "Baa" by Moody's are considered medium-grade obligations; they are
neither highly protected nor poorly secured, and are considered by Moody's to
have speculative characteristics. Securities rated "BBB" by S&P are regarded as
having adequate capacity to pay interest and repay principal, and, while such
debt securities ordinarily exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for securities in this
category than in higher rated categories. Securities rated "BBB" by Fitch are
considered investment grade and of satisfactory credit quality; however, adverse
changes in economic conditions and circumstances are more likely to have an
adverse impact on these securities and, therefore, impair timely payment.
Securities rated "BBB" by Duff have below average protection factors but
nonetheless are considered sufficient for prudent investment. If a security
held by a LifePath Master Portfolio is downgraded to a rating below investment
grade, such Master Portfolio may continue to hold the security until such time
as BGFA determines it to be advantageous for the LifePath Master Portfolio to
sell the security. If such a policy would cause a LifePath Master Portfolio to
have 5% or more of its net assets invested in securities that have been
downgraded below investment grade, the Master Portfolio promptly would seek to
dispose of such securities in an orderly manner.
Floating- and Variable-Rate Obligations.
---------------------------------------
The Funds may purchase floating- and variable-rate obligations. Each Fund may
purchase floating- and variable-rate demand notes and bonds. These obligations
may have stated maturities in excess of thirteen months, but they permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding thirteen months. Variable-rate demand notes include master demand
notes that are obligations that permit a Fund to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Fund, as lender, and the borrower. The interest rates on these notes may
fluctuate from time to time. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus
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accrued interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if Wells Fargo Bank determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which such Fund may invest. Wells Fargo Bank, on behalf of
each Fund, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in such Fund's portfolio. No
Fund will invest more than 10% of the value of its total net assets in floating-
or variable-rate demand obligations whose demand feature is not exercisable
within seven days. Such obligations may be treated as liquid, provided that an
active secondary market exists.
Foreign Currency Transactions.
-----------------------------
The Funds may enter into foreign currency exchange contracts in order to
protect against uncertainty in the level of future foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect a Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
Because the Balanced and Equity Value Funds may invest in securities
denominated in currencies other than the U.S. dollar and may temporarily hold
funds in bank deposits or other money market investments denominated in foreign
currencies, they may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. Changes in foreign currency exchange rates influence values within a
Fund from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and any net investment income and
gains to be distributed to shareholders by a Fund. The rate of exchange between
the U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of
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payments and other economic and financial conditions, government intervention,
speculation and other factors.
Investments in foreign securities also involve certain inherent risks, such as
political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. Investments in foreign securities and
forward contracts may also be subject to withholding and other taxes imposed by
foreign governments. With respect to certain foreign countries, there is also a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investments in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
----------------------------------------------------------------------------
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although each Fund
will generally purchase securities with the intention of acquiring them, a Fund
may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate by the
Advisor. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Futures Contracts.
-----------------
The LifePath Master Portfolios may use futures contracts as a hedge against
the effects of interest rate changes or changes in the market value of the
stocks comprising the index in which such Master Portfolio invests. In managing
their cash flows, these Master Portfolios also may use futures contracts as a
substitute for holding the designated securities underlying the futures
contract. A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity at a specific price on a specific
date in the future. At the time it enters into a futures transaction, a Master
Portfolio is required to make a performance deposit
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(initial margin) of cash or liquid securities in a segregated account in the
name of the futures broker. Subsequent payments of "variation margin" are then
made on a daily basis, depending on the value of the futures position which is
continually "marked to market."
A Master Portfolio may engage only in futures contract transactions involving
(i) the sale of a futures contract (i.e., short positions) to hedge the value of
securities held by such Master Portfolio; (ii) the purchase of a futures
contract when such Master Portfolio hold a short position having the same
delivery month (i.e., a long position offsetting a short position); or (iii) the
purchase of a futures contract to permit the Master Portfolio to, in effect,
participate in the market for the designated securities underlying the futures
contract without actually owning such designated securities. When a Master
Portfolio purchases a futures contract, it will create a segregated account
consisting of cash or other liquid assets in an amount equal to the total market
value of such futures contract, less the amount of initial margin for the
contract.
If a Master Portfolio enters into a short position in a futures contract as a
hedge against anticipated adverse market movements and the market then rises,
the increase in the value of the hedged securities will be offset, in whole or
in part, by a loss on the futures contract. If instead a Master Portfolio
purchases a futures contract as a substitute for investing in the designated
underlying securities, a Master Portfolio experiences gains or losses that
correspond generally to gains or losses in the underlying securities. The
latter type of futures contract transactions permits a Master Portfolio to
experience the results of being fully invested in a particular asset class,
while maintaining the liquidity needed to manage cash flows into or out of the
Master Portfolio (e.g., from purchases and redemptions of Master Portfolio
shares). Under normal market conditions, futures contract positions may be
closed out on a daily basis. The LifePath Master Portfolios expect to apply a
portion of their cash or cash equivalents maintained for liquidity needs to such
activities.
Transactions by a Master Portfolio in futures contracts involve certain risks.
One risk in employing futures contracts as a hedge against cash market price
volatility is the possibility that futures prices will correlate imperfectly
with the behavior of the prices of the securities in the Master Portfolio's
investment portfolio. Similarly, in employing futures contracts as a substitute
for purchasing the designated underlying securities, there is a risk that the
performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.
In order to comply with undertakings made by the Master Portfolio pursuant to
Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolios will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of
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CFTC Reg. 1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed five percent of the liquidation value
of the Master Portfolio's portfolio, after taking into account unrealized
profits and unrealized losses on any such contract it has entered into; and
provided further, that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
Future Developments.
-------------------
Each LifePath Master Portfolio may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by
such Master Portfolio or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with a LifePath
Master Portfolio's investment objective and legally permissible for the Master
Portfolio. Before entering into such transactions or making any such
investment, a LifePath Master Portfolio would provide appropriate disclosure in
its Prospectus or this SAI.
Loans of Portfolio Securities.
-----------------------------
Each Fund may lend its portfolio securities to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or letters of credit maintained
on a daily marked-to-market basis in an amount at least equal to the current
market value of the securities loaned; (2) the Fund may at any time call the
loan and obtain the return of the securities loaned within five business days;
(3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one third of the total assets of the Fund.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested in short-term money market instruments.
In connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. A Fund will not enter into any security
lending arrangement having a duration longer than one year. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral. In either case, a Fund could experience
delays in recovering securities or collateral or could lose all or part of the
value of the loaned securities. When a Fund lends its securities, it continues
to receive interest or dividends on the securities loaned and may simultaneously
earn interest on the collateral received from the borrower or from the
investment of cash collateral in readily marketable, high-quality, short-term
obligations. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur. A Fund may pay a portion of the
interest or fees earned from securities lending to a borrower or placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
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Money Market Instruments and Temporary Investments.
--------------------------------------------------
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1" or "A-1--" by S&P, or, if unrated, of comparable quality as determined
by Wells Fargo Bank, as investment advisor; and (iv) repurchase agreements. The
Funds also may invest in short-term U.S. dollar-denominated obligations of
foreign banks (including U.S. branches) that at the time of investment: (i) have
more than $10 billion, or the equivalent in other currencies, in total assets;
(ii) are among the 75 largest foreign banks in the world as determined on the
basis of assets; (iii) have branches or agencies in the United States; and (iv)
in the opinion of Wells Fargo Bank, as investment advisor, are of comparable
quality to obligations of U.S. banks which may be purchased by the Funds.
Letters of Credit. Certain of the debt obligations (including certificates of
participation, commercial paper and other short-term obligations) which the
Funds may purchase may be backed by an unconditional and irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of Wells Fargo Bank, are of comparable quality
to issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. A Fund may enter into repurchase agreements, wherein
the seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed upon time and price. A Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, a Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
A Fund will only enter into repurchase agreements with primary broker/dealers
and commercial banks that meet guidelines established by the Board of Directors
and that are not affiliated with the investment advisor. The Funds may
participate in pooled repurchase agreement transactions with other funds advised
by Wells Fargo Bank.
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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). 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 the Federal
National Mortgage Association (" FNMA"). CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. As new types of
mortgage-related securities are developed and offered to investors, the advisor
will, consistent with a Fund's investment objective, policies and quality
standards, consider making investments in such new types of mortgage-related
securities.
There are risks inherent in the purchase of mortgage-related securities. For
example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these
securities are subject to the risk that prepayment on the underlying mortgages
will occur earlier or later or at a lessor or greater rate than expected. To
the extent that the advisor's assumptions about prepayments are inaccurate,
these securities may expose the Funds to significantly greater market risks than
expected.
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
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<PAGE>
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by a Fund, an issue of debt securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by a Fund.
The advisor will consider such an event in determining whether the Fund involved
should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Balanced and Equity Value Funds depends upon the ability of the issuers to meet
their obligations. An issuer's obligations under its debt securities are subject
to the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest and principal of its
debt securities may be materially adversely affected by litigation or other
conditions. Further, it should also be, noted with respect to all municipal
obligations issued after August 15, 1986 (August 31, 1986 in the case of certain
bonds), the issuer must comply with certain rules formerly applicable only to
"industrial development bonds" which, if the issuer fails to observe them, could
cause interest on the municipal obligations to become taxable retroactive to the
date of issue.
Options Trading.
---------------
The Funds may purchase or sell options on individual securities or options on
indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to justify exercise. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in the case of a call option and may be required to pay a
price in excess of current market value in the case of a put option.
Call and Put Options on Specific Securities. The Funds may invest in call and
put options on a specific security. A call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, an underlying
security at the exercise price at any time during the option period.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy, an underlying security at the exercise price at
any time during the option period. Investments by a Fund in off-exchange
options will be treated as "illiquid" and therefore subject to the Fund's policy
of not investing more than 15% of its net assets in illiquid securities.
The Funds may write covered call option contracts and secured put options as
BGFA deems appropriate. A covered call option is a call option for which the
writer of the option owns the security covered by the option. Covered call
options written by a Fund expose the Fund during the term of the option (i) to
the possible loss of opportunity to realize appreciation in the market price of
the underlying security or (ii) to possible loss caused by continued holding of
a security which
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might otherwise have been sold to protect against depreciation in the market
price of the security. If a Fund writes a secured put option, it assumes the
risk of loss should the market value of the underlying security decline below
the exercise price of the option. The aggregate value of the securities subject
to options written by a Fund will not exceed 25%. The use of covered call
options and securities put options will not be a primary investment technique of
the Funds, and they are expected to be used infrequently. If the advisor is
incorrect in its forecast of market value or other factors when writing the
foregoing options, a Fund would be in a worse position than it would have been
had the foregoing investment techniques not been used.
Each Fund may engage in unlisted over-the-counter options with broker/dealers
deemed creditworthy by the advisor. Closing transactions for such options are
usually effected directly with the same broker/dealer that effected the original
option transaction. A Fund bears the risk that the broker/dealer will fail to
meet its obligations. There is no assurance that a liquid secondary trading
market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Each Fund may buy put and call options and write covered call and secured put
options. Options trading is a highly specialized activity which entails greater
than ordinary investment risk. Options may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves. Purchasing options is a specialized investment
technique that entails a substantial risk of a complete loss of the amounts paid
as premiums to the writer of the option.
The Funds may also write covered call and secured put options from time to
time as the advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying security
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option the
right to buy, and a writer the obligation to sell, the underlying security at
the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the
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difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
The Funds will write call options only if they are "covered." In the case of
a call option on a security or currency, the option is "covered" if a Fund owns
the instrument underlying the call or has an absolute and immediate right to
acquire that instrument without additional cash consideration (or, if additional
cash consideration is required, cash, U.S. Government securities or other liquid
high grade debt obligations, in such amount are held in a segregated account by
the Fund's custodian) upon conversion or exchange of other securities held by
it. For a call option on an index, the option is covered if a Fund maintains
with its custodian a diversified portfolio of securities comprising the index or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same instrument or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian. The Funds will write put options only if
they are "secured" by liquid assets maintained in a segregated account by the
Funds' custodian in an amount not less than the exercise price of the option at
all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction is ordinarily effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying instrument (in the case of a covered call option) or liquidate the
segregated account (in the case of a secured put option) until the option
expires or the optioned instrument or currency is delivered upon exercise with
the result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund on
the closing transaction is more than the premium paid to
14
<PAGE>
purchase the option, or a loss if it is less. If an option written by a Fund
expires on the stipulated expiration date or if a Fund enters into a closing
purchase transaction, it realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold)
and the deferred credit related to such option is eliminated. If an option
written by a Fund is exercised, the proceeds of the sale are increased by the
net premium originally received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For example,
there are significant differences between the securities, currency and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-counter or on
an exchange, may be absent for reasons that include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities or currencies;
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing Corporation may
not be adequate at all times to handle current trading value; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. A Fund is likely to be unable to control losses by closing its
position where a liquid secondary market does not exist. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
The Funds may purchase or sell options on individual securities or options on
indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to justify exercise. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in the case of a call option and may be required to pay a
price in excess of current market value in the case of a put option.
The Funds may engage in unlisted over-the-counter options with broker/dealers
deemed creditworthy by the advisor. Closing transactions for such options are
usually effected directly with the same broker/dealer that effected the original
option transaction. A Fund bears the risk that the broker/dealer will fail to
meet its obligations. There is no assurance that a liquid secondary trading
market exists for closing out an unlisted option position. Furthermore, unlisted
options are not subject to the protections afforded purchasers of listed options
by the Options Clearing Corporation, which performs the obligations of its
members who fail to perform in connection with the purchase or sale of options.
15
<PAGE>
Stock Index Options. The Funds may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 25% of the value of its
net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value of
a stock index option depends upon changes to the price of all stocks comprising
the index rather than the price of a particular stock, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the price of all stocks in the index, rather than
movements in the price of a particular stock. Accordingly, successful use by a
Fund of options on stock indexes will be subject to Wells Fargo Bank's ability
to correctly analyze movements in the direction of the stock market generally or
of particular industry or market segments.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts.
The Funds may participate in stock index futures contracts and options on stock
index futures contracts. A futures transaction involves a firm agreement to buy
or sell a commodity or financial instrument at a particular price on a specified
future date, while an option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller recognizes a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser realizes a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against an
increase in the prices of stocks that Fund intends to purchase. If a Fund is
unable to invest its cash (or cash equivalents) in stock in an orderly fashion,
a Fund may purchase a stock index futures contract to offset any increase in the
price of the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If Fund then concludes
not to invest in stock at that time, or if the price of the securities to be
purchased remains constant or increases, a Fund realizes a loss on the stock
index futures contract that is not offset by a reduction in the price
16
<PAGE>
of securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The Funds may also purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the Funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
BGFA expects that an increase or decrease in the index in relation to the
strike price level would normally correlate to an increase or decrease (but not
necessarily to the same extent) in the value of a Fund's common stock portfolio
against which the option was written. Thus, any loss in the option transaction
may be offset by an increase in the value of the common stock portfolio to the
extent changes in the index correlate to changes in the value of that portfolio.
The Funds may liquidate the put options they have purchased by effecting a
closing sale transaction rather than exercising the option. This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that the Funds will be able to effect the closing sale
transaction. The Funds realize a gain from a closing sale transaction if the
price at which the transaction is effected exceeds the premium paid to purchase
the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the value
of common stock investments or to maintain liquidity, provided not more than 5%
of a Fund's net assets are committed to such transactions. A stock index future
obligates the seller to deliver (and the purchaser to take), effectively, an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Funds intend to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.
Other Asset-Backed Securities.
-----------------------------
The Funds may purchase asset-backed securities unrelated to mortgage loans.
These asset-backed securities may consist of undivided fractional interests in
pools of consumer loans or
17
<PAGE>
receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a monthly
or other periodic basis to certificate holders and are typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. The actual maturity and realized yield will vary based upon the
prepayment experience of the underlying asset pool and prevailing interest rates
at the time of prepayment. Asset-backed securities are relatively new
instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities.
Other Investment Companies.
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses such as investment advisory and administration fees, that
would be in addition to those charged by the Funds.
Privately Issued Securities.
---------------------------
The Funds may invest in privately issued securities, including those which may
be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the investment advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment advisor, under guidelines approved by Board of
Directors of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by a Fund on a case-by-case basis and
will consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
18
<PAGE>
U.S. Government Obligations.
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Warrants.
--------
Each LifePath Master Portfolio may invest generally up to 5% of its net assets
at the time of purchase in warrants, except that this limitation does not apply
to warrants acquired in units or attached to securities. A warrant is an
instrument issued by a corporation which gives the holder the right to subscribe
to a specified amount of the corporation's capital stock at a set price for a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the FDIC and are not insured against loss of principal.
When the value of the securities that a Fund owns declines, so does the value of
your Fund shares. You should be prepared to accept some risk with the money you
invest in a Fund.
The portfolio equity securities of each Fund are subject to equity market
risk. Equity market risk is the risk that stock prices will fluctuate or
decline over short or even extended periods. Throughout most of 1997, the stock
market, as measured by the S&P 500 Index and other commonly used indices, has
been trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of a Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which a Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which the Funds invest and hence the value of your investment in a Fund.
19
<PAGE>
The market value of a Fund's investment in fixed-income securities will change
in response to various factors, such as changes in market interest-rates and the
relative financial strength of an issuer. During periods of falling interest
rates, the value of fixed-income securities generally rises. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Fluctuations in the market value of
fixed-income securities can be reduced, but not eliminated, by variable and
floating-rate features.
Securities rated in the fourth highest rating category are regarded by S&P as
having an adequate capacity to pay interest and repay principal, but changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make such repayments. Moody's considers such securities as having
speculative characteristics. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The advisor will consider such an
event in determining whether a Fund should continue to hold the obligation.
Securities rated below the fourth highest rating category (sometimes called
"junk bonds") are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's credit-worthiness. The
market prices of these securities may fluctuate more than higher quality
securities and may decline significantly in periods of general economic
difficulty.
There may be some additional risks associated with investments in smaller
and/or newer companies because their shares tend to be less liquid than
securities of larger companies. Further, shares of small and new companies are
generally more sensitive to purchase and sale transactions and changes in the
issuer's financial condition and, therefore, the prices of such stocks may be
more volatile than those of larger company stocks and may be subject to more
abrupt price movements than securities of larger companies.
Investing in the securities of issuers in any foreign country, including
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs")
and similar securities, involves special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Fund's performance may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between
20
<PAGE>
the currencies of different nations, by exchange control regulations and by
indigenous economic and political developments.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted securities
may be subject to legal restrictions on resale. Delay or difficulty in selling
securities may result in a loss or be costly to a Fund.
The advisor may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of a Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If a Fund's advisor judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of the advisor's intent in using the derivatives.
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 Prospectus section entitled "Organization and Management of the Funds."
Trustees and officers of the Trust, together with information as to their
principal occupations during at least the last five years, are shown below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Trustees who are deemed to be an "interested person" of the
Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- - ----------------------------------- ------------------- ----------------------------------------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Trustee, Executive Vice President of Stephens,
Chairman Manager of Financial Services Group,
and President President of Stephens Insurance Services Inc.;
Senior Vice President of Stephens Sports Management Inc.;
and President of Investors Brokerage Insurance Inc.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
Name, Address and Age Position During Past 5 Years
- - ----------------------------------- ------------------- ----------------------------------------------------------
<S> <C> <C>
Thomas S. Goho, 55 Trustee Associate Professor of Finance,
P.O. Box 7285 Calloway School of Business and Accounting at
Reynolds Station Wake Forest University since 1982.
Winston-Salem, NC 27109
Peter G. Gordon, 54 Trustee Chairman and Co-Founder of Crystal Geyser Water Company
Crystal Geyser Water Co. and President of Crystal Geyser Roxane Water Company
55 Francisco Street since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Trustee President of Westchester Community College since 1971;
75 Grasslands Road Adjunct Professor of Columbia University Teachers College
Valhalla, NY 10595 since 1976.
(appointed as of September 6, 1996
*W. Rodney Hughes, 71 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Trustee Private Investor; Chairman of Home Account Network, Inc.;
4 Beaufain Street Real Estate Developer; Chairman of Renaissance Properties
Charleston, SC 29401 Ltd., President of Morse Investment Corporation; and
Co-Managing Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice-President of Stephens Inc.; Director of Stephens
Officer, Secretary Sports Management Inc.; and Director of Capo Inc.
and Treasurer
</TABLE>
Compensation Table
For the Fiscal Year-ended February 28, 1997
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
- - ----------------------- -------------------------- -------------------------------------
<S> <C> <C>
Jack S. Euphrat 0 $33,750
Trustee
R. Greg Feltus 0 0
Trustee
Thomas S. Goho 0 $33,750
Trustee
Peter G. Gordon 0 0
Trustee
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
- - ----------------------- -------------------------- -------------------------------------
<S> <C> <C>
Joseph N. Hankin 0 $26,250
Trustee
W. Rodney Hughes 0 $27,750
Trustee
Robert M. Joses 0 $33,750
Trustee
J. Tucker Morse 0 $27,750
Trustee
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert H. Joses on the Board
of Trustees.
Trustees of the Trust are compensated annually by the Trust 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 Trust, Stagecoach Funds, Inc. 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"). MasterWorks
Funds Inc., Master Investment Portfolio, and Managed Series Investment Trust
together form a separate fund complex (the "BGFA Fund Complex"). Each of the
Trustees and Officers of the Trust serves in the identical capacity as trustees
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 Trustees are
compensated by other companies and trusts within a fund complex for their
services as Directors to such companies and trusts. Currently the Trustees do
not receive any retirement benefits or deferred compensation from the Trust or
any other member of each fund complex.
As the date of this SAI, the Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
MASTER/FEEDER STRUCTURE. Each LifePath Fund seeks to achieve its investment
objective by investing all of its assets in a corresponding LifePath Master
Portfolio of MIP. The Funds and other entities investing in a Master Portfolio
are each liable for all obligations of the Master Portfolio. However, the risk
of a Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIP itself is
unable to meet its obligations. Accordingly, the Trust's Board of Trustees
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
23
<PAGE>
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Board believes may be available through investment in the Master Portfolio may
not be fully achieved. In addition, given the relative novelty of the
master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Organization and Management of the Funds" in the
Prospectus for additional description of the Funds' and Master Portfolios'
expenses and management.
Each Fund may withdraw its investment in the corresponding Master Portfolio
only if the Trust's Board of Trustees determines that such action is in the best
interests of such Fund and its shareholders. Upon such withdrawal, the Board
would consider alternative investments, including investing all of the Fund's
assets in another investment company with the same investment objective as the
Fund or hiring an investment adviser to manage the Fund's assets in accordance
with the investment policies described below with respect to the Master
Portfolio.
The investment objective and other fundamental policies of a Master Portfolio
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Master Portfolio's outstanding interests. See "Investment
Objectives" and "Investment Policies" in the Prospectus. Whenever a Fund, as an
interestholder of a Master Portfolio, is requested to vote on any matter
submitted to interestholders of the Master Portfolio, the Fund will hold a
meeting of its shareholders to consider such matters. The Fund will cast its
votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If a Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the corresponding Fund may elect to change its objective
or policies to correspond to those of the Master Portfolio. The Fund may also
elect to redeem its interests in the Master Portfolio and either seek a new
investment company with a matching objective in which to invest or retain its
own investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. Each Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible. See "Investment Objectives and Policies" in the Prospectus for
additional information regarding the Funds' and the Master Portfolios'
investment objectives and policies.
MANAGEMENT ARRANGEMENTS
Investment Adviser. BGFA provides investment advisory services to each
------------------
LifePath Master Portfolio. For providing investment advisory services, BGFA is
entitled to receive a monthly fee of 0.55% of each LifePath Master Portfolio's
average daily net assets. The Master Portfolios' Advisory Contract is subject
to annual approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Master
Portfolio, provided that in either event the continuance also is approved by a
majority of MIP's
24
<PAGE>
Board of Trustees who are not "interested persons" (as defined in the 1940 Act)
of MIP or BGFA, by vote cast in person at a meeting called for the purpose of
voting on such approval. As to each Master Portfolio, the applicable Advisory
Contract is terminable without penalty, on 60 days' written notice, by either
party and will terminate automatically, as to the relevant Master Portfolio, in
the event of its assignment (as defined in the 1940 Act).
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA") with and into an affiliate of Wells Fargo Institutional Trust
Company ("WFITC"), the former custodian to the Funds. BGFA is now a subsidiary
of WFITC which, effective January 1, 1996, changed its name to Barclays Global
Investors, N.A. ("BGI").
For the period beginning January 1, 1996 and ended February 29, 1996, and for
the fiscal years-ended February 28, 1997 and February 28, 1998, the advisory
fees paid to BGFA by the corresponding Master Portfolio of each LifePath Fund is
shown below.
<TABLE>
<S> <C> <C> <C>
Fiscal Year - Fiscal Year -
1/1/96- 2/29/96 Ended 2/28/97 Ended 2/28/98
---------------- ---------------------- ----------------------
Master Portfolio
- - -------------------------
LifePath 2000 Master $ 99,511 $ 689,347 $ 689,347
Portfolio
LifePath 2010 Master $ 86,919 $ 757,505 $ 757,505
Portfolio
LifePath 2020 Master $ 141,075 $1,149,160 $1,149,160
Portfolio
LifePath 2030 Master $ 93,240 $ 714,647 $ 714,647
Portfolio
LifePath 2040 Master $ 148,324 $1,154,337 $1,154,337
Portfolio
</TABLE>
Prior to January 1, 1996, Wells Fargo Bank, N.A. ("Wells Fargo Bank") provided
investment advisory services to each Master Portfolio.
For the fiscal year-ended February 28, 1995 and the period beginning March 1,
1995 and ended December 31, 1995, the advisory fees paid to Wells Fargo Bank by
the corresponding Master Portfolio of each LifePath Fund is shown below.
<TABLE>
<S> <C> <C>
Fiscal Year - 3/31/95-
Master Portfolio Ended 2/28/95 12/31/95
- - ------------------------- ----------------------- -------------------------
LifePath 2000 Master $217,676 $ 363,537
Portfolio
LifePath 2010 Master $158,218 $ 312,434
Portfolio
LifePath 2020 Master $252,413 $ 520,296
Portfolio
LifePath 2030 Master $156,397 $ 343,850
Portfolio
LifePath 2040 Master $189,121 $ 503,315
Portfolio
</TABLE>
SUB-INVESTMENT ADVISER. Prior to January 1, 1996 WFNIA provided sub-investment
----------------------
advisory services to each Master Portfolio. As of January 1, 1996, the Funds,
no longer retain a sub-investment adviser.
For the fiscal year-ended February 28, 1995 and for the period beginning March
1, 1995 and ended December 31, 1995, Wells Fargo Bank paid sub-advisory fees to
WFNIA as follows:
25
<PAGE>
<TABLE>
<S> <C> <C>
Fiscal Year - 3/1/95 -
Master Portfolio Ended 2/28/95 12/31/95
- - ----------------------- -------------------------- ---------
LifePath 2000 Master $159,494 $ 261,344
Portfolio
LifePath 2010 Master $115,647 $ 224,903
Portfolio
LifePath 2020 Master $184,341 $ 374,802
Portfolio
LifePath 2030 Master $114,426 $ 247,703
Portfolio
LifePath 2040 Master $138,511 $ 361,673
Portfolio
</TABLE>
CO-ADMINISTRATORS. The Trust has engaged Wells Fargo Bank and Stephens to
-----------------
provide certain administration services. Pursuant to a Co-Administration
Agreement with the Trust, Wells Fargo Bank and Stephens provide as
administrative services, among other things: (i) general supervision of the
operation of the Trust and the Funds, including coordination of the services
performed by the investment adviser, transfer and dividend disbursing agent,
custodian, shareholder servicing agent(s), independent auditors and legal
counsel; (ii) general supervision of regulatory compliance matters, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions, and preparation of proxy
statements and shareholder reports for the Funds; and (iii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Trust's officers and Board of Trustees. Stephens also
furnishes office space and certain facilities required for conducting the
business of the Trust together with those ordinary clerical and bookkeeping
services that are not being furnished by the Trust's investment adviser.
Stephens also pays the compensation of the Trust's Trustees, Officers and
employees who are affiliated with Stephens. For providing such services, Wells
Fargo Bank and Stephens are entitled to a combined all-in fee of 0.10% of each
Funds average daily net assets. Wells Fargo Bank has contracted with Investors
Bank & Trust Company ("IBT") to provide certain sub-administration services in
connection with its co-administration services to the Trust. Prior to February
1, 1997, Stephens served as sole administrator to the Trust.
For the fiscal years ended February 28, 1995, February 29, 1996 and February
28, 1997, the Funds paid administration and co-administration fees to Stephens
as follows:
<TABLE>
<S> <C> <C> <C>
FYE FYE FYE
2/29/95 2/29/96 2/28/97
Fund Fees Paid Fees Paid Fees Paid
- - ---------- ------------------ -------------------- ------------------
LifePath $ 39,834 $ 84,548 $ 92,243
2000 Fund
LifePath $ 28,945 $ 72,832 $ 81,180
2010 Fund
LifePath $ 46,153 $120,505 $135,162
2020 Fund
LifePath $ 28,565 $ 79,564 $ 89,938
2030 Fund
LifePath $ 34,460 $118,468 $164,384
2040 Fund
</TABLE>
For the period beginning February 1, 1997 and ended February 28, 1997, the
Funds paid administration fees to Well Fargo Bank and for the fiscal year-ended
February 28, 1998, the Funds paid administration fees to Wells Fargo Bank and
Stephens as follows:
26
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
Ended 2/28/98
2/1/97-2/28/97 Fees Paid
-------------------------
Fund Fees Paid Wells Fargo Stephens
- - ------------------- -------------------------- -------------------------
<S> <C> <C> <C>
LifePath 2000 Fund $39,834
LifePath 2010 Fund $28,945
LifePath 2020 Fund $46,153
LifePath 2030 Fund $28,565
LifePath 2040 Fund $34,460
</TABLE>
Under the Co-Administration Agreement, Wells Fargo Bank and Stephens have
agreed to assume the operating expenses of each LifePath Fund and a pro rata
share of the operating expenses of each LifePath Master Portfolio, except for
advisory fees, expenses in connection with securities purchases, sales or other
related transactions, extraordinary expenses and fees and expenses payable
pursuant to certain service contracts, as described in the Prospectus.
DISTRIBUTION PLANS. The following information supplements and should be read
------------------
in conjunction with the Prospectus Section entitled "Operation and Management of
the Funds -- Distributor."
As indicated in the Prospectus, Class A, Class B and Class C shares of the
LifePath Funds have each adopted a Distribution Plan (the "Plans") under Section
12(b) of the 1940 Act and Rule 12b-1 thereunder. The Plans were adopted by the
Board of Trustees, including a majority of the Trustees 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 "Qualified Trustees").
Under the Plans and pursuant to a Distribution Agreement with Stephens, the
Funds may pay the Distributor, as compensation for distribution-related
services, monthly fees at annual rates of up to 0.25% of the average daily net
assets of the Class A shares of each Fund and 0.75% of the average daily net
assets of the Class B and Class C shares of each Fund offering such shares. The
actual fee payable to the Distributor is determined, within such limit, from
time to time by mutual agreement between the Trust 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 NASD
Conduct Rules. The Distributor may enter into selling agreements with one or
more selling agents 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 a Fund's shares attributable to them. 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.
Each Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the Trustees of the Trust and the Qualified
Trustees. Any Distribution Agreement related to the Plans also must be approved
by such vote of the Trustees and the
27
<PAGE>
Qualified Trustees. The Distribution Agreement terminates automatically if
assigned, and may be terminated at any time, without payment of any penalty, by
a vote of a majority of the outstanding voting securities of the Fund involved.
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 involved, and no material amendments to the Plans may be
made except by a majority of both the Trustees of the Trust and the Qualified
Trustees.
Each Plan requires that the Treasurer of the Trust shall provide to the
Trustees, and the Trustees 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 Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
For the fiscal year-ended February 28, 1998, the Class A and Class B shares of
the Funds paid to Stephens as compensation for distribution related services the
amounts shown below. All of the compensation to underwriters was retained by
Wells Fargo Securities Inc.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectuses Brochures Underwriters
- - ------------------------ ----------------- ----------------- -------------- ----------------------
<S> <C> <C> <C> <C>
LifePath 2000 Fund N/A N/A
Class A $ $
Class B $ $
LifePath 2010 Fund N/A N/A
Class A $ $
Class B $ $
LifePath 2020 Fund N/A N/A
Class A $ $
Class B $ $
LifePath 2030 Fund N/A N/A
Class A $ $
Class B $ $
LifePath 2040 Fund N/A N/A
Class A $ $
Class B $ $
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Wells Fargo Bank acts as the shareholder
------------------------------
servicing agent ("Agent") for Class A, Class B and Class C shares of the Funds
pursuant to a Shareholder Servicing Agreement and the related Shareholder
Servicing Plans. Wells Fargo Bank, as Agent, has agreed to perform certain
shareholder liaison services such as answering shareholder inquiries regarding
account status and history, and the manner in which purchases, exchanges and
redemptions of Fund shares may be made. For the services provided pursuant to a
Shareholder Servicing Agreement, shareholder servicing agents are entitled to
receive a monthly fee at the annual rate of up to 0.20% of the average daily
value of each Fund's shares beneficially owned by customers of the Shareholder
Servicing Agent.
For the fiscal year-ended February 28, 1998, Class A and Class B shares of the
Funds paid shareholder servicing fees to Wells Fargo Bank as follows:
28
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Paid
Fund Class A Class B
- - -------- -------------- --------------
<S> <C> <C>
LifePath 2000 Fund $ $
LifePath 2010 Fund $ $
LifePath 2020 Fund $ $
LifePath 2030 Fund $ $
LifePath 2030 Fund $ $
</TABLE>
SELLING GROUP AGREEMENT. Wells Fargo Securities Inc., ("WFSI") an interested
-----------------------
person (as such term is defined in Section 2(a)(19) of the 1940 Act) of the
Trust, acts as a Selling Agent for Class A, Class B and Class C shares of the
Funds pursuant to a Selling Group Agreement with Stephens authorized pursuant to
the Shareholder Servicing Plans. As a Selling Agent, WFSI has an indirect
financial interest in the operation of the Plans. The Board of Trustees believes
that it is reasonably likely that the Plans will benefit the Funds and their
shareholders because the Plans authorize the relationship with WFSI, and WFSI
has previously developed distribution channels and relationships with the types
of business and corporate customers that the Funds are designed to serve. These
relationships and distribution channels are believed by the Board of Trustees to
be responsible for significantly increased Fund assets and corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
CUSTODIAN. IBT currently acts as custodian to each Fund and Master Portfolio.
---------
The principal business address of IBT is 200 Clarendon Street, Boston, MA 02116.
IBT is not entitled to receive a fee for providing custodial services so long as
it is entitled to receive fees from Wells Fargo Bank for providing sub-
administration services to the Funds. The custodian, among other things,
maintains a custody account or accounts in the name of the Funds, receives and
delivers all assets for the Funds upon purchase and upon sale or maturity;
collects and receives all income and other payments and distributions on account
of the assets of the Funds. IBT will also act as securities lending agent on
behalf of the Funds. Prior to October 21, 1996, BGI was custodian of each Fund's
investments. For its services as custodian, BGI was not entitled to receive a
fee so long as BGFA received fees for providing advisory services to the Master
Portfolios.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as the Trust's
--------------------------------------
transfer and dividend disbursing agent and performs such services at 525 Market
Street, San Francisco, California 94163. Wells Fargo Bank is entitled to receive
from the Trust for its services as transfer and dividend disbursing agent, a
monthly fee at the annual rate of 0.10% of each Fund's average daily net assets.
29
<PAGE>
For the fiscal year-ended February 28, 1998, the Trust paid dividend
disbursing agency fees to Wells Fargo Bank as follows:
<TABLE>
<CAPTION>
FUND Fees Paid
- - ----------------------- --------------------------
<S> <C>
LifePath 2000 Fund $
LifePath 2010 Fund $
LifePath 2020 Fund $
LifePath 2030 Fund $
LifePath 2040 Fund $
</TABLE>
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be useful
in reviewing the performance of such Fund or Class of shares and for providing a
basis for comparison with investment alternatives. The yield of a Fund and the
yield of a Class of shares in a Fund, however, may not be comparable to the
yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
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.
30
<PAGE>
Average Annual Total Return for the Applicable Period Ended February 28,
------------------------------------------------------------------------
1998/1/
- - ----
<TABLE>
<CAPTION>
Five Three One
Inception/2/ Year Year Year
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
LifePath 2000
Class A 11.76% 12.35% 13.42% 18.79%
Class B* 11.82% 12.54% 13.96% 19.57%
LifePath 2010
Class A 16.15% N/A 20.24% 22.31%
Class B* 16.37% N/A 21.05% 23.26%
LifePath 2020
Class A 15.82% 20.31% 22.28% 36.62%
Class B* 15.91% 20.63% 23.06% 38.40%
LifePath 2030
Class A 15.57% 15.85% 21.29% 23.57%
Class B* 15.74% 16.22% 22.13% 24.41%
LifePath 2040
Class A 38.80% N/A N/A 18.74%
Class B* 39.99% N/A N/A 19.53%
Class C** 40.53% N/A N/A 23.53%
</TABLE>
- - ---------------
/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: LifePath 2000 ___________ __, 19__; LifePath 2010
___________ __, 19__; LifePath 2020 ___________ __, 19__; LifePath 2030
___________ __, 19__; LifePath 2040 ___________ __, 19__. The actual
inception date of each Class may differ from the inception date of the
corresponding Fund.
/3/ Performance shown is for the applicable period ended June 30, 1997.
* Class B shares commenced operations on March 3, 1998.
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
31
<PAGE>
Fund dividends and capital gain distributions are reinvested, without reflecting
the effect of any sales charge that would be paid by an investor, and is not
annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1997/1/
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three
Inception/2/ Year Year
-------------- -------------- ------------
<S> <C> <C> <C>
LifePath 2000
Class A 123.89% 78.88% 45.89%
Class B 124.85% 80.50% 48.01%
LifePath 2010
Class A 107.48% N/A 73.85%
Class B 110.74% N/A 77.36%
LifePath 2020
Class A 190.01% 152.03% 82.85%
Class B 191.59% 155.48% 86.36%
LifePath 2030
Class A 182.18% 108.71% 78.43%
Class B 185.10% 112.02% 82.18%
LifePath 2040
Class A 160.21% N/A N/A
Class B 166.77% N/A N/A
Class C 169.77% N/A 23.53%
</TABLE>
- - ---------------
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: LifePath 2000 ___________ __, 19__; LifePath 2010
___________ __, 19__; LifePath 2020 ___________ __, 19__; LifePath 2030
___________ __, 19__; LifePath 2040 ___________ __, 19__. The actual
inception date of each Class may differ from the inception date of the
corresponding Fund.
/3/ Performance shown is for the applicable period ended June 30, 1997.
From time to time and only to the extent the comparison is appropriate for a
Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the
32
<PAGE>
Dow Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by World Gold Council),
Bank Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of the Funds or a Class also may be compared to that of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and other
types of literature, only to the extent the information is appropriate for the
Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
33
<PAGE>
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may discuss in advertising and other types of literature that
a Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management (formerly "Wells Fargo
Investment Management"), a division of Wells Fargo Bank, is listed in the top
100 by Institutional Investor magazine in its July 1997 survey "America's Top
300 Money Managers." This survey ranks money managers in several asset
categories. The Company may also disclose in advertising and other types of
sales literature the assets and categories of assets under management by the
Company's investment adviser. The Company may also disclose in advertising and
other types of sales literature the assets and categories of assets under
management by a fund's investment adviser or sub-adviser and the total amount of
assets and mutual fund assets managed by Wells Fargo Bank. As of December 31,
1997, Wells Fargo Bank and its affiliates provided investment Advisory services
for approximately $62 billion of assets of individual, trusts, estates and
institutions and $23 billion of mutual fund assets.
The Company also may discuss in advertising and other types of literature the
features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account,
California Tax-Free Money Market Checking Account,
34
<PAGE>
Money Market Access Account and California Tax-Free Money Market Access Account
(collectively, the "Sweep Accounts"). Such advertisements and other literature
may include, without limitation, discussions of such terms and conditions as the
minimum deposit required to open a Sweep Account, a description of the yield
earned on shares of the Funds through a Sweep Account, a description of any
monthly or other service charge on a Sweep Account and any minimum required
balance to waive such service charges, any overdraft protection plan offered in
connection with a Sweep Account, a description of any ATM or check privileges
offered in connection with a Sweep Account and any other terms, conditions,
features or plans offered in connection with a Sweep Account. Such advertising
or other literature may also include a discussion of the advantages of
establishing and maintaining a Sweep Account, and may include statements from
customers as to the reasons why such customers have established and maintained a
Sweep Account.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The securities of the LifePath Master Portfolios, including covered call
options written by a LifePath Master Portfolio, are valued at the last sale
price on the securities exchange or national securities market on which such
securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the most recent bid prices. Portfolio securities which are traded
primarily on foreign securities exchanges generally are valued at the preceding
closing values of such securities on their respective exchanges, except that
when an occurrence subsequent to the time a value was so established is likely
to have changed such value, then the fair value of those securities is
determined by consideration of other factors by or under the direction of MIP's
Board of Trustees or its delegates. Short-term investments are carried at
amortized cost, which
35
<PAGE>
approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by MIP's Board of Trustees.
Restricted securities, as well as securities or other assets for which market
quotations are not readily available, or are not valued by a pricing service
approved by MIP's Board of Trustees, are valued at fair value as determined in
good faith by or under the direction of MIP's Board of Trustees or its
delegates. MIP's Board of Trustees reviews the method of valuation on a current
basis. Restricted securities that are, or are convertible into, securities of
the same class of securities for which a public market exists usually are valued
at market value less the same percentage discount at which such securities were
purchased. This discount may be revised periodically if BGFA believes that the
discount no longer reflects the value of the restricted securities. Restricted
securities not of the same class as securities for which a public market exists
usually are valued initially at cost. Any subsequent adjustment from cost is
based upon considerations deemed relevant by or under the direction of MIP's
Board of Trustees or its delegates.
Any assets or liabilities initially expressed in terms of foreign currency are
translated into dollars using information provided by pricing entities, such as
Morgan Stanley Capital International or Gelderman Data Service, or at a quoted
market exchange rate as may be determined to be appropriate by BGFA. Forward
currency contracts are valued at the current cost of offsetting the contract.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of net asset value does not take
place contemporaneously with the determination of prices of the foreign
securities held by a LifePath Master Portfolio. In addition, foreign securities
held by a LifePath Master Portfolio may be traded actively in securities markets
which are open for trading on days when the Master Portfolio does not determine
its net asset value. Accordingly, there may be occasions when a LifePath Master
Portfolio does not calculate its net asset value but when the value of such
Master Portfolio's portfolio securities is affected by such trading activity.
Fixed-income securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Service") approved by MIP's Board of Trustees. The
Service may use available market quotations, employ electronic data processing
techniques and/or a matrix system to determine valuations. The Service's
procedures are reviewed by MIP's officers under the general supervision of MIP's
Board of Trustees.
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of each LifePath
Master Portfolio's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business. The Fund is
open for business each day the NYSE is open for trading (a "Business Day").
Currently, the NYSE is closed
36
<PAGE>
on New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
(each a "Holiday"). When any Holiday falls on a weekend, the NYSE typically is
closed on the weekday immediately before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the form
of securities that are permissible investments for the Fund as described in the
Prospectus. For further information about this form of payment please contact
Stephens. In connection with an in-kind securities payment, the Fund will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed (other than customary weekend and holiday closings, or during which
trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Company may also redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the Fund
for any losses sustained by reason of the failure of a shareholders to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Taxes." The Prospectus describes generally the
tax treatment of distributions by the Funds. This section of the SAI includes
additional information concerning income taxes.
General. The Company intends to qualify each Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and thus the provisions of the Code applicable to regulated investment companies
will generally be applied to each Fund, rather than to the Company as a whole.
In addition, net capital gain, net investment income, and operating expenses
will be determined separately for each Fund. As a regulated investment company,
each Fund will not be taxed on its net investment income and capital gains
distributed to its shareholders.
37
<PAGE>
Qualification as a regulated investment company under the Code requires, among
other things, that (a) each Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Funds intend to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund (other
----------
than to the extent of its tax-exempt interest income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
Each Fund intends to actually or be deemed to distribute substantially all of
its net investment income and net capital gains by the end of each calendar year
and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses on
----------------------------
the sale of portfolio securities by a Fund will generally be capital gains and
losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (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.
38
<PAGE>
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Fund will be required to "mark to market"
its positions in "Section 1256 contracts," which generally include regulated
futures contracts and listed options. In this regard, Section 1256 contracts
will be deemed to have been sold at market value. Sixty percent (60%) of any
net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the mark-to-market regime, will generally be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify
as designated hedges are excepted from the mark-to-market and 60%/40% rules.
Under Section 988 of the Code, a Fund will generally recognize ordinary income
or loss to the extent gain or loss realized on the disposition of portfolio
securities is attributable to changes in foreign currency exchange rates. In
addition, gain or loss realized on the disposition of a foreign currency forward
contract, futures contract, option or similar financial instrument, or of
foreign currency itself, will generally be treated as ordinary income or loss.
The Funds will attempt to monitor Section 988 transactions, where applicable, to
avoid adverse tax impact.
Offsetting positions held by a regulated investment company involving certain
financial forward, futures or options contracts may be considered, for tax
purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any,
the results with respect to the regulated investment company may differ.
Generally, to the extent the straddle rules apply to positions established by
the regulated investment company, losses realized by the regulated investment
company may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to
39
<PAGE>
that position. For this purpose, a constructive sale occurs when the Fund enters
into one of the following transactions with respect to the same or substantially
identical property: (i) a short sale; (ii) an offsetting notional principal
contract; or (iii) a futures or forward contract.
If a Fund purchases shares in a "passive foreign investment company" ("PFIC"),
the Fund may be subject to federal income tax and an interest charge imposed by
the IRS upon certain distributions from the PFIC or the Fund's disposition of
its PFIC shares. If the Fund invests in a PFIC, the Fund intends to make an
available election to mark-to-market its interest in PFIC shares. Under the
election, the Fund will be treated as recognizing at the end of each taxable
year the difference, if any, between the fair market value of its interest in
the PFIC shares and its basis in such shares. In some circumstances, the
recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
federal income tax or the interest charge with respect to its interest in the
PFIC.
Foreign Taxes. Income and dividends received by a Fund from sources within
-------------
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, the Funds do not expect to be eligible to make such an election.
Capital Gain Distributions. Distributions which are designated by a Fund as
--------------------------
capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The Internal
Revenue Service has published a notice describing temporary Regulations to be
issued pursuant to such authority, permitting the application of the
40
<PAGE>
reduced capital gains tax rates to pass-through entities such as the Funds.
Under the Regulations to be issued, if a regulated investment company designates
a dividend as a capital gain dividend for a taxable year ending on or after May
7, 1997, then such regulated investment company may also designate the dividends
as one of two classes: a 20% rate gain distribution, or a 28% rate gain
distribution. Thus, noncorporate shareholders of the Funds may qualify for the
reduced rate of tax on capital gain dividends paid by the Funds, subject only to
the limitation as to the maximum amounts which may be designated in each class.
Such maximum amount for each class is determined by performing the computation
required by Section 1(h) of the Code as if the Fund were an individual whose
ordinary income is subject to a marginal rate of at least 28%.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. The foregoing loss disallowance rule does not apply to losses
realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the
amount of tax payable by an individual or corporation will be affected by a
combination of tax laws covering, for example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
Corporate Shareholders. Corporate shareholders of the Funds may be eligible
----------------------
for the dividends-received deduction on dividends distributed out of a Fund's
net investment income
41
<PAGE>
attributable to dividends received from domestic corporations, which, if
received directly by the corporate shareholder, would qualify for such
deduction. A Fund's distribution attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to the dividends.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in-kind) paid or credited to an individual Fund
shareholder, unless the shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a credit or refund on the shareholder's federal income tax
return. An investor must provide a valid TIN upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Funds
(described below) are generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by a Fund to a nonresident alien individual, foreign trust (i.e., trust which a
U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
42
<PAGE>
Tax-Deferred Plans. The shares of the Funds are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement plans.
Other Matters. Investors should be aware that the investments to be made by a
-------------
Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by a Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal income tax considerations
generally affecting investments in a Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
and foreign taxes.
CAPITAL STOCK
As of May 30, 1997, the shareholders identified below were known by the Trust
to own 5% or more of a LifePath Fund or 5% or more of the Class A, Class B and
Class C shares of a LifePath Fund's outstanding shares in the following
capacity:
<TABLE>
<CAPTION>
Name and Address Percentage Percentage Capacity
Name of Fund of Shareholder of Class of Fund Owned
- - ----------------------------- ---------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
LifePath 2000 Wells Fargo Bank 15.61% 15.61% Record
Class A FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163
LifePath 2000 Stephens Inc. 100% N/A Record
Class B 111 Center Street
Little Rock, AR 72201
LifePath 2010 Wells Fargo Bank 26.91% 26.75% Record
Class A FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163
LifePath 2010 Dorothy J. Duncan 5.70% N/A Beneficial
Class B 11707 Judy Ave.
Bakersfield, CA 93312
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Name and Address Percentage Percentage Capacity
Name of Fund of Shareholder of Class of Fund Owned
- - ----------------------------- ---------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
LifePath 2010 Stephens Inc. 7.15% N/A Record
Class B FBO Account 77379072
P.O. Box 34127
Little Rock, AR 72203
LifePath 2010 Stephens Inc. 11.39% N/A Record
Class B FBO Account 74037384
P.O. Box 34127
Little Rock, AR 72203
LifePath 2010 Stephens Inc. 14.47% N/A Record
Class B FBO Account 76167325
P.O. Box 34127
Little Rock, AR 72203
LifePath 2020 Wells Fargo Bank 32.09% 31.71% Record
Class A FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163
LifePath 2020 Herman Goldstein 6.97% N/A Beneficial
Class B 150 Font Blvd. Apt. 5-L
San Francisco, CA 94132
LifePath 2020 Fred S. and Barbara J. Holmes 24.66% N/A Beneficial
Class B 801 A Street
Taft, CA 93268
LifePath 2030 Wells Fargo Bank 35.25% 34.72% Record
Class A FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163
LifePath 2030 Stephens Inc. 6.88% N/A Record
Class B FBO Account 75910760
P.O. Box 34127
Little Rock, AR 72203
LifePath 2030 Stephens Inc. 8.17% N/A Record
Class B FBO Account 75922715
P.O. Box 34127
Little Rock, AR 72203
LifePath 2030 Nirmal S. Gill 8.21% N/A Beneficial
Class B 3404 McKee Road
Bakersfield, CA 93313
LifePath 2030 Fred S. and Barbara J. Holmes 9.17% N/A Beneficial
Class B 801 A Street
Taft, CA 93268
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Name and Address Percentage Percentage Capacity
Name of Fund of Shareholder of Class of Fund Owned
- - ----------------------------- ---------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
LifePath 2030 Stephens Inc. 38.98% N/A Beneficial
Institutional Class 111 Center Street
Little Rock, AR 72201
LifePath 2030 Charles Schwab & Co, Inc. 61.02% N/A Record
Institutional Class Special Custody A/C FEBO
Customers
101 Montgomery Street
San Francisco, CA 94104
LifePath 2040 Wells Fargo Bank 38.05% 37.52% Record
Class A FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163
LifePath 2040 Stephens Inc. 6.77% N/A Beneficial
Class B FBO Account 74023594
P.O. Box 34127
Little Rock, AR 72203
LifePath 2040 Stephens Inc. 80.22 N/A Beneficial
Class C 111 Center Street
Little Rock, AR 72201
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
PORTFOLIO TRANSACTIONS
Since each Fund invests all of its assets in a corresponding Master Portfolio
of MIP, set forth below is a description of the Master Portfolios' policies
governing portfolio securities transactions.
Purchases and sales of equity securities on a securities exchange usually are
effected through brokers who charge a negotiated commission for their services.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in
light of generally prevailing rates. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Stephens
or Barclays Global Investors Services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are
45
<PAGE>
purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with MIP as a principal in the purchase and sale of
portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. The Master
Portfolios may purchase securities from underwriting syndicates of which
Stephens or BGFA 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 MIP's Board of Trustees.
MIP 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 MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is MIP's policy to obtain the best overall
terms 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. BGFA generally seeks
reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided
46
<PAGE>
by a broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
BROKERAGE COMMISSIONS. For the fiscal years-ended February 29, 1996, February
---------------------
28, 1997 and February 28, 1998, the corresponding Master Portfolio of each
LifePath Fund paid the dollar amounts of brokerage commissions indicated below.
None of these brokerage commissions were paid to affiliated brokers.
<TABLE>
<CAPTION>
Commissions Paid
Master Portfolio 1996 1997 1998
- - -------------------------------------------- ------------------ --------------- ----------------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 8,311 $ 3,639 $
LifePath 2010 Master Portfolio $12,053 $ 8,837 $
LifePath 2020 Master Portfolio $29,666 $12,383 $
LifePath 2030 Master Portfolio $33,786 $ 6,927 $
LifePath 2040 Master Portfolio $71,608 $28,047 $
</TABLE>
SECURITIES OF REGULAR BROKER DEALERS. As of February 28, 1998, the
------------------------------------
corresponding Master Portfolio of each LifePath Fund owned securities of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act, as
follows:
<TABLE>
<CAPTION>
MASTER PORTFOLIO Broker/Dealer Amount
- - ------------------------------------------------- -------------------------------------- ------------------
<S> <C> <C>
LifePath 2000 Salomon Inc. $ 6,619
Goldman Sachs $15,000,000
Morgan Stanley $ 12,499
LifePath 2010 Salomon Inc. $ 52,065
Goldman Sachs $13,000,000
Morgan Stanley $ 81,431
LifePath 2020 Salomon Inc. $ 101,238
Goldman Sachs $27,000,000
Morgan Stanley $ 164,756
LifePath 2030 Salomon Inc. $ 78,209
Goldman Sachs $15,000,000
Morgan Stanley $ 126,124
LifePath 2040 Salomon Inc. $ 144,347
Goldman Sachs $19,000,000
Morgan Stanley $ 227,313
</TABLE>
INFORMATION ABOUT THE FUNDS
Each Fund share, irrespective of class, has one vote and when issued and paid
for in accordance with the terms of the offering, is fully paid and non-
assessable. Shares have no preemptive, subscription or conversion rights and are
freely transferable. Each share of a class
47
<PAGE>
has identical voting rights with respect to the Fund of which it is a part
provided that there are certain matters which affect one class but not another.
Currently, the only such matters are the existence of a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act and Shareholder Servicing Plans with
respect to the Class A and Class B shares, but not the Institutional Class
shares. On this matter the shareholders of the affected class vote as a class.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
trust, such as the Trust, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Fund affected by such matter. Rule 18f-2 further provides that a Fund shall be
deemed to be affected by a matter unless it is clear that the interests of such
Fund in the matter are identical or that the matter does not affect any interest
of such Fund. However, the Rule exempts the selection of independent accountants
and the election of Trustees from the separate voting requirements of the Rule.
Each Fund sends annual and semi-annual financial statements to all its
shareholders of record.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, independent auditors, serves as each Fund's independent auditors. KPMG
Peat Marwick LLP provides audit services, tax return preparation and assistance
and consultation in connection with review of certain Securities and Exchange
Commission filings.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the fiscal year-ended February 28, 1997 for each LifePath
Fund of the Trust and each corresponding LifePath Master Portfolio of MIP are
hereby incorporated by reference to the Trust's Annual Reports, as filed with
the SEC on April 27, 1998. The portfolio of investments, audited financial
statements and independent auditors' report for the Funds are attached to all
SAIs delivered to shareholders or prospective shareholders.
The Trusts' Annual Report may be obtained by calling 1-800-222-8222.
48
<PAGE>
APPENDIX
The following is a description of certain ratings assigned by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc.
and IBCA Limited ("IBCA"):
S&P
Bond Ratings
- - ------------
AAA
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the "AAA" (Prime Grade) category.
Commercial Paper Rating
- - -----------------------
The designation "A-1" by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an "A-2" designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".
A-1
<PAGE>
APPENDIX
The following is a description of certain ratings assigned by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc.
and IBCA Limited ("IBCA"):
S&P
Bond Ratings
- - ------------
AAA
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the "AAA" (Prime Grade) category.
Commercial Paper Rating
- - -----------------------
The designation "A-1" by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an "A-2" designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".
A-1
<PAGE>
MOODY'S
Bond Ratings
- - ------------
Aaa
Bonds which are rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what generally are known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A
Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the "Aaa" category. The modifier 1
indicates a ranking for the security in the higher end of a rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.
Commercial Paper Rating
- - -----------------------
The rating Prime-1 ("P-1") is the highest commercial paper rating assigned by
Moody's. Issuers of "P-1" paper must have a superior capacity for repayment of
short-term promissory
A-2
<PAGE>
obligations, and ordinarily will be evidenced by leading market positions in
well established industries, high rates of return on funds employed, 2000
capitalization structures with moderate reliance on debt and ample asset
protection, broad margins in earnings coverage of fixed financial charges and
high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH
Bond Ratings
- - ------------
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated "AA" are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
A-3
<PAGE>
BBB
Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
- - ------------------
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payments, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
DUFF
Bond Ratings
- - ------------
AAA
A-4
<PAGE>
Bonds rated "AAA" are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA
Bonds rated "AA" are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated "A" have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated "BBB" are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except "AAA") to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
- - -----------------------
The rating "Duff-1" is the highest commercial paper rating assigned by Duff.
Paper rated "Duff-1" is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated "Duff-2" is regarded as having good
certainty of timely payment, good access to capital markets and sound liquidity
factors and Company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
- - --------------------------
Obligations rated "AAA" by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated "AA" by IBCA. Capacity
for timely repayment of principal and interest is substantial. Adverse changes
in business, economic or financial conditions may increase investment risk
albeit not very significantly.
A-5
<PAGE>
Commercial Paper and Short-Term Ratings
- - ---------------------------------------
The designation "A1" by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated "A1+" are
supported by the highest capacity for timely repayment. Obligations rated "A2"
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
International and U.S. Bank Ratings
- - -----------------------------------
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
A-6
<PAGE>
STAGECOACH LIFEPATH/TM/ FUNDS
LIFEPATH OPPORTUNITY/TM/ FUND
LIFEPATH 2010/TM/ FUND
LIFEPATH 2020/TM/ FUND
LIFEPATH 2030/TM/ FUND
LIFEPATH 2040/TM/ FUND
INSTITUTIONAL CLASS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
JUNE 30, 1998
This Statement of Additional Information ("SAI"), contains additional
information about Institutional Class shares of the LifePath Opportunity Fund,
LifePath 2010 Fund, LifePath 2020 Fund, LifePath 2030 Fund and LifePath 2040
Fund (the "LifePath Funds" or the "Funds") of Stagecoach Trust (the "Trust").
This SAI is not a prospectus and should be read in conjunction with the current
Prospectus describing the Funds, also dated June 30, 1998, as it may be revised
from time to time. A copy of the Funds' Prospectus may be obtained without
charge by writing Stephens Inc. ("Stephens") at 111 Center Street, Little Rock,
Arkansas 72201, or by calling at 1-800-643-9691.
As described in the Prospectus, each Fund invests all of its assets in a
separate master portfolio (each, a "Master Portfolio") of Master Investment
Portfolio ("MIP"), an open-end, series investment company. Each Fund has the
same investment objective as the corresponding Master Portfolio. Barclays Global
Fund Advisors ("BGFA") serves as investment adviser to each Master Portfolio.
References to the investments, investment policies and risks of the Funds,
unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the corresponding Master
Portfolios.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Management Policies.................................................... 1
Additional Permitted Investment Activities....................................................... 3
Management of the Trust.......................................................................... 19
Management Arrangements.......................................................................... 23
Redemption of Shares............................................................................. 25
Determination of Net Asset Value................................................................. 26
Dividends, Distributions and Taxes............................................................... 27
Capital Stock.................................................................................... 33
Performance Information.......................................................................... 34
Portfolio Transactions........................................................................... 38
Information About the Funds...................................................................... 40
Counsel.......................................................................................... 41
Independent Auditors............................................................................. 41
Financial Information............................................................................ 41
Appendix......................................................................................... A-1
</TABLE>
i
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Each LifePath Fund currently invests all of its assets in a LifePath Master
Portfolio of MIP with a corresponding investment objective. The LifePath
Opportunity Fund, which changed its name from the LifePath 2000 Fund on June 24,
1998, invests its assets in the LifePath 2000 Master Portfolio. Whenever a Fund,
as a Master Portfolio's interestholder, is requested to vote on matters
submitted to interestholders of the Master Portfolio, the Funds will hold a
meeting of its shareholders to consider such matters and the Fund will cast its
votes in proportion to the votes received from Fund shareholders. Each LifePath
Fund will vote Master Portfolio shares for which it receives no voting
instructions in the same proportion as the votes received from Fund
shareholders. If a Master Portfolio's investment objective or policies are
changed, the corresponding LifePath Fund could subsequently change its objective
or policies to correspond to those of the Master Portfolio. The Fund may also
elect to redeem its interests in the Master Portfolios and either seek a new
investment company with a substantially matching objective in which to invest or
retain its own investment advisor to manage the Fund's portfolio in accordance
with its objective. In the latter case, the Fund's inability to find a
substitute investment company in which to invest or equivalent management
services could adversely affect shareholders' investments in the Fund.
Fundamental Investment Policies
- - -------------------------------
Each LifePath Fund seeks to achieve its investment objective by investing
all of its assets in a corresponding master portfolio of Master Investment
Portfolio ("MIP"), with a substantially similar investment objective and
policies. Each Fund has adopted the following fundamental investment
restrictions, which cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the outstanding voting securities of such Fund.
The LifePath Funds may not:
(1) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, more than 5% of the value of
a Fund's total assets would be invested in the securities of any one issuer or
such Fund would hold more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of such Fund's total assets may be invested
without regard to these limitations, and provided that each Fund may invest all
of its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as the Fund, without regard to the limitations set forth in this
paragraph (1);
(2) invest in commodities, except that each Fund or Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, and futures
contracts, including those relating to indices and options on futures contracts
or indices;
(3) purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Fund or Master Portfolio
may purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate;
1
<PAGE>
(4) borrow money, except as permitted by applicable law (for purposes of
this investment restriction, a Fund's or Master Portfolio's entry into options,
forward contracts, futures contracts, including those relating to indices and
options on futures contracts or indices shall not constitute borrowing to the
extent certain segregated accounts are established and maintained by the Fund or
Master Portfolio as described in "Risk Factors");
(5) make loans, except as permitted by applicable law, including through the
purchase of debt obligations and the entry into repurchase agreements, each Fund
or Master Portfolio may lend its portfolio securities in an amount not to exceed
one-third of the value of its total assets;
(6) underwrite securities of other issuers, except to the extent that the
purchase of securities directly from the issuer thereof or from an underwriter
for an issuer and the later disposition of such securities in accordance with a
Fund's investment program may be deemed to be an underwriting;
(7) invest 25% or more of their total assets in the securities of issuers in
any particular industry or group of closely related industries, except that, in
the case of each Fund or Master Portfolio, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(8) issue senior securities, except as permitted by applicable law;
(9) purchase securities on margin, although each Fund or Master Portfolio
may make margin deposits in connection with transactions in options, forward
contracts, futures contracts, including those relating to indices, and options
on futures contracts or indices;
(10) make investments for the purpose of exercising control or
management.
Non-Fundamental Investment Policies
-----------------------------------
The Funds have adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Trustees of the Company at any time
and without shareholder approval.
(1) The Funds 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.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), each Fund may invest all of its assets in the securities of a
single open-end management investment
2
<PAGE>
company with substantially the same fundamental investment objective, policies
and limitations as the Fund. A decision to so invest all of its assets may,
depending on the circumstances applicable at the time, require approval of
shareholders.
(2) The Funds may not invest or hold more than 15% of their respective net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) The Funds may lend portfolio securities to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-third of
the respective Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Funds will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
The Funds do not invest in the following types of derivatives that generally
are considered to be potentially volatile: capped floaters, leveraged floaters,
range floaters, dual index floaters or inverse floaters. Additionally, the Funds
will not invest in securities whose interest rate reset provisions materially
lag short-term interest rates, such as Cost of Funds Index Floaters or other
derivative instruments the Funds consider to have the potential for excessive
volatility.
The LifePath Funds contain both "strategic" and "tactical" components, with
the strategic component weighted more heavily than the tactical component. The
strategic component of the Funds evaluates the risk that investors, on average,
may be willing to accept given their investment time horizons. The strategic
component thus determines the changing investment risk level of each LifePath
Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Fund without regard to horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes.
Set forth below are descriptions of certain investments and additional
investment policies of the Funds.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
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
3
<PAGE>
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.
Fixed-Income Securities
-----------------------
Investors should be aware that even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. Long-term securities are
affected to a greater extent by interest rates than shorter-term securities. The
values of fixed-income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. Once the rating of a
portfolio security has been changed to a rating below investment grade, the
particular LifePath Master Portfolio considers all circumstances deemed relevant
in determining whether to continue to hold the security. Certain securities that
may be purchased by the LifePath Master Portfolio, such as those rated "Baa" by
Moody's Investors Service, Inc. ("Moody's") and "BBB" by Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") and Duff & Phelps
Credit Rating Co. ("Duff"), may be subject to such risk with respect to the
issuing entity and to greater market fluctuations than certain lower yielding,
higher rated fixed-income securities. Securities which are rated "Baa" by
Moody's are considered medium-grade obligations; they are neither highly
protected nor poorly secured, and are considered by Moody's to have speculative
characteristics. Securities rated "BBB" by S&P are regarded as having adequate
capacity to pay interest and repay principal, and, while such debt securities
ordinarily exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for securities in this category than in higher
rated categories. Securities rated "BBB" by Fitch are considered investment
grade and of satisfactory
4
<PAGE>
credit quality; however, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on these securities and,
therefore, impair timely payment. Securities rated "BBB" by Duff have below
average protection factors but nonetheless are considered sufficient for prudent
investment. If a security held by an LifePath Master Portfolio is downgraded to
a rating below investment grade, such Master Portfolio may continue to hold the
security until such time as BGFA determines it to be advantageous for the
LifePath Master Portfolio to sell the security. If such a policy would cause an
LifePath Master Portfolio to have 5% or more of its net assets invested in
securities that have been downgraded below investment grade, the Master
Portfolio promptly would seek to dispose of such securities in an orderly
manner.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations. Each Fund
may purchase floating- and variable-rate demand notes and bonds. These
obligations may have stated maturities in excess of thirteen months, but they
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable-rate demand notes include
master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes may fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if BGFA determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which such Fund may invest. BGFA, on behalf of each Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Fund's portfolio. No Fund
will invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.
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Foreign Currency Transactions
-----------------------------
The Funds may enter into foreign currency exchange contracts in order to
protect against uncertainty in the level of future foreign exchange rates. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into the interbank market
conducted between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold to
protect a Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
Because the Funds may invest in securities denominated in currencies other
than the U.S. dollar and may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, they may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates influence values within a Fund from the perspective of
U.S. investors. Changes in foreign currency exchange rates may also affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities, and any net investment income and gains to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
Investments in foreign securities also involve certain inherent risks, such
as political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Investments in foreign securities and forward
contracts may also be subject to withholding and other taxes imposed by foreign
governments. With respect to certain foreign countries, there is also a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investments in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
------------
Each Fund may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although each Fund
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<PAGE>
will generally purchase securities with the intention of acquiring them, a Fund
may dispose of securities purchased on a when-issued, delayed-delivery or a
forward commitment basis before settlement when deemed appropriate by the
advisor. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience such fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
Each Fund will segregate cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Futures Contracts
-----------------
The LifePath Master Portfolios may use futures contracts as a hedge against
the effects of interest rate changes or changes in the market value of the
stocks comprising the index in which such Master Portfolio invests. In managing
their cash flows, these Master Portfolios also may use futures contracts as a
substitute for holding the designated securities underlying the futures
contract. A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity at a specific price on a specific
date in the future. At the time it enters into a futures transaction, a Master
Portfolio is required to make a performance deposit (initial margin) of cash or
liquid securities in a segregated account in the name of the futures broker.
Subsequent payments of "variation margin" are then made on a daily basis,
depending on the value of the futures position which is continually "marked to
market."
A Master Portfolio may engage only in futures contract transactions
involving (i) the sale of a futures contract (i.e., short positions) to hedge
the value of securities held by such Master Portfolio; (ii) the purchase of a
futures contract when such Master Portfolio hold a short position having the
same delivery month (i.e., a long position offsetting a short position); or
(iii) the purchase of a futures contract to permit the Master Portfolio to, in
effect, participate in the market for the designated securities underlying the
futures contract without actually owning such designated securities. When a
Master Portfolio purchases a futures contract, it will create a segregated
account consisting of cash or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.
If a Master Portfolio enters into a short position in a futures contract as
a hedge against anticipated adverse market movements and the market then rises,
the increase in the value of the hedged securities will be offset, in whole or
in part, by a loss on the futures contract. If instead a Master Portfolio
purchases a futures contract as a substitute for investing in the designated
underlying securities, a Master Portfolio experiences gains or losses that
correspond generally to gains or losses in the underlying securities. The latter
type of futures contract transactions permits a Master Portfolio to experience
the results of being fully invested in a particular asset class, while
maintaining the liquidity needed to manage cash flows into or out of the Master
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Portfolio (e.g., from purchases and redemptions of Master Portfolio shares).
Under normal market conditions, futures contract positions may be closed out on
a daily basis. The LifePath Master Portfolios expect to apply a portion of their
cash or cash equivalents maintained for liquidity needs to such activities.
Transactions by a Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio. Similarly, in employing futures contracts as a
substitute for purchasing the designated underlying securities, there is a risk
that the performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.
In order to comply with undertakings made by the Master Portfolio pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolios will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of the Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
Future Developments
-------------------
Each LifePath Master Portfolio may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by
such Master Portfolio or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with a LifePath
Master Portfolio's investment objective and legally permissible for the Master
Portfolio. Before entering into such transactions or making any such investment,
a LifePath Master Portfolio would provide appropriate disclosure in its
Prospectus or this SAI.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at
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<PAGE>
least equal to the current market value of the securities loaned; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
within five business days; (3) the Fund will receive any interest or dividends
paid on the loaned securities; and (4) the aggregate market value of securities
loaned will not at any time exceed one third of the total assets of the
Fund.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested in short-term money market instruments.
In connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. A Fund will not enter into any security
lending arrangement having a duration longer than one year. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral. In either case, a Fund could experience delays
in recovering securities or collateral or could lose all or part of the value of
the loaned securities. When a Fund lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on the collateral received from the borrower or from the investment of
cash collateral in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur. A Fund may pay a portion of the interest or fees earned
from securities lending to a borrower or placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with BGFA, Stephens Inc.
or any of their affiliates.
Money Market Instruments and Temporary Investments
--------------------------------------------------
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1" or "A-1--" by S&P, or, if unrated, of comparable quality as determined
by BGFA, as investment advisor; and (iv) repurchase agreements. The Funds also
may invest in short-term U.S. dollar-denominated obligations of foreign banks
(including U.S. branches) that at the time of investment: (i) have more than $10
billion, or the equivalent in other currencies, in total assets; (ii) are among
the 75 largest foreign banks in the world as determined on the basis of assets;
(iii) have branches or agencies in the United States; and (iv) in the opinion of
BGFA, as investment advisor, are of comparable quality to obligations of U.S.
banks which may be purchased by the Funds.
Letters of Credit. Certain of the debt obligations (including certificates
of participation, commercial paper and other short-term obligations) which the
Funds may purchase may be backed by an unconditional and irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of BGFA, are of comparable quality to issuers of
other permitted investments of the Fund may be used for letter of credit-backed
investments.
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Repurchase Agreements. A Fund may enter into repurchase agreements, wherein
the seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed upon time and price. A Fund may enter into repurchase
agreements only with respect to securities that could otherwise be purchased by
the Fund. All repurchase agreements will be fully collateralized at 102% based
on values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, a Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
A Fund will only enter into repurchase agreements with primary
broker/dealers and commercial banks that meet guidelines established by the
Board of Trustees and that are not affiliated with the investment advisor. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by BGFA.
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). 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 the Federal National Mortgage
Association (" FNMA"). CMOs are structured into multiple classes, with each
class bearing a different stated maturity. Payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class;
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<PAGE>
investors holding the longer maturity classes receive principal only after the
first class has been retired. As new types of mortgage-related securities are
developed and offered to investors, the advisor will, consistent with a Fund's
investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
There are risks inherent in the purchase of mortgage-related securities. For
example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lessor or greater rate than expected. To the extent
that the advisor's assumptions about prepayments are inaccurate, these
securities may expose the Funds to significantly greater market risks than
expected.
Nationally Recognized Statistical Ratings Organizations ("NRSROs")
------------------------------------------------------------------
The ratings of Moody's, S&P, Duff, Fitch 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.
Options Trading
---------------
The Funds may purchase or sell options on individual securities or options
on indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to justify exercise. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in
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<PAGE>
the case of a call option and may be required to pay a price in excess of
current market value in the case of a put option.
Call and Put Options on Specific Securities. The Funds may invest in call
and put options on a specific security. A call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, an underlying
security at the exercise price at any time during the option period. Conversely,
a put option gives the purchaser of the option the right to sell, and obligates
the writer to buy, an underlying security at the exercise price at any time
during the option period. Investments by a Fund in off-exchange options will be
treated as "illiquid" and therefore subject to the Fund's policy of not
investing more than 15% of its net assets in illiquid securities.
The Funds may write covered call option contracts and secured put options as
BGFA deems appropriate. A covered call option is a call option for which the
writer of the option owns the security covered by the option. Covered call
options written by a Fund expose the Fund during the term of the option (i) to
the possible loss of opportunity to realize appreciation in the market price of
the underlying security or (ii) to possible loss caused by continued holding of
a security which might otherwise have been sold to protect against depreciation
in the market price of the security. If a Fund writes a secured put option, it
assumes the risk of loss should the market value of the underlying security
decline below the exercise price of the option. The aggregate value of the
securities subject to options written by a Fund will not exceed 25%. The use of
covered call options and securities put options will not be a primary investment
technique of the Funds, and they are expected to be used infrequently. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, a Fund would be in a worse position than it would
have been had the foregoing investment techniques not been used.
Each Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. A Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Each Fund may buy put and call options and write covered call and secured
put options. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option.
The Funds may also write covered call and secured put options from time to
time as the advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying
security
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<PAGE>
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the difference between the closing price of the index at
the time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple.
The Funds will write call options only if they are "covered." In the case of
a call option on a security or currency, the option is "covered" if a Fund owns
the instrument underlying the call or has an absolute and immediate right to
acquire that instrument without additional cash consideration (or, if additional
cash consideration is required, cash, U.S. Government securities or other liquid
high grade debt obligations, in such amount are held in a segregated account by
the Fund's custodian) upon conversion or exchange of other securities held by
it. For a call option on an index, the option is covered if a Fund maintains
with its custodian a diversified portfolio of securities comprising the index or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same instrument or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian. The Funds will write put options only if
they are "secured" by liquid assets maintained in a segregated account by the
Funds' custodian in an amount not less than the exercise price of the option at
all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction is ordinarily effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase
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<PAGE>
transaction, will not be able to sell the underlying instrument (in the case of
a covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned instrument or
currency is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline or appreciation in
the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by a Fund expires on the stipulated
expiration date or if a Fund enters into a closing purchase transaction, it
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the net premium received when the option is sold) and the deferred credit
related to such option is eliminated. If an option written by a Fund is
exercised, the proceeds of the sale are increased by the net premium originally
received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange, may be absent for reasons that include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not be adequate at all times to handle current trading
value; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund is likely to be unable to
control losses by closing its position where a liquid secondary market does not
exist. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected
events.
The Funds may purchase or sell options on individual securities or options
on indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to
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<PAGE>
justify exercise. The seller of an option, on the other hand, will recognize the
premium as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option.
The Funds may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. A Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Stock Index Options. The Funds may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 25% of the value of its
net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value of
a stock index option depends upon changes to the price of all stocks comprising
the index rather than the price of a particular stock, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the price of all stocks in the index, rather than
movements in the price of a particular stock. Accordingly, successful use by a
Fund of options on stock indexes will be subject to BGFA's ability to correctly
analyze movements in the direction of the stock market generally or of
particular industry or market segments.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts.
The Funds may participate in stock index futures contracts and options on stock
index futures contracts. A futures transaction involves a firm agreement to buy
or sell a commodity or financial instrument at a particular price on a specified
future date, while an option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the
stock
15
<PAGE>
index futures contract, and the purchaser realizes a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller recognizes a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser realizes a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against an
increase in the prices of stocks that Fund intends to purchase. If a Fund is
unable to invest its cash (or cash equivalents) in stock in an orderly fashion,
a Fund may purchase a stock index futures contract to offset any increase in the
price of the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If Fund then concludes
not to invest in stock at that time, or if the price of the securities to be
purchased remains constant or increases, a Fund realizes a loss on the stock
index futures contract that is not offset by a reduction in the price of
securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The Funds may also purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the Funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
BGFA expects that an increase or decrease in the index in relation to the
strike price level would normally correlate to an increase or decrease (but not
necessarily to the same extent) in the value of a Fund's common stock portfolio
against which the option was written. Thus, any loss in the option transaction
may be offset by an increase in the value of the common stock portfolio to the
extent changes in the index correlate to changes in the value of that portfolio.
The Funds may liquidate the put options they have purchased by effecting a
closing sale transaction rather than exercising the option. This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that the Funds will be able to effect the closing sale
transaction. The Funds realize a gain from a closing sale transaction if the
price at which the transaction is effected exceeds the premium paid to purchase
the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of a Fund's net assets are
16
<PAGE>
committed to such transactions. A stock index future obligates the seller to
deliver (and the purchaser to take), effectively, an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. With respect to stock indices that are permitted investments,
the Funds intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when a
Fund seeks to close out a futures contract or a futures option position. Lack of
a liquid market may prevent liquidation of an unfavorable position.
Other Asset-Backed Securities
-----------------------------
The Funds may purchase asset-backed securities unrelated to mortgage loans.
These asset-backed securities may consist of undivided fractional interests in
pools of consumer loans or receivables held in Company. Examples include
certificates for automobile receivables (CARS) and credit card receivables
(CARDS). Payments of principal and interest on these asset-backed securities are
"passed through" on a monthly or other periodic basis to certificate holders and
are typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guaranty, or subordination. The extent of credit
enhancement varies, but usually amounts to only a fraction of the asset-backed
security's par value until exhausted. Ultimately, asset-backed securities are
dependent upon payment of the consumer loans or receivables by individuals, and
the certificate holder frequently has no recourse to the entity that originated
the loans or receivables. The actual maturity and realized yield will vary based
upon the prepayment experience of the underlying asset pool and prevailing
interest rates at the time of prepayment. Asset-backed securities are relatively
new instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities.
Other Investment Companies
--------------------------
Each LifePath Master Portfolio may invest in securities issued by other
investment companies which principally invest in securities of the type in which
the Master Portfolio invests. Under the 1940 Act, a Master Portfolio's
investment in such securities currently is limited to, subject to certain
exceptions, (i) 3% of the total voting stock of any one investment company, (ii)
5% of the Master Portfolio's net assets with respect to any one investment
company and (iii) 10% of the Master Portfolio's net assets in the aggregate.
Investments in the securities of other investment companies generally will
involve duplication of advisory fees and certain other expenses. The Fund may
also purchase shares of exchange listed closed-end funds.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the
17
<PAGE>
market for specific Rule 144A Securities may vary. Delay or difficulty in
selling such securities may result in a loss to a Fund. Privately issued or Rule
144A securities that are determined by the investment advisor to be "illiquid"
are subject to the Funds' policy of not investing more than 15% of its net
assets in illiquid securities. The investment advisor, under guidelines approved
by Board of Trustees of the Company, will evaluate the liquidity characteristics
of each Rule 144A Security proposed for purchase by a Fund on a case-by-case
basis and will consider the following factors, among others, in their
evaluation: (1) the frequency of trades and quotes for the Rule 144A Security;
(2) the number of dealers willing to purchase or sell the Rule 144A Security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the Rule 144A Security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the Rule 144A Security, the method of soliciting offers and the mechanics of
transfer).
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Warrants
--------
Each LifePath Master Portfolio may invest generally up to 5% of its net
assets at the time of purchase in warrants, except that this limitation does not
apply to warrants acquired in units or attached to securities. A warrant is an
instrument issued by a corporation which gives the holder the right to subscribe
to a specified amount of the corporation's capital stock at a set price for a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities.
MANAGEMENT OF THE TRUST
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Management of the Funds." Trustees and officers
of the Trust, together with information as to their principal business
occupations during at least the last five years, are
18
<PAGE>
shown below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Trustees who are deemed to be an
"interested person" of the Trust for purposes of the 1940 Act are indicated by
an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
--------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Trustee, Executive Vice President of Stephens;
Chairman President of Stephens Insurance Services Inc.;
and President Senior Vice President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
Thomas S. Goho, 55 Trustee Associate Professor of Finance,
P.O. Box 7285 Calloway School of Business and Accounting at
Reynolds Station Wake Forest University since 1982.
Winston-Salem, NC 27109
Peter G. Gordon, 54 Trustee Chairman and Co-Founder of Crystal Geyser Water Company and
Crystal Geyser Water Co. President of Crystal Geyser Roxane Water Company since 1977.
55 Francisco Street
San Francisco, CA 94133
Joseph N. Hankin, 57 Trustee President of Westchester Community College since 1971; Adjunct
75 Grasslands Road Professor of Columbia University Teachers College since 1976.
Valhalla, NY 10595
*W. Rodney Hughes, 71 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Trustee Private Investor; Chairman of Home Account Network, Inc.; Real
4 Beaufain Street Estate Developer; Chairman of Renaissance Properties Ltd.;
Charleston, SC 29401 President of Morse Investment Corporation; and Co- Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens, Director of Stephens Sports
Officer, Secretary Management Inc.; and Director of Capo Inc.
and Treasurer
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
For the Fiscal Year-ended February 28, 1998
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEXES
- - ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $0 $ 34,500
Trustee
R. Greg Feltus $0 0
Trustee
Thomas S. Goho $0 $ 34,500
Trustee
Peter G. Gordon $0 $ 30,500
Trustee
Joseph N. Hankin $0 $ 34,500
Trustee
W. Rodney Hughes $0 $ 33,000
Trustee
Robert M. Joses $0 $ 4,000
Trustee
J. Tucker Morse $0 $ 33,000
Trustee
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the Board
of Trustees of the Wells Fargo Fund Complex.
Trustees of the Trust are compensated annually by the Trust 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 Trust, Stagecoach Funds, Inc. 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"). MasterWorks Funds
Inc., Master Investment Portfolio, and Managed Series Investment Trust together
form a separate fund complex (the "BGFA Fund Complex"). Each of the Trustees and
Officers of the Trust serves in the identical capacity as trustees and officers
or as directors 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 Trustees are compensated by other companies
and trusts within a fund complex for their services as
20
<PAGE>
Directors to such companies and trusts. Currently the Trustees do not receive
any retirement benefits or deferred compensation from the Trust or any other
member of each fund complex.
As the date of this SAI, the Trustees Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
MASTER/FEEDER STRUCTURE. Each LifePath Fund seeks to achieve its investment
objective by investing all of its assets in a corresponding LifePath Master
Portfolio of MIP. The LifePath Opportunity Fund invests its assets in the
LifePath 2000 Master Portfolio. The Funds and other entities investing in a
Master Portfolio are each liable for all obligations of the Master Portfolio.
However, the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and MIP itself is unable to meet its obligations. Accordingly, the Trust's Board
of Trustees believes that neither a Fund nor its shareholders will be adversely
affected by investing Fund assets in the Master Portfolio. However, if a mutual
fund or other investor withdraws its investment from the Master Portfolio, the
economic efficiencies (e.g., spreading fixed expenses among a larger asset base)
that the Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Fund's and Master Portfolio's expenses and
management.
Each Fund may withdraw its investment in the corresponding Master Portfolio
only if the Trust's Board of Trustees determines that such action is in the best
interests of such Fund and its shareholders. Upon such withdrawal, the Board
would consider alternative investments, including investing all of the Fund's
assets in another investment company with the same investment objective as the
Fund or hiring an investment adviser to manage the Fund's assets in accordance
with the investment policies described below with respect to the Master
Portfolio.
The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies" in the Prospectus. Whenever a Fund, as an
interestholder of a Master Portfolio, is requested to vote on any matter
submitted to interestholders of the Master Portfolio, the Fund will hold a
meeting of its shareholders to consider such matters. The Fund will cast its
votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If a Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the corresponding Fund may elect to change its objective
or policies to correspond to those of the Master Portfolio. The Fund may also
elect to redeem its interests in the Master Portfolio and either seek a new
investment company with a matching objective in which to invest or retain its
own investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
21
<PAGE>
adversely affect shareholders' investments in the Fund. Each Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible. See "Investment Objectives and Policies" in the Prospectus for
additional information regarding the Funds' and the Master Portfolios'
investment objectives and policies.
MANAGEMENT ARRANGEMENTS
INVESTMENT ADVISER. BGFA provides investment advisory services to each
------------------
LifePath Master Portfolio. For providing investment advisory services, BGFA is
entitled to receive a monthly fee of 0.55% of each LifePath Master Portfolio's
average daily net assets. The Master Portfolios' Advisory Contract is subject to
annual approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Master
Portfolio, provided that in either event the continuance also is approved by a
majority of MIP's Board of Trustees who are not "interested persons" (as defined
in the 1940 Act) of MIP or BGFA, by vote cast in person at a meeting called for
the purpose of voting on such approval. As to each Master Portfolio, the
applicable Advisory Contract is terminable without penalty, on 60 days' written
notice, by either party and will terminate automatically, as to the relevant
Master Portfolio, in the event of its assignment (as defined in the 1940 Act).
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA") with and into an affiliate of Wells Fargo Institutional Trust
Company ("WFITC"), the former custodian to the Funds. BGFA is now a subsidiary
of WFITC which, effective January 1, 1996, changed its name to Barclays Global
Investors, N.A.("BGI").
For the period beginning March 1, 1995 and ended December 31, 1995, the
corresponding Master Portfolios of each LifePath Fund paid to Wells Fargo Bank
and for all other periods indicated below the corresponding Master Portfolio of
each LifePath Fund paid to BGFA, the following advisory fees:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MASTER PORTFOLIO 3/1/95-12/31/95 1/1/96-2/29/96 2/28/97 2/28/98
- - ---------------- --------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
LifePath 2000 Master Portfolio $363,537 $ 99,511 $ 689,347 $ 656,142
LifePath 2010 Master Portfolio $312,434 $ 86,919 $ 757,505 $1,018,984
LifePath 2020 Master Portfolio $520,296 $141,075 $1,149,160 $1,572,634
LifePath 2030 Master Portfolio $343,850 $ 93,240 $ 714,647 $1,048,152
LifePath 2040 Master Portfolio $503,315 $148,324 $1,154,337 $1,767,632
</TABLE>
INVESTMENT SUB-ADVISER. Prior to January 1, 1996 WFNIA provided investment
----------------------
sub-advisory services to each Master Portfolio. As of January 1, 1996, the
Funds, no longer retain an investment sub-adviser.
For the period beginning March 1, 1995 and ended December 31, 1995, Wells
Fargo Bank paid sub-advisory fees to WFNIA as follows:
<TABLE>
<CAPTION>
MASTER PORTFOLIO 3/1/95-12/31/95
- - ---------------- ---------------
<S> <C>
LifePath 2000 Master Portfolio $261,344
LifePath 2010 Master Portfolio $224,903
LifePath 2020 Master Portfolio $374,802
LifePath 2030 Master Portfolio $247,703
LifePath 2040 Master Portfolio $361,673
</TABLE>
CO-ADMINISTRATORS. The Trust has engaged Wells Fargo Bank and Stephens Inc.
-----------------
("Stephens") to provide certain administration services. Pursuant to a
Co-Administration Agreement with the Trust, Wells Fargo Bank and Stephens
provide as administration services, among other things: (i) general supervision
of the operation of the Company and the Funds,
22
<PAGE>
including coordination of the services performed by the investment adviser,
transfer and dividend disbursing agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel; (ii) general supervision of
regulatory compliance matters, including the compilation of information for
documents such as reports to, and filings with, the U.S. Securities and Exchange
Commission ("SEC") and state securities commissions, and preparation of proxy
statements and shareholder reports for the Funds; and (iii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Trust's officers and Board of Trustees. Stephens also
furnishes office space and certain facilities required for conducting the
business of the Trust together with those ordinary clerical and bookkeeping
services that are not being furnished by the Trust's investment adviser.
Stephens also pays the compensation of the Trust's Trustees, Officers and
employees who are affiliated with Stephens. For providing such services, Wells
Fargo Bank and Stephens are entitled to a combined all-in fee of 0.10% of each
Fund's average daily net assets. Stephens has contracted with Investors Bank &
Trust Company ("IBT") to provide certain sub-administration services in
connection with its co-administration services to the Trust. Prior to February
1, 1997, Stephens served as sole administrator to the Trust.
For the periods indicated below, the Funds paid to Stephens the following
administration and co-administration fees:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FUND 2/29/95 2/29/96 2/28/97
- - ---- ---------- ---------- ----------
<S> <C> <C> <C>
LifePath Opportunity Fund $ 39,834 $ 84,548 $ 92,243
LifePath 2010 Fund $ 28,945 $ 72,832 $ 81,180
LifePath 2020 Fund $ 46,153 $ 120,505 $ 135,162
LifePath 2030 Fund $ 28,565 $ 79,564 $ 89,938
LifePath 2040 Fund $ 34,460 $ 118,468 $ 164,384
</TABLE>
For the period begun February 1, 1997 and ended February 28, 1997, the Funds
paid administration fees to Well Fargo Bank, and for the fiscal year ended
February 28, 1998, the Funds paid administration fees to Wells Fargo Bank and
Stephens as follows:
<TABLE>
<CAPTION>
YEAR ENDED
2/28/98
----------
FUND 2/1/97-2/28/97 WELLS FARGO STEPHENS
- - ---- -------------- ----------- --------
<S> <C> <C> <C>
LifePath Opportunity Fund $39,834 $14,649 $ 58,594
LifePath 2010 Fund $28,945 $17,577 $ 70,309
LifePath 2020 Fund $46,153 $32,004 $160,021
LifePath 2030 Fund $28,565 $23,443 $ 93,771
LifePath 2040 Fund $34,460 $45,597 $182,388
</TABLE>
Under the Co-Administration Agreement, Wells Fargo Bank and Stephens have
agreed to assume the operating expenses of each LifePath Fund and a pro rata
share of the operating expenses of each LifePath Master Portfolio, except for
advisory fees, expenses in connection
23
<PAGE>
with securities purchases, sales or other related transactions, extraordinary
expenses and fees and expenses payable pursuant to certain service contracts, as
described in the Prospectus.
DISTRIBUTOR. Stephens distributes the Institutional Class shares of the
-----------
LifePath Funds. It does not receive a fee for this service.
CUSTODIAN. IBT currently acts as custodian to each Fund and Master
---------
Portfolio. The principal business address of IBT is 200 Clarendon Street,
Boston, MA 02116. IBT is not entitled to receive a fee for providing custodial
services so long as it is entitled to receive fees from Wells Fargo Bank for
providing sub-administration services to the Funds. The custodian, among other
things, maintains a custody account or accounts in the name of the Funds,
receives and delivers all assets for the Funds upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Funds. IBT will also act as securities lending
agent on behalf of the Funds. Prior to October 21, 1996, BGI was custodian of
each Fund's investments. For its services as custodian, BGI is not entitled to
receive a fee so long as BGFA receives fees for providing advisory services to
the Master Portfolios.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as the Trust's
--------------------------------------
transfer and dividend disbursing agent and performs such services at 525 Market
Street, San Francisco, California 94105. Wells Fargo Bank is entitled to receive
from the Trust for its services as transfer and dividend disbursing agent, a
monthly fee at the annual rate of 0.10% of each Fund's average daily net
assets.
For the fiscal year ended February 28, 1998, the Trust paid dividend
disbursing agency fees across all classes to Wells Fargo Bank as follows:
<TABLE>
<CAPTION>
FUND FEES PAID
---- ---------
<S> <C>
LifePath Opportunity Fund $ 73,243
LifePath 2010 Fund $ 87,886
LifePath 2020 Fund $ 160,021
LifePath 2030 Fund $ 117,214
LifePath 2040 Fund $ 227,985
</TABLE>
REDEMPTION OF SHARES
The Fund is open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Under the 1940 Act, the Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed (other than customary weekend and holiday closings, or during which
trading is restricted, or during which as determined
24
<PAGE>
by the SEC by rule or regulation) an emergency exists as a result of which
disposal or valuation of portfolio securities is not reasonably practicable, or
for such periods as the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to make
full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
DETERMINATION OF NET ASSET VALUE
LifePath Master Portfolios. The securities of the LifePath Master
--------------------------
Portfolios, including covered call options written by a LifePath Master
Portfolio, are valued at the last sale price on the securities exchange or
national securities market on which such securities primarily are traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the most recent
bid prices. Portfolio securities which are traded primarily on foreign
securities exchanges generally are valued at the preceding closing values of
such securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities is determined by consideration of
other factors by or under the direction of MIP's Board of Trustees or its
delegates. Short-term investments are carried at amortized cost, which
approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by MIP's Board of Trustees.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by or under the direction of MIP's Board of Trustees or
its delegates. MIP's Board of Trustees reviews the method of valuation on a
current basis. Restricted securities that are, or are convertible into,
securities of the same class of securities for which a public market exists
usually are valued at market value less the same percentage discount at which
such securities were purchased. This discount may be revised periodically if
BGFA believes that the discount no longer reflects the value of the restricted
securities. Restricted securities not of the same class as securities for which
a public market exists usually are valued initially at cost. Any subsequent
adjustment from cost is based upon considerations deemed relevant by or under
the direction of MIP's Board of Trustees or its delegates.
Any assets or liabilities initially expressed in terms of foreign currency
are translated into dollars using information provided by pricing entities, such
as Morgan Stanley Capital
25
<PAGE>
International or Gelderman Data Service, or at a quoted market exchange rate as
may be determined to be appropriate by BGFA. Forward currency contracts are
valued at the current cost of offsetting the contract. Because of the need to
obtain prices as of the close of trading on various exchanges throughout the
world, the calculation of net asset value does not take place contemporaneously
with the determination of prices of the foreign securities held by a LifePath
Master Portfolio. In addition, foreign securities held by a LifePath Master
Portfolio may be traded actively in securities markets which are open for
trading on days when the Master Portfolio does not determine its net asset
value. Accordingly, there may be occasions when a LifePath Master Portfolio does
not calculate its net asset value but when the value of such Master Portfolio's
portfolio securities is affected by such trading activity.
Fixed-income securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Service") approved by MIP's Board of Trustees. The
Service may use available market quotations, employ electronic data processing
techniques and/or a matrix system to determine valuations. The Service's
procedures are reviewed by MIP's officers under the general supervision of MIP's
Board of Trustees.
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of each LifePath
Master Portfolio's shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Taxes." The Prospectus describes generally the
tax treatment of distributions by the Funds. This section of the SAI includes
additional information concerning income taxes.
General. The Company intends to qualify each Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and thus the provisions of the Code applicable to regulated investment companies
will generally be applied individually to each Fund, rather than to the Company
as a whole. Accordingly, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each Fund will not be taxed on its net investment income and capital
gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) the Fund
26
<PAGE>
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income(which, for this purpose
includes net short-term capital gains) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Funds intend to pay out substantially all
of their net investment income and net realized capital gains (if any) for each
year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income for a taxable year 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.
Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of the Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to each Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that a
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to minimize
recognition by its investors (such as a Fund) of interest, dividends, gains or
losses without a corresponding distribution.
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 Master Portfolio Investments. Except as otherwise provided
----------------------------------------
herein, gains and losses realized by a Master Portfolio on the sale of portfolio
securities generally will be capital gains and losses. Such gains and losses
ordinarily will be long-term capital gains and losses if the securities have
been held by the Master Portfolio for more than one year at the time of
disposition of the securities.
27
<PAGE>
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Master
Portfolio 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 Master Portfolio held the debt
obligation.
If an option granted by a Master Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Master Portfolio of the option
from its holder, the Master Portfolio 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 Master Portfolio in the closing transaction. Some realized capital
losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by a Master Portfolio
pursuant to the exercise of a call option granted by it, the Master Portfolio
will add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Master Portfolio will be required to "mark
to market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed non-equity options. In this regard,
Section 1256 contracts will be deemed to have been sold at market value. Under
Section 1256 of the Code, sixty percent (60%) of any net gain or loss realized
on all dispositions of Section 1256 contracts, including deemed dispositions
under the mark-to-market regime, will generally be treated as long-term capital
gain or loss, and the remaining forty percent (40%) will be treated as
short-term capital gain or loss. Transactions that qualify as designated hedges
are excepted from the mark-to-market and 60%/40% rules.
Under Section 988 of the Code, a Master Portfolio will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Master Portfolios will attempt to monitor Section 988
transactions, where applicable, to avoid adverse federal income tax impact to
the Funds and their shareholders.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256 of the Code,
described above. If a regulated investment company were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The regulated investment company may make one or
more elections with respect to "mixed straddles." Depending upon which election
is made, if any, the results with respect to the regulated investment company
may differ. Generally, to the extent the straddle rules apply to positions
established by a regulated
28
<PAGE>
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If a Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master Portfolio
enters into one of the following transactions with respect to the same or
substantially identical property: (i) a short sale; (ii) an offsetting notional
principal contract; or (iii) a futures or forward contract.
If a Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Master Portfolio may be subject to federal income tax and
an interest charge imposed by the Internal Revenue Service ("IRS") upon certain
distributions from the PFIC or the Master Portfolio's disposition of its PFIC
shares. If the Master Portfolio invests in a PFIC, the Master Portfolio intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Master Portfolio will be treated as recognizing at the
end of each taxable year the difference, if any, between the fair market value
of its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Master Portfolio
will adjust its basis in the PFIC shares by the amount of income (or loss)
recognized. Although such income (or loss) will be taxable to the Master
Portfolio as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Master Portfolio will not be subject to federal income tax or the
interest charge with respect to its interest in the PFIC, if it makes the
available election.
Foreign Taxes. Income and dividends received by a Fund (through a Master
-------------
Portfolio) from foreign securities and gains realized by the Fund on the
disposition of foreign securities may be subject to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Although in some circumstances
a regulated investment company can elect to "pass through" foreign tax credits
to its shareholders, the Funds do not expect to be eligible to make such an
election.
Capital Gain Distributions. Distributions which are designated by a Fund as
--------------------------
capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do not exceed the Fund's actual net capital
gain for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in a
written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers generally were taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers generally are now taxed at
29
<PAGE>
a maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months, and a maximum rate of 25% for
certain gains attributable to the sale of real property. The 1997 Act retains
the treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The IRS has
published a notice applicable to pass-through entities until regulations are
promulgated. Pursuant to the notice, each Fund is permitted (but not required)
to designate the portion of its capital gain distributions, if any, to which the
28%, 25% and 20% rates described in the preceding paragraph apply, based on the
net amount of each class of capital gain realized by the Fund determined as if
the Fund is a noncorporate taxpayer. Noncorporate shareholders of the Funds may
therefore qualify for the reduced rate of tax on capital gain dividends paid by
the Funds.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges ordinarily will result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. This loss disallowance rule does not apply to losses realized
under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions"
above);
30
<PAGE>
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). Obviously, the amount
of tax payable by any taxpayer will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in-kind) paid or credited to an individual Fund
shareholder, unless the shareholder certifies that his or her taxpayer
identification number ("TIN"), which usually is his or her social security
number, provided to the Company is correct and that the shareholder is not
subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or that the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed on
the shareholder, and may be claimed as a credit against the shareholder's
federal income tax liability, if any, or otherwise will be refundable. An
investor must provide a valid TIN to the Company 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 of the Funds
(described below) generally are not subject to backup withholding.
Corporate Shareholders. Corporate shareholders of the Funds may be eligible
----------------------
for the dividends-received deduction on dividends distributed out of a Fund's
net investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. A distribution by a Fund attributable to dividends
of a domestic corporation will only qualify for the dividends-received deduction
if (i) the corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by a Fund to a nonresident alien individual, foreign trust (i.e., trust which a
U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to federal income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain generally are not subject to federal income tax
withholding.
31
<PAGE>
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations generally will be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions paid to foreign shareholders
which is subject to federal income tax withholding. Prospective investors are
urged to consult their own tax advisors regarding the application to them of the
New Regulations.
Tax-Deferred Plans. The shares of the Funds are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement
plans.
Other Matters. Investors should be aware that the investments to be made by
-------------
a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by a Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal income tax considerations
generally affecting investments in a Fund. Each investor is urged to consult his
or her tax advisor regarding specific questions as to federal, state, local and
foreign taxes.
CAPITAL STOCK
Set forth below as of May 29, 1998, is the name, address and share ownership
of each person known by the Trust to have beneficial or record ownership of 5%
or more of a LifePath Fund or 5% or more of the Institutional Class shares of a
LifePath Fund. 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:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE PERCENTAGE CAPACITY
NAME OF FUND OF SHAREHOLDER OF CLASS OF FUND OWNED
------------ ----------------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
LifePath Opportunity Stephens Inc. 100% N/A Beneficial
Institutional Class 111 Center Street
Little Rock, AR 72201
LifePath 2010 Stephens Inc. 55.90% N/A Record
Institutional Class 111 Center Street
Little Rock, AR 72201
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Charles Schwab & Co., Inc. 44.10% N/A Record
Special Custody A/C
FEBO Customers
101 Montgomery Street
San Francisco, CA 94104
LifePath 2020 Stephens Inc. 21.50% N/A Record
Institutional Class 111 Center Street
Little Rock, AR 72201
LifePath 2020 Charles Schwab & Co., Inc. 78.50% N/A Record
Institutional Class Special Custody A/C FEBO
Customers
101 Montgomery Street
San Francisco, CA 94104
LifePath 2030 Stephens Inc. 42.34% N/A Record
Institutional Class 111 Center Street
Little Rock, AR 72201
LifePath 2030 Charles Schwab & Co, Inc. 57.66% N/A Record
Institutional Class Special Custody A/C FEBO Customers
101 Montgomery Street
San Francisco, CA 94104
LifePath 2040 Stephens Inc. 97.65% N/A Record
Institutional Class 111 Center Street
Little Rock, AR 72201
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
PERFORMANCE INFORMATION
Net asset value, total return and yield quotations are computed separately
for each class of Fund shares. Because of the differences in the fees and
expenses borne by Class A and Class B shares of the Funds, the return/yield on
such shares can be expected, at any given time, to be lower than the
return/yield on Institutional Class shares. Distributions to holders of Class A
and Class B shares are reduced by the amount of distribution-related expenses
payable under the Distribution Plan for each such Class. The performance
information for the Class B shares reflects the maximum contingent deferred
sales charge for the applicable period ("CDSC").
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period
33
<PAGE>
(assuming the reinvestment of dividends and distributions), dividing by the
amount of the initial investment, taking the "n"th root of the quotient (where
"n" is the number of years in the period) and subtracting 1 from the result.
Total return is calculated by subtracting the amount of the net asset value
per share of a class at the beginning of a stated period from the net asset
value per share of a class at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the net asset value per share of a class at the beginning of the
period.
CLASS B SHARES COMMENCED OPERATIONS ON MARCH 3, 1997. THE CLASS B
PERFORMANCE INFORMATION SHOWN BELOW FOR PERIODS PRIOR TO THIS TIME, REFLECTS THE
PERFORMANCE OF THE CLASS A SHARES OF THE LIFEPATH FUNDS DURING THE APPLICABLE
PERIOD, ADJUSTED TO REFLECT CLASS B SHARE EXPENSE LEVELS IN EFFECT ON MARCH 3,
1997.
For the applicable period ended February 28, 1998, the average annual total
returns on the Institutional Class shares of the Funds were as follows:
<TABLE>
<CAPTION>
THREE ONE
FUND INCEPTION YEAR YEAR
- - ---- --------- ----- ----
<S> <C> <C> <C>
LifePath Opportunity Fund 8.67% 10.86% 12.25%
LifePath 2010 Fund 13.28% 16.72% 18.75%
LifePath 2020 Fund 16.46% 20.79% 24.27%
LifePath 2030 Fund 18.85% 24.09% 27.48%
LifePath 2040 Fund 21.01% 26.65% 31.02%
</TABLE>
The Funds may advertise the cumulative total return on a class of its
shares. Cumulative total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Cumulative total return generally
is expressed as a percentage rate which is calculated by combining the income
and principal changes for a specified period and dividing by the net asset value
per share of a class at the beginning of the period. Advertisements may include
the percentage rate of total return on a class of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.
For the applicable period ended February 28, 1998, the cumulative total
returns on the Institutional Class shares of the Funds were as follows:
<TABLE>
<CAPTION>
THREE
FUND INCEPTION YEAR
- - ---- --------- -----
<S> <C> <C>
LifePath Opportunity Fund 39.47% 36.23%
LifePath 2010 Fund 64.66% 59.03%
LifePath 2020 Fund 83.98% 76.25%
LifePath 2030 Fund 99.51% 91.08%
LifePath 2040 Fund 114.41% 103.13%
</TABLE>
As indicated in the Prospectus, the LifePath Funds may advertise certain
yield information. As, and to the extent required by the SEC, yield will be
calculated based on a 30-day (or one-
34
<PAGE>
month) period, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula: YIELD = 2[(((a-b)/cd)+1)6-1], 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
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 a Fund 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 a Fund's net investment income. For
purposes of sales literature, yield also may be calculated on the basis of the
net asset value per share rather than public offering price, provided that the
yield data derived pursuant to the calculation described above also are
presented.
From time to time, the Trust may use, in advertisements and other types of
literature, information and statements describing the LifePath Funds as the
first mutual funds to offer a flexible investment strategy designed to change
over specific time horizons.
From time to time and only to the extent the comparison is appropriate for
the LifePath Funds, the Trust may quote performance or price-earning ratios for
a class of the Funds in advertising and other types of literature as compared to
the performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
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), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index and
the Dow Jones Industrial Average are unmanaged indices of selected common stock
prices. The Funds' performance also may be compared to the performance of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of a class of the Funds will be calculated by relating net asset
value per share of a class at the beginning of a stated period to the net asset
value of the investment, assuming reinvestment of all gains, distributions and
dividends paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the Funds' past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Trust also may include,
35
<PAGE>
from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Trust 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 Trust 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 Trust also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Master
Portfolios' investment adviser or its affiliates.
From time to time the Trust may reprint, reference or otherwise use material
from magazines, newsletters, newspapers and books including, but not limited to
the Wall Street Journal, Money Magazine, Barrons, Kiplingers, Business Week,
Fortune, Forbes, the San Francisco Chronicle, the San Jose Mercury News, The New
York Times, the Los Angeles Times, the Boston Globe, the Washington Post, the
Chicago Sun-Times, Investor Business Daily, Worth, Bank Investor, American
Banker, Smart Money, the 100 Best Mutual Funds (Adams Publishing), Morningstar
or Value Line.
The Trust may use the following information in advertisements and other
types of literature, only to the extent the information is appropriate for the
Funds: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Funds or the general economic, business,
investment, or financial environment in which the Funds operate; (iii) the
effect of tax-deferred compounding on the investment returns of the Funds, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Funds (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 Funds or current or potential value with respect to the particular
industry or sector.
The Trust also may discuss in advertising and other types of literature that
the Funds have been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by a Fund. The
assigned rating would not be a recommendation to purchase, sell or hold the
Funds' shares since the rating would not comment on the market price of the
Funds' 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 Trust may compare the Funds'
36
<PAGE>
performance with other investments which are assigned ratings by NRSROs. Any
such comparisons may be useful to investors who wish to compare the Funds' 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 Trust may also
disclose in advertising and other types of sales literature the assets and
categories of assets under management by the Trust's investment adviser. The
Trust may also disclose in advertising and other types of sales literature the
assets and categories of assets under management by a Fund's investment adviser
or sub-adviser. The Trust may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank, BGFA or their affiliates. As of December 31, 1997, Wells Fargo Bank
provided investment advisory services for approximately $62 billion of assets of
individuals, trusts, estates and institutions and $23 billion of mutual fund
assets. As of April 30, 1998, BGFA and its affiliates provided investment
advisory services for approximately $575 billion of assets.
PORTFOLIO TRANSACTIONS
Since each Fund invests all of its assets in a corresponding Master
Portfolio of MIP, set forth below is a description of the Master Portfolios'
policies governing portfolio securities transactions.
Purchases and sales of equity securities on a securities exchange usually
are effected through brokers who charge a negotiated commission for their
services. Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in light of generally prevailing rates. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Stephens or Barclays Global Investors Services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with
37
<PAGE>
MIP as a principal in the purchase and sale of portfolio securities unless an
exemptive order allowing such transactions is obtained from the Commission or an
exemption is otherwise available. The Master Portfolios may purchase securities
from underwriting syndicates of which Stephens or BGFA 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 MIP's Board of Trustees.
MIP 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 MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is MIP's policy to obtain the best overall
terms 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. BGFA generally seeks
reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to a Master
Portfolio in any transaction may be less favorable than that available from
another broker/dealer if the difference is reasonably justified by other aspects
of the portfolio execution services offered.
BROKERAGE COMMISSIONS. For the fiscal years ended February 28, 1996,
---------------------
February 29, 1997 and February 28, 1998, the corresponding Master Portfolio of
each LifePath Fund paid the dollar amounts of brokerage commissions indicated
below. None of these brokerage commissions were paid to affiliated brokers.
38
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MASTER PORTFOLIO 2/28/96 2/2897 2/28/95
- - ---------------- ---------- ---------- ----------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 8,311 $ 3,639 $ 9,361
LifePath 2010 Master Portfolio $ 12,053 $ 8,837 $ 15,306
LifePath 2020 Master Portfolio $ 29,666 $12,383 $ 29,153
LifePath 2030 Master Portfolio $ 33,786 $ 6,927 $ 28,908
LifePath 2040 Master Portfolio $71,608 $28,047 $ 94,717
</TABLE>
SECURITIES OF REGULAR BROKER DEALERS. As of February 28, 1998, the
------------------------------------
corresponding Master Portfolio of each LifePath Fund owned securities of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act, as
follows:
<TABLE>
<CAPTION>
MASTER PORTFOLIO BROKER/DEALER AMOUNT
---------------- ------------- ------
<S> <C> <C>
LifePath 2000 Master Portfolio Goldman Sachs $ 5,000,000
J.P. Morgan $ 41,347
Lehman Bros. Holdings $ 31,531
Merrill Lynch $ 37,928
Morgan Stanley $ 68,590
LifePath 2010 Master Portfolio Goldman Sachs $ 9,000,000
J.P. Morgan $ 189,288
Lehman Bros. Holdings $ 50,450
Merrill Lynch $ 198,514
Morgan Stanley $ 328,681
LifePath 2020 Master Portfolio Goldman Sachs $ 14,000,000
J.P. Morgan $ 426,854
Lehman Bros. Holdings $ 126,125
Merrill Lynch $ 475,032
Morgan Stanley $ 752,033
LifePath 2030 Master Portfolio Goldman Sachs $ 9,000,000
J.P. Morgan $ 362,085
Lehman Bros. Holdings $ 132,431
Merrill Lynch $ 407,477
Morgan Stanley $ 650,094
LifePath 2040 Master Portfolio Goldman Sachs $ 15,000,000
J.P. Morgan $ 609,091
Lehman Bros. Holdings $ 182,881
Merrill Lynch $ 687,859
Morgan Stanley $ 1,606,436
</TABLE>
INFORMATION ABOUT THE FUNDS
Each Fund share, irrespective of class, has one vote and when issued and
paid for in accordance with the terms of the offering, is fully paid and
non-assessable. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Each share of a class
39
<PAGE>
has identical voting rights with respect to the Fund of which it is a part
provided that there are certain matters which affect one class but not another.
Currently, the only such matters are the existence of a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act and Shareholder Servicing Plans with
respect to the Class A and Class B shares, but not the Institutional Class
shares. On this matter the shareholders of the affected class vote as a class.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
trust, such as the Trust, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Fund affected by such matter. Rule 18f-2 further provides that a Fund shall be
deemed to be affected by a matter unless it is clear that the interests of such
Fund in the matter are identical or that the matter does not affect any interest
of such Fund. However, the Rule exempts the selection of independent accountants
and the election of Trustees from the separate voting requirements of the Rule.
Each Fund sends annual and semi-annual financial statements to all its
shareholders of record.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, independent auditors, have been selected as each Fund's independent
auditors. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain Securities
and Exchange Commission filings.
FINANCIAL INFORMATION
The audited financial statements, including the portfolio of investments and
independent auditors' report for the fiscal year ended February 28, 1998 for
each LifePath Fund of the Trust and each corresponding LifePath Master Portfolio
of MIP are hereby incorporated by reference to the Trust's Annual Reports, as
filed with the SEC on May 1, 1998. The audited financial statements for the
Funds are attached to all SAIs delivered to shareholders or prospective
shareholders.
40
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
BOND RATINGS
AAA
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the "AAA" (Prime Grade) category.
COMMERCIAL PAPER RATING
The designation "A-1" by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an "A-2" designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".
A-1
<PAGE>
MOODY'S
BOND RATINGS
Aaa
Bonds which are rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A
Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the "Aaa" category. The modifier 1
indicates a ranking for the security in the higher end of a rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.
COMMERCIAL PAPER RATING
The rating Prime-1 ("P-1") is the highest commercial paper rating assigned
by Moody's. Issuers of "P-1" paper must have a superior capacity for repayment
of short-term promissory
A-2
<PAGE>
obligations, and ordinarily will be evidenced by leading market positions in
well established industries, high rates of return on funds employed,
conservative capitalization structures with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH
BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated "AA" are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+".
A
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
A-3
<PAGE>
BBB
Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the "F-1+" and "F-1" categories.
DUFF
BOND RATINGS
A-4
<PAGE>
AAA
Bonds rated "AAA" are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA
Bonds rated "AA" are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated "A" have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated "BBB" are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable variability
in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except "AAA") to
indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATING
The rating "Duff-1" is the highest commercial paper rating assigned by Duff.
Paper rated "Duff-1" is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated "Duff-2" is regarded as having good
certainty of timely payment, good access to capital markets and sound liquidity
factors and Trust fundamentals. Risk factors are small.
IBCA
BOND AND LONG-TERM RATINGS
Obligations rated "AAA" by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated "AA" by IBCA. Capacity
for timely repayment of principal and interest is substantial. Adverse changes
in business, economic or financial conditions may increase investment risk
albeit not very significantly.
A-5
<PAGE>
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation "A1" by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated "A1+" are
supported by the highest capacity for timely repayment. Obligations rated "A2"
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
INTERNATIONAL AND U.S. BANK RATINGS
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
A-6
<PAGE>
STAGECOACH TRUST
FILE NOS. 33-64352; 811-7780
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
- - ------- ---------------------------------
(a) Financial Statements:
The portfolio of investments, audited financial statements and
independent auditors' reports for the LifePath Opportunity (formerly, LifePath
2000), LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040 Funds of
the Trust and corresponding Master Portfolios of Master Investment Portfolio
("MIP"), for the fiscal year ended February 28, 1998, are hereby incorporated by
reference to the Trust's Annual Reports, as filed with the SEC on April 27,
1998.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
Number --------------------------------------------------------------------------------
- - ---------------------------
<C> <S>
1 - Amended and Restated Agreement and Declaration of Trust, incorporated by
reference to Post-Effective Amendment No. 7 filed on June 30, 1997.
2 - By-Laws, incorporated by reference to Post-Effective Amendment No. 7 filed
on June 30, 1997.
3 - Not Applicable.
4 - Not Applicable.
5 - Administration Agreement with Stephens Inc., incorporated by reference to
Post-Effective Amendment No. 5 to the Registration Statement filed on June 28,
1996.
6 - Distribution Agreement with Stephens Inc., incorporated by reference to
Post-Effective Amendment No. 5 to the Registration Statement filed on June 28,
1996.
7 - Not Applicable.
8 - Custody and Fund Accounting Agreement with Investors Bank & Trust Company,
filed herewith.
9(a) - Shareholder Services Agreement with Stephens Inc. incorporated by reference
to Post-Effective Amendment No. 5 to the Registration Statement filed on June
28, 1996.
9(b) - Shareholder Services Plan, incorporated by reference to Post-Effective
Amendment No. 5 to the Registration Statement filed on June 28, 1996.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
9(c) - Class B Shares Servicing Plan, filed herewith.
9(d) - Agency Agreement with Wells Fargo Bank, N.A., incorporated by reference to
Post-Effective Amendment No. 7 filed on June 30, 1997.
9(e) - Class C Shares Servicing Plan, filed herewith.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Consent of Independent Auditors, filed herewith.
12 - Not Applicable
13 - Not Applicable
14 - Not Applicable
15(a) - Retail (Class A) Shares Distribution Plan, incorporated by reference to
Post-Effective Amendment No. 7 filed on June 30, 1997.
15(b) - Class B Shares Distribution Plan, filed herewith.
15(c) - Class C Shares Distribution Plan, filed herewith.
16 - Not Applicable
17 - See Exhibit 27.
18 - Rule 18f-3 Multi-Class Plan, incorporated by reference to Post-Effective
Amendment No. 6 to the Registration Statement filed on November 15, 1996.
19 - Powers of Attorney for R. Greg Feltus, Jack S. Euphrat, Thomas S. Goho,
Joseph N. Hankin, W. Rodney Hughes, Robert M. Joses and J. Tucker Morse,
incorporated by reference to Post-Effective Amendment No. 7 filed on June 30,
1997.
27.1 - Financial Data Schedule - LifePath Opportunity (formerly, LifePath 2000)
Fund - Retail Class A, filed herewith.
27.3 - Financial Data Schedule - LifePath Opportunity (formerly, LifePath 2000)
Fund - Institutional Class, filed herewith
27.4 - Financial Data Schedule - LifePath 2010 Fund - Retail Class A, filed
herewith.
27.5 - Financial Data Schedule - LifePath 2010 Fund - Retail Class B, filed
herewith.
27.6 - Financial Data Schedule - LifePath 2010 Fund - Institutional Class, filed
herewith.
27.7 - Financial Data Schedule - LifePath 2020 Fund - Retail Class A, filed
herewith.
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
27.8 - Financial Data Schedule - LifePath 2020 Fund - Retail Class B, filed
herewith.
27.9 - Financial Data Schedule - LifePath 2020 Fund - Institutional Class, filed
herewith.
27.10 - Financial Data Schedule - LifePath 2030 Fund - Retail Class A, filed
herewith.
27.11 - Financial Data Schedule - Life Path 2030 Fund - Retail Class B, filed
herewith.
27.12 - Financial Data Schedule - LifePath 2030 Fund - Institutional Class, filed
herewith.
27.13 - Financial Data Schedule - LifePath 2040 Fund - Retail Class A, filed
herewith.
27.14 - Financial Data Schedule - LifePath 2040 Fund - Retail Class B, filed
herewith.
27.15 - Financial Data Schedule - LifePath 2040 Fund - Institutional Class, filed
herewith.
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
- - ------- -------------------------------------------------------------
As of May 31, 1998, each of the LifePath Funds owned the following
percentages of the corresponding Master Portfolios of MIP and therefore could be
considered a controlling person of the corresponding Master Portfolio for
purposes of the 1940 Act.
<TABLE>
<CAPTION>
Percentage of
Corresponding Outstanding
Fund Master Portfolio Beneficial Interests
- - ------------------------ ------------------------------------ ----------------------
<S> <C> <C>
LifePath Opportunity Fund LifePath 2000 Master Portfolio 58.07%
LifePath 2010 Fund LifePath 2010 Master Portfolio 46.07%
LifePath 2020 Fund LifePath 2020 Master Portfolio 54.64%
LifePath 2030 Fund LifePath 2030 Master Portfolio 59.27%
LifePath 2040 Fund LifePath 2040 Master Portfolio 68.86%
</TABLE>
Item 26. Number of Holders of Securities
- - ------- -------------------------------
As of May 31, 1998, the number of record shareholders of each Class of
the Funds were as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- - ----------------------------------------------------- -----------------------------------------------------------
<S> <C>
LifePath Opportunity Fund
Class A 2,098
Institutional Class 1
LifePath 2010 Fund
Class A 2,432
Class B 415
Institutional Class 2
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LifePath 2020 Fund
Class A 4,110
Class B 819
Institutional Class 2
LifePath 2030 Fund
Class A 3,124
Class B 983
Institutional Class 2
LifePath 2040 Fund
Class A 6,772
Class B 3,342
Institutional Class 2
</TABLE>
Item 27. Indemnification
- - ------- ---------------
Reference is made to Article 8 of the Registrant's Declaration of Trust.
The application of these provisions is limited by Article 10 of the Registrant's
By-Laws filed as and by the following undertaking set forth in the rules
promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of the Investment Adviser
- - ------- --------------------------------------------------------
Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of
Barclays Global Investors, N.A. ("BGI", formerly, Wells Fargo Institutional
Trust Company), serves as investment adviser to the Funds' corresponding Master
Portfolios and to certain other open-end management investment companies and
various other institutional investors.
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 BGFA and the business of the former sub-adviser to the Funds, Wells Fargo
Nikko Investment Advisors ("WFNIA") and, in
C-4
<PAGE>
some cases, the service business of BGI. Each of the directors and executive
officers of BGFA will also have substantial responsibilities as directors and/or
officers 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.
<TABLE>
<CAPTION>
Name and Principal Business(es) During at
Position at BGFA Least the Last Two Fiscal Years
- - ------------------------------- -----------------------------------------------------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA and
Chairman and Director Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94111
</TABLE>
Prior to January 1, 1996, Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a
wholly owned subsidiary of Wells Fargo & Company, served as investment adviser
to each of the Fund's corresponding Master Portfolio'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>
<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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
Sacramento, 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
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
Director of Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 9434
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
Director of Lucent Technologies
25 John Glenn Drive
Amherst, NY 14228
Director of Novell, Inc.
11300 West Olympic Blvd.
Los Angeles, CA 90064
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
San Francisco, CA 94080
William F. Zuendt Director of Wells Fargo & Company
President 420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corporation
5400 Bayfront Plaza, P.O. Box 58145
Santa Clara, CA 95052
Director of the California Chamber of Commerce
</TABLE>
Prior to January 1, 1996, WFNIA served as sub-adviser to the Funds
corresponding Master Portfolios, and as adviser or sub-adviser to various other
open-end management investment companies. For additional information, see
"Management" in the Statement of Additional Information. 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 Advisers Act of 1940,
SEC File No. 801-36479, incorporated herein by reference.
Item 29. Principal Underwriters
- - ------- ----------------------
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal underwriter for MasterWorks Funds Inc., Stagecoach Funds,
Inc., Stagecoach Trust, Nations Fund, Inc., Nations Fund Trust, Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and Nations Institutional
Reserves, and is the exclusive placement agent for Managed Series Investment
Trust, Life & Annuity 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 Advisers Act of 1940 (file No. 501-15510).
(c) Not applicable.
C-11
<PAGE>
Item 30. Location of Accounts and Records
- - ------- --------------------------------
(a) The Registrant maintains accounts, books and other documents required
by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
(collectively, "Records") at the offices of Stephens Inc., 111 Center Street,
Little Rock, Arkansas 72201.
(b) BGFA maintains all Records relating to its services as investment
adviser at
45 Fremont Street, San Francisco, California 94105.
(c) Wells Fargo Bank maintains all Records relating to its services as
investment adviser and custodian for the period prior to January 1, 1996 and for
its services as
co-administrator, and transfer and dividend disbursing agent at 525 Market
Street, San Francisco, California 94105.
(d) BGFA, as successor entity to WFNIA, and on behalf of BGI, as
successor entity to Wells Fargo Institutional Trust Company, N.A., maintains all
Records relating to WFNIA's and Wells Fargo Institutional Trust Company, N.A.'s
services as sub-adviser and custodian, respectively, for the period prior to
January 1, 1996, at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as co-
administrator and distributor at 111 Center Street, Little Rock, Arkansas 72201.
(f) Investors Bank & Trust Company maintains all Records relating to its
services as sub-administrator and custodian at 89 South Street, P.O. Box 1537,
Boston, MA 02205-1537.
Item 31. Management Services
- - ------- -------------------
Other than as set forth under "Organization and Management of the Funds"
in the Prospectus constituting Part A of this Registration Statement and
"Management" in the Statement of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any management-
related service contract.
Not Applicable.
Item 32. Undertakings
- - ------- ------------
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of a trustee or trustees when
requested in writing to do so
C-12
<PAGE>
by the holders of at least 10% of the Registrant's outstanding shares of
beneficial interest and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940 relating to
shareholder communications.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current annual report to
shareholders, upon request and without charge.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Little Rock, State of
Arkansas on the 29th day of June, 1998.
STAGECOACH TRUST
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
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
* Trustee, Chairman and President
- - ------------------------------ (Principal Executive Officer) ______
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 6/29/98
- - ------------------------------ (Principal Financial Officer) -------
(Richard H. Blank, Jr.)
* Trustee ______
- - ------------------------------
(Jack S. Euphrat)
* Trustee ______
- - ------------------------------
(Thomas S. Goho)
* Trustee ______
- - ------------------------------
(Peter G. Gordon)
* Trustee ______
- - ------------------------------
(Joseph N. Hankin)
* Trustee ______
- - ------------------------------
(W. Rodney Hughes)
* Trustee ______
- - ------------------------------
(J. Tucker Morse)
</TABLE>
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 29, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Little Rock, State of
Arkansas on the 29th day of June, 1998.
MASTER INVESTMENT PORTFOLIO
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
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:
Signature Title
--------- -----
* Trustee, Chairman and President
------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Trustee
-------------------------
(Jack S. Euphrat)
* Trustee
-------------------------
(Thomas S. Goho)
* Trustee
-------------------------
(W. Rodney Hughes)
* Trustee
-------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 29, 1998
<PAGE>
STAGECOACH TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
EX-27.1 * Financial Data Schedule - LifePath Opportunity (formerly, LifePath 2000)
Fund - Retail Class A
EX-27.3 * Financial Data Schedule - LifePath Opportunity (formerly, LifePath 2000)
Fund - Institutional Class
EX-27.4 * Financial Data Schedule - LifePath 2010 Fund - Retail Class A
EX-27.5 * Financial Data Schedule - LifePath 2010 Fund - Retail Class B
EX-27.6 * Financial Data Schedule - LifePath 2010 Fund - Institutional Class
EX-27.7 * Financial Data Schedule - LifePath 2020 Fund - Retail Class A
EX-27.8 * Financial Data Schedule - LifePath 2020 Fund - Retail Class B
EX-27.9 * Financial Data Schedule - LifePath 2020 Fund - Institutional Class
EX-27.10 * Financial Data Schedule - LifePath 2030 Fund - Retail Class A
EX-27.11 * Financial Data Schedule - LifePath 2030 Fund - Retail Class B
EX-27.12 * Financial Data Schedule - LifePath 2030 Fund - Institutional Class
EX-27.13 * Financial Data Schedule - LifePath 2040 Fund - Retail Class A
EX-27.14 * Financial Data Schedule - LifePath 2040 Fund - Retail Class B
EX-27.15 * Financial Data Schedule - LifePath 2040 Fund - Institutional Class
EX-99.B8 * Custody and Fund Accounting Agreement
EX-99.B9(c) * Class B Shares Servicing Plan
EX-99.B9(e) * Class C Shares Servicing Plan
EX-99.B10 * Opinion and Consent of Counsel - Morrison & Foerster LLP
EX-99.B11 * Consent of Auditors - KPMG Peat Marwick LLP
EX-99.B15(b) * Class B Shares Distribution Plan
EX-99.B15(c) * Class C Shares Distribution Plan
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 1
<NAME> LIFEPATH 2000 FUND RETAIL CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 67,475,575
<RECEIVABLES> 543,618
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,019,193
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,020
<TOTAL-LIABILITIES> 96,020
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,109,961
<SHARES-COMMON-STOCK> 6,271,099
<SHARES-COMMON-PRIOR> 7,934,090
<ACCUMULATED-NII-CURRENT> 385,462
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,521,282
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,906,468
<NET-ASSETS> 67,909,225
<DIVIDEND-INCOME> 290,356
<INTEREST-INCOME> 3,390,560
<OTHER-INCOME> 0
<EXPENSES-NET> 879,295
<NET-INVESTMENT-INCOME> 2,801,621
<REALIZED-GAINS-CURRENT> 4,301,793
<APPREC-INCREASE-CURRENT> 1,145,265
<NET-CHANGE-FROM-OPS> 8,248,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,974,374
<DISTRIBUTIONS-OF-GAINS> 4,075,304
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,069,311
<NUMBER-OF-SHARES-REDEEMED> 3,374,501
<SHARES-REINVESTED> 642,199
<NET-CHANGE-IN-ASSETS> (17,037,934)
<ACCUMULATED-NII-PRIOR> 558,574
<ACCUMULATED-GAINS-PRIOR> 1,295,656
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 879,295
<AVERAGE-NET-ASSETS> 73,383,417
<PER-SHARE-NAV-BEGIN> 11
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1
<PER-SHARE-DIVIDEND> (0)
<PER-SHARE-DISTRIBUTIONS> (1)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 3
<NAME> LIFEPATH 2000 FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 67,475,575
<RECEIVABLES> 543,618
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,019,193
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,020
<TOTAL-LIABILITIES> 96,020
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,109,961
<SHARES-COMMON-STOCK> 1,355
<SHARES-COMMON-PRIOR> 1,269
<ACCUMULATED-NII-CURRENT> 385,462
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,521,282
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,906,468
<NET-ASSETS> 13,948
<DIVIDEND-INCOME> 290,356
<INTEREST-INCOME> 3,390,560
<OTHER-INCOME> 0
<EXPENSES-NET> 879,295
<NET-INVESTMENT-INCOME> 2,801,621
<REALIZED-GAINS-CURRENT> 4,301,793
<APPREC-INCREASE-CURRENT> 1,145,265
<NET-CHANGE-FROM-OPS> 8,248,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 862
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 86
<NET-CHANGE-IN-ASSETS> (17,037,934)
<ACCUMULATED-NII-PRIOR> 558,574
<ACCUMULATED-GAINS-PRIOR> 1,295,656
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 879,295
<AVERAGE-NET-ASSETS> 13,132
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 4
<NAME> LIFEPATH 2010 FUND RETAIL CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 95,919,298
<RECEIVABLES> 73,749
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,993,047
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,352
<TOTAL-LIABILITIES> 56,352
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,882,972
<SHARES-COMMON-STOCK> 6,815,464
<SHARES-COMMON-PRIOR> 6,801,286
<ACCUMULATED-NII-CURRENT> 385,671
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,800,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,867,504
<NET-ASSETS> 89,658,807
<DIVIDEND-INCOME> 735,016
<INTEREST-INCOME> 2,816,848
<OTHER-INCOME> 0
<EXPENSES-NET> 1,066,219
<NET-INVESTMENT-INCOME> 2,485,645
<REALIZED-GAINS-CURRENT> 5,714,054
<APPREC-INCREASE-CURRENT> 6,828,482
<NET-CHANGE-FROM-OPS> 15,028,181
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,575,007
<DISTRIBUTIONS-OF-GAINS> 5,401,825
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,237,645
<NUMBER-OF-SHARES-REDEEMED> 1,849,051
<SHARES-REINVESTED> 625,584
<NET-CHANGE-IN-ASSETS> 12,917,426
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<NAME> STAGECOACH TRUST
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<NUMBER> 5
<NAME> LIFEPATH 2010 FUND RETAIL CLASS B
<S> <C>
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<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 6
<NAME> LIFEPATH 2010 FUND INSTITUTIONAL CLASS
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<PAGE>
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<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 7
<NAME> LIFEPATH 2020 FUND RETAIL CLASS A
<S> <C>
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 8
<NAME> LIFEPATH 2020 FUND RETAIL CLASS B
<S> <C>
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<FISCAL-YEAR-END> FEB-28-1998
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 9
<NAME> LIFEPATH 2020 FUND INSTITUTIONAL CLASS
<S> <C>
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 10
<NAME> LIFEPATH 2030 FUND RETAIL CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 11
<NAME> LIFEPATH 2030 FUND RETAIL CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 12
<NAME> LIFEPATH 2030 FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
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</TABLE>
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<PAGE>
<ARTICLE> 6
<CIK> 0000906921
<NAME> STAGECOACH TRUST
<SERIES>
<NUMBER> 15
<NAME> LIFEPATH 2040 FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
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<INVESTMENTS-AT-VALUE> 278,684,298
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 279,378,959
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 403,143
<TOTAL-LIABILITIES> 403,143
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,516,273
<SHARES-COMMON-STOCK> 1,635
<SHARES-COMMON-PRIOR> 1,464
<ACCUMULATED-NII-CURRENT> 124,405
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,263,946
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76,071,192
<NET-ASSETS> 26,732
<DIVIDEND-INCOME> 3,640,493
<INTEREST-INCOME> 944,620
<OTHER-INCOME> 0
<EXPENSES-NET> 2,793,934
<NET-INVESTMENT-INCOME> 1,791,179
<REALIZED-GAINS-CURRENT> 20,942,146
<APPREC-INCREASE-CURRENT> 39,110,252
<NET-CHANGE-FROM-OPS> 61,843,577
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 263
<DISTRIBUTIONS-OF-GAINS> 2,348
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 171
<NET-CHANGE-IN-ASSETS> 89,395,891
<ACCUMULATED-NII-PRIOR> 278,583
<ACCUMULATED-GAINS-PRIOR> 6,273,556
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,793,934
<AVERAGE-NET-ASSETS> 23,221
<PER-SHARE-NAV-BEGIN> 14
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 4
<PER-SHARE-DIVIDEND> (0)
<PER-SHARE-DISTRIBUTIONS> (2)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
CUSTODY AND FUND ACCOUNTING AGREEMENT
BETWEEN
STAGECOACH TRUST
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. Bank Appointed Custodian............................................................................................. 1
2. Definitions.......................................................................................................... 1
2.1 Authorized Person............................................................................................. 1
2.2 Board 1
2.3 Security 1
2.4 Portfolio Security............................................................................................ 2
2.5 Officer's Certificate......................................................................................... 2
2.6 Book-Entry System............................................................................................. 2
2.7 Depository.................................................................................................... 2
2.8 Proper Instructions........................................................................................... 2
2.9 Foreign Securities............................................................................................ 2
2.10 Performance Calculations...................................................................................... 2
3. Separate Accounts.................................................................................................... 3
4. Certification as to Authorized Persons............................................................................... 3
5. Custody of Cash...................................................................................................... 3
5.1 Purchase of Securities........................................................................................ 3
5.2 Redemptions................................................................................................... 4
5.3 Distributions and Expenses of the Funds....................................................................... 4
5.4 Payment in Respect of Securities.............................................................................. 4
5.5 Repayment of Loans............................................................................................ 4
5.6 Repayment of Cash............................................................................................. 4
5.7 Foreign Exchange Transactions................................................................................. 4
5.8 Other Authorized Payments..................................................................................... 4
5.9 Termination................................................................................................... 5
6. Securities........................................................................................................... 5
6.1 Segregation and Registration.................................................................................. 5
6.2 Voting and Proxies............................................................................................ 5
6.3 Corporate Action.............................................................................................. 5
6.4 Book-Entry System............................................................................................. 6
6.5 Use of a Depository........................................................................................... 8
6.6 Use of Book-Entry System for Commercial Paper................................................................. 9
6.7 Use of Immobilization Programs................................................................................ 10
6.8 Eurodollar CDs................................................................................................ 10
6.9 Options and Futures Transactions.............................................................................. 10
6.10 Segregated Account............................................................................................ 11
6.11 Interest Bearing Call or Time Deposits........................................................................ 12
6.12 Transfer of Securities........................................................................................ 13
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
7. Redemptions.......................................................................................................... 14
8. Merger, Dissolution, etc. of the Company or a Fund................................................................... 14
9. Actions of the Bank Without Prior Authorization...................................................................... 15
10. Collections and Defaults............................................................................................ 15
11. Maintenance of Records and Accounting Services...................................................................... 16
12. Fund Evaluation and Performance Calculation......................................................................... 16
12.1 Fund Evaluation............................................................................................... 16
12.2 Performance Calculations...................................................................................... 17
13. Concerning the Bank................................................................................................. 18
13.1 Bank Warranty................................................................................................. 18
13.2 Standard of Care and Performance of Duties.................................................................... 18
13.3 Agents and Sub-custodians with Respect to Property
of the Funds Held in the United States........................................................................ 20
13.4 Duties of the Bank with Respect to Property
Held Outside of the United States............................................................................. 20
13.5 Insurance..................................................................................................... 23
13.6 Fees and Expenses of Bank..................................................................................... 23
13.7 Advances by Bank.............................................................................................. 24
14. Termination......................................................................................................... 24
15. Confidentiality..................................................................................................... 25
16. Notices............................................................................................................. 25
17. Amendments.......................................................................................................... 26
18. Parties............................................................................................................. 26
19. Governing Law....................................................................................................... 26
20. Counterparts........................................................................................................ 26
21. Limitations of Liability............................................................................................ 26
22. Single Agreement.................................................................................................... 27
23. Counterparts........................................................................................................ 27
</TABLE>
ii
<PAGE>
CUSTODY AND FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 21st day of October, 1996, between
STAGECOACH TRUST, a Massachusetts business trust (the "Company"), and INVESTORS
BANK & TRUST COMPANY (the "Bank" or, at times, "IBT").
The Company, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of the
individual Funds listed on Schedule A hereto, as such Schedule may be amended
from time to time, desires to place and maintain all of the Funds' portfolio
securities and other assets including cash in the custody of the Bank, and the
Bank has indicated its willingness to so act, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Company hereby appoints the Bank as
------------------------
custodian of the Funds' portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will
-----------
have the following meanings:
2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Company and its Funds by appropriate resolution of the Board of Trustees of the
Company, and set forth in a certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Company's Board of Trustees .
-----
2.3 Security. The term security as used herein will have the same
--------
meaning as when such term is used in the Securities Act of 1933, as amended (the
"1933 Act"), including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency, or, in general,
any interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
1
<PAGE>
2.4 Portfolio Security. Portfolio Security will mean any security
------------------
owned by a Fund of the Company.
2.5 Officer's Certificate. Officer's Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by an Authorized Person of the Company.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
-----------------
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor(s) and its nominee(s).
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC") and any other clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and its successor(s) and its nominee(s). The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor(s) and its nominee(s),
specifically identified in a certified copy of a resolution of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
-------------------
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the
Company shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Company shall cause all oral instructions to be promptly confirmed in
writing or by facsimile. The Bank shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction, and the sole obligation
of the Bank with respect to any follow-up or confirmatory instruction shall be
to make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Company.
The Company shall be responsible, at the expense of the applicable Fund, for
taking any action, including any reprocessing, necessary to correct any such
discrepancy or error, and, to the extent such action requires the Bank to act,
the Company shall give the Bank specific Proper Instructions as to the action
required. Upon receipt by the Bank of an Officer's Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Company, Proper Instructions may include communication effected
directly between electromechanical or electronic devices provided that the
Company and the Bank are satisfied that such procedures afford adequate
safeguards for a Fund's assets.
2.9 Foreign Securities. The term Foreign Securities as used herein
------------------
will have the same meaning as when such term is used in Rule 17f-5 under the
1940 Act.
2.10 Performance Calculations. Performance Calculations as used
------------------------
herein shall include standard performance calculations required pursuant to the
1933 Act, the 1940 Act, and any applicable rules and interpretations of the
staff of the Securities and Exchange Commission,
2
<PAGE>
and shall also include other non-standard performance calculations as shall be
agreed upon by both parties to this Agreement from time to time.
3. Separate Accounts. The Bank will segregate the assets of each Fund to
-----------------
which this Agreement relates into a separate account for each such Fund
containing the assets of such Fund (and all investment earnings thereon).
Unless the context otherwise requires, any reference in this Agreement to any
actions to be taken by the Company shall be deemed to refer to the Company
acting on behalf of one or more of its Funds, any reference in this Agreement to
any assets of the Company, including, without limitation, any Portfolio
Securities and other assets including cash and any earnings thereon, shall be
deemed to refer only to assets of the applicable Fund, any duty or obligation of
the Bank hereunder to the Company shall be deemed to refer to duties and
obligations with respect to the individual Funds, and any obligation or
liability of the Company hereunder shall be binding only with respect to the
individual Fund and shall be discharged only out of the assets of such Fund.
4. Certification as to Authorized Persons. The Secretary or an Assistant
--------------------------------------
Secretary of the Company will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or an
Assistant Secretary of the Company, will sign a new or amended certification
setting forth the change of the new, additional or omitted names or signatures.
The Bank will be entitled to rely and act upon any Officer's Certificate given
to it by the Company that has been signed by Authorized Persons named in the
most recent certification received by the Bank.
5. Custody of Cash. As custodian, the Bank will open and maintain a
---------------
separate account or accounts in the name of each Fund or in the name of the
Bank, as custodian of the Funds, and will deposit to the account of a Fund all
of the cash of the Fund, except for cash held by a sub-custodian appointed
pursuant to subsections 13.3 or 13.4 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding interests of a Fund, notification from the Fund's
transfer agent as provided in Section 7, requesting such payment, designating
the payee or the account or accounts to which the Bank will release funds for
deposit, and stating that it is for a purpose permitted under the terms of this
Section 5, specifying the applicable subsection, the Bank will make payments of
cash held for the accounts of the Fund, insofar as funds are available for that
purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for a
----------------------
Fund, against contemporaneous receipt of such securities by the Bank, or against
delivery of such securities to the Bank, in accordance with generally accepted
settlement practices or customs in the jurisdiction or market in which the
transaction occurs, such securities to be registered in the name
3
<PAGE>
of the Fund or in the name of, or properly endorsed and in form for transfer to,
the Bank, or a nominee of the Bank, or receipt for the account of the Bank
pursuant to the provisions of Section 6 below, each such payment to be made at
the purchase price shown on a broker's confirmation (or transaction report in
the case of Book Entry Paper) of purchase of the securities that is received by
the Bank before such payment is made and that has been confirmed in the Proper
Instructions also received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
-----------
repurchase or redemption of interests of a Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of the Funds. For the payment on the
---------------------------------------
account of a Fund of dividends or other distributions to interestholders as may
from time to time be declared by the Board, interest, taxes, investment advisory
or administration fees, and, as and to the extent provided on Schedule B hereto,
any fees of the Bank for its services hereunder and any reimbursement of the
expenses and liabilities of the Bank related to such services with respect to a
Fund of the Company as provided pursuant to subsection 13.6 hereunder and on
Schedule B hereto.
5.4 Payment in Respect of Securities. For payments in connection with
--------------------------------
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by a Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to a Fund, but,
------------------
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan.
5.6 Repayment of Cash. To repay the cash delivered to a Fund for the
-----------------
purpose of collateralizing the obligation to return to a Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
-----------------------------
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery ("Foreign Exchange Agreements") that may be entered
into by the Bank on behalf of a Fund upon the receipt of Proper Instructions,
such Proper Instructions to specify the currency broker or banking institution
(which may be the Bank, or any other sub-custodian or agent hereunder, acting as
principal) with which the contract or option is made, and the Bank shall have no
duty with respect to the selection of such currency brokers or banking
institutions with which a Fund deals or for their failure to comply with the
terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of a
-------------------------
Fund, or other obligations of a Fund incurred for proper purposes with respect
to a Fund; provided that before making any such payment, the Bank also will
receive Proper Instructions or a certified copy of a resolution of the Board
signed by an Authorized Person (other than the Person certifying such
resolution) and certified by its Secretary or Assistant Secretary, naming the
4
<PAGE>
person or persons to whom such payment is to be made, and either describing the
transaction for which payment is to be made and declaring it to be an authorized
transaction of a Fund, or specifying the amount of the obligation for which
payment is to be made, setting forth the purpose for which such obligation was
incurred and declaring such purpose to be a proper corporate purpose.
5.9 Termination. Upon the termination of this Agreement as
-----------
hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for Portfolio Securities to be delivered to any sub-custodian
appointed pursuant to subsections 13.2 or 13.3 hereof, the Bank as custodian,
will receive and hold pursuant to the provisions hereof, in a separate account
or accounts and physically segregated at all times from those of other persons,
any and all Portfolio Securities which may now or hereafter be delivered to it
by or for the account of a Fund. All such Portfolio Securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Company pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not physically held
by the Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officer's Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by such
laws or regulations or under the laws of any state. The Bank will use its best
efforts to the end that the specific Portfolio Securities held by it hereunder
will be at all times identifiable.
The Company, on behalf of a Fund, will from time to time furnish to the
Bank appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of a Fund
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or will cause to be executed and delivered, to the Company or its
designated agent all notices, proxies and proxy soliciting materials with
respect to such Portfolio Securities, but without indicating the manner in which
such proxies are to be voted, such proxy to be executed by the registered holder
of such Portfolio Securities (if registered otherwise than in the name of a
Fund), in accordance with the Proper Instructions or an Officer's Certificate.
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of a Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of the Portfolio Security, including, without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which
5
<PAGE>
Corporate Action requires an affirmative response or action on the part of the
holder of such Portfolio Security (a "Response"), the Bank shall notify the
Company's designee, Barclays Global Fund Advisors ("BGFA"), promptly of the
Corporate Action, the Response required in connection with the Corporate Action,
and the Bank's deadline for receipt from the Company's designee, BGFA, of Proper
Instructions regarding the Response (the "Response Deadline"). Except as
provided in subsection 6.3(c) below, the date specified as the Response Deadline
shall not be more than 24 hours prior to the Response expiration day set by the
depository processing such Corporate Action. The Bank shall forward to the
Company's designee, BGFA, via facsimile and/or overnight courier all notices,
information statements or other materials relating to the Corporate Action
within twenty-four (24) hours of receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt by
the Bank of Proper Instructions from the Company's designee, BGFA, no later than
4:00 p.m. (Pacific time) on the date specified as the Response Deadline and only
if the Bank (or its agent or sub-custodian hereunder) has actual possession of
all Portfolio Securities (but only if such Portfolio Securities are necessary
for the consummation of the Corporate Action ("Necessary Portfolio
Securities")), consents and other materials no later than 4:00 p.m. (Pacific
time) on the date specified as the Response Deadline. Portfolio Securities in
the possession of a broker or other borrower pursuant to the Bank's securities
lending program shall be deemed to be in the possession of the Bank for the
purposes of this subsection 6.3.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all Necessary Portfolio
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 4:00 p.m. (Pacific time) on the date
specified as the Response Deadline. Notwithstanding, the Bank may, in its sole
discretion, use its best efforts to act upon a Response for which Proper
Instructions and/or Necessary Portfolio Securities, consents or other materials
are received by the Bank after 4:00 p.m. (Pacific time) on the date specified as
the Response Deadline, it being acknowledged and agreed by the parties that any
undertaking by the Bank to use its best efforts in such circumstances shall in
no way create any duty upon the Bank to complete such Response prior to its
expiration.
(c) In the event that the Company's designee, BGFA, notifies the Bank
of a Corporate Action requiring a Response and the Bank has received no other
notice of such Corporate Action, the Response Deadline shall be 48 hours prior
to the Response expiration time set by the depository processing such Corporate
Action.
(d) Subsection 13.4(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-
custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified
-----------------
copy of a resolution of the Board specifically approving deposits of a Fund
assets in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officers Certificate to the Bank indicating
that the Board has withdrawn its approval:
6
<PAGE>
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System that shall not include any
assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers:
(b) The records of the Bank (and any such agent) with respect to a
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities that are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Company. Where securities
are transferred to a Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of Portfolio Securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of a Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by a Fund upon (i) receipt of advice from the Book-
Entry System that such Securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund. The Bank (or its agent) shall
transfer Portfolio Securities sold or loaned for the account of a Fund upon:
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of Portfolio Securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of a Fund. Copies of
all advices from the Book-Entry System of transfers of Portfolio Securities for
the account of a Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send a
Fund a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Company with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Company and a Fund for any loss
or damage to the Fund resulting from use of the Book-Entry System by reason of
any negligent actions or inactions of the Bank or any of its agents or of any of
its or their employees, or from any failure by the Bank or any such agent to use
its best efforts to enforce such rights as it may have against the Book-Entry
System; at the election of the Fund, it shall be entitled to be subrogated for
the Bank in any claim against the Book-Entry System or any other person that the
Bank or its agent may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any loss or damage;
7
<PAGE>
6.5 Use of a Depository. Provided (i) the Bank has received a
-------------------
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of a Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of a Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment thereof or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be liable to a Fund for any loss or damage to
a Fund resulting from use of a Depository by reason of any negligent actions or
inactions of the Bank or its employees or from any failure by the Bank to use
its best efforts to enforce such rights as it may have against a Depository. In
this connection, the Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for voting in accordance with subsection 6.2 above;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to a Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be
8
<PAGE>
necessary for the a Fund to comply with the recordkeeping requirements of
Section 31(a) of the 1940 Act and Rules 31a-1 and 31a-2 thereunder; and
(v) Such Depository delivers to the Bank and the Company all
internal accounting control reports, whether or not audited by an independent
public accountant, as well as such other reports as the Company may reasonably
request in order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
---------------------------------------------
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that a Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining its procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by a Fund in
an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to a Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund that is included in the Book-Entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Company;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of a Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) The Bank shall transmit to the Company a transaction journal
confirming each transaction in Book-Entry Paper for the account of a Fund on the
next business day following the transaction; and
(f) The Bank will send to the Company such reports on its system
of internal accounting control with respect to Book-Entry Paper as the Company
may reasonably request from time to time.
9
<PAGE>
6.7 Use of Immobilization Programs. Provided (i) the Bank has
------------------------------
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a sub-custodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities that are Eurodollar CDs
--------------
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to a Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to a Fund, and the Bank shall have no liability to the
Fund or its interestholders with respect to the actions, inactions, whether
negligent or otherwise of such European Branch in connection with such
Eurodollar CDs, except for any loss or damage to the Fund resulting from the
Bank's own negligent actions or inactions or lack of reasonable care in the
performance of its duties hereunder.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-
the Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by a Fund regarding escrow or
other arrangements in accordance with the provisions of any agreement entered
into upon receipt of Proper Instructions between the Bank, any broker-dealer
registered under the Exchange Act and a member of the National Association of
Securities Dealers, Inc. (the "NASD"), and, if necessary, the Company, on behalf
of the Fund, relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that a Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Company.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of a Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as described
in subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (1) periodically check or notify a
Fund that the amount of such collateral held by a broker or held in
10
<PAGE>
a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (2) effect the return of any collateral delivered to a broker; or (3)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of a Company.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action, upon receipt of Proper
Instructions, as to puts, calls and futures contracts ("futures") purchased or
sold by a Fund in accordance with the provisions of any agreement among the
Company, on behalf of a Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization(s), regarding account deposits in connection with
transactions by the Fund .
(ii) The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(ii) of this subsection 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and futures and puts and calls
thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of a Fund, into which Account or Accounts may be transferred upon receipt
of Proper Instructions, cash and/or Portfolio Securities.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account in the following circumstances, upon receipt of Proper
Instructions:
(i) in accordance with the provisions of any agreement among
the Company, on behalf of a Fund, the Bank and a broker-dealer registered under
the Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by a Fund;
(ii) for the purpose of segregating cash or Securities in
connection with options purchased or written by a Fund or commodity futures
purchased or written by a Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government obligations or other high-grade debt obligations, having a market
value (marked-to-market on a daily basis) at all times not less than the
aggregate purchase price due on the settlement dates of all of a Fund's then
outstanding forward commitment or "when-issued agreements relating to the
purchase of Portfolio Securities and all of a Fund's then outstanding
commitments under any reverse repurchase agreements entered into with broker-
dealer firms;
11
<PAGE>
(iv) for the purposes of compliance by a Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee,
signed by an officer of the Company and certified by the Secretary or an
Assistant Secretary, setting forth the purpose(s) of such Segregated Account and
declaring such purpose(s) to be a proper corporate purpose(s).
(b) assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet a Fund's obligations under
outstanding forward-commitment, delayed-settlement or when-issued agreements for
the purchase of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that a Fund's outstanding forward-
commitment or when-issued agreements for the purchase of portfolio securities or
any reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward-commitment,
delayed-settlement or when-issued agreement for the sale of Portfolio
Securities: or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
--------------------------------------
receipt of Proper Instructions relating to the purchase by a Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank(s) as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of a Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of a Fund and the responsibility of the
12
<PAGE>
Bank therefore shall be the same as and no greater than the Bank's
responsibility in respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange,
----------------------
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section, the Bank will
receive Proper Instructions requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under the terms of this subsection
6.12, specifying the applicable subsection, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection, only:
(a) upon sales of Portfolio Securities for the account of a
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made;
(b) in exchange for, or upon conversion into, other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or sub-custodian hereunder) has actual possession
of such Portfolio Security at least two business days prior to the date of
tender
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind interests of a Fund
upon authorization from the Fund;
(e) in the case of option contracts owned by a Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to a Fund by
any bank, including the Bank; provided, however, that such Securities will be
released only upon payment to the Bank for the
13
<PAGE>
account of the Fund of the moneys borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, and such
fact is made to appear in the Proper Instructions, further Portfolio Securities
may be released for that purpose without any such payment. In the event that any
such pledged Portfolio Securities are held by the Bank, they will be so held for
the account of the lender, and after notice to the Fund from the lender in
accordance with the normal procedures of the lender, that an event of deficiency
or default on the loan has occurred, the Bank may deliver such pledged Portfolio
Securities to or for the account of the lender,
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering Portfolio Securities lent by a Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such Securities
entered into by the Fund;
(j) for other authorized transactions of a Fund or for other proper
corporate purposes; provided that before making such transfer, the Bank will
also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Company (other than the officer certifying such
resolution) and certified by its Secretary or an Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such Securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of a Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
interests, the Bank will rely on notification by the Company's transfer agent of
receipt of a request for redemption before such payment is made. Payment shall
be made in accordance with the Declaration of Trust (the "Declaration") of the
Company, from assets available for said purpose.
8. Merger, Dissolution. etc. of the Company or a Fund. In the case of the
--------------------------------------------------
following transactions, not in the ordinary course of business, namely, the
merger of a Fund into or the consolidation of the Company with another
investment company, the sale by the Company of all, or substantially all, of the
assets of one or more Funds to another investment company, or the liquidation or
dissolution of a Fund and distribution of its assets, the Bank will deliver the
Portfolio Securities held by it under this Agreement and disburse cash only upon
the order of the
14
<PAGE>
Company, on behalf of such Fund(s) set forth in an Officer's Certificate,
accompanied by a certified copy of a resolution of the Board authorizing any of
the foregoing transactions. Upon completion of such delivery and disbursement
and the payment of the fees, disbursements and expenses of the Bank, this
Agreement will terminate with respect to such Fund or Company, as applicable.
9. Actions of the Bank Without Prior Authorization. Notwithstanding
-----------------------------------------------
anything herein to the contrary, unless and until the Bank receives an Officer's
Certificate to the contrary, it will without prior authorization or instruction
of the Company or the transfer agent:
(a) Endorse for collection and collect on behalf of and in the name
of a Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
(b) Present for payment all coupons and other income items held by it
for the account of a Fund that call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Fund;
(c) Receive and hold for the account of a Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
(d) execute as agent on behalf of a Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting a Fund's name on such certificates
as the owner of the securities covered thereby, to the extent it may lawfully do
so and as may be required to obtain payment in respect thereof. The Bank will
execute and deliver such certificates in connection with Portfolio Securities
delivered to it or by it under this Agreement as may be required under the
provisions of the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, or under the laws of any State;
(e) present for payment all Portfolio Securities that are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of a Fund; and
(f) exchange interim receipts or temporary securities for
definitive securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
------------------------
collect any funds that may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Company, on behalf of a Fund, notice actually received by the
Bank of any call for redemption, offer of exchange, right of subscription,
reorganization or other proceedings affecting such Portfolio Securities. If
Portfolio Securities
15
<PAGE>
upon which such income is payable are in default or payment is refused after due
demand or presentation, the Bank will notify the Company, on behalf of a Fund,
in writing of any default or refusal to pay within two business days from the
day on which it receives knowledge of such default or refusal. In addition, the
Bank will send the Company a written report once each month showing any income
on any Portfolio Security held by Bank on behalf of a Fund that is more than ten
days overdue on the date of such report.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the
Company daily with a statement of condition of each Fund. The Bank will furnish
to the Company at the end of every month, and at the close of each quarter of
the Company's fiscal year, a list of the Portfolio Securities and the aggregate
amount of cash held the by Bank on behalf of each Fund. The books and records
of the Bank pertaining to its actions under this Agreement and reports by the
Bank or its independent accountants concerning its accounting system, procedures
for safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Company and will be preserved by the Bank in the manner and in accordance
with the applicable rules and regulations under the 1940 Act.
The Bank shall perform the fund accounting services listed on Schedule
C hereto and shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Company.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Performance Calculations.
--------------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the offering price of an interest of each Fund,
such determination to be made in accordance with the provisions of the
Declaration and Registration Statement of the Company relating to the Funds, as
it may from time to time be amended, and any applicable resolutions of the Board
at the time in force and applicable; and promptly to notify the Company, any
applicable exchange, the NASD or such other persons as the Company may request
of the results of such computation and determination. In computing the net
asset value hereunder, the Bank may rely in good faith upon information that the
Bank reasonably believes to be accurate and reliable furnished to it by any
Authorized Person in respect of (i) the manner of accrual of the liabilities of
each Fund and in respect of liabilities of a Fund not appearing on its books of
account kept by the Bank, (ii) reserves, if any, authorized by the Board or that
no such reserves have been authorized, (iii) the source of the quotations to be
used in computing the net asset value, (iv) the value to be assigned to any
security for which no price quotations are available, and (v) the method of
computation of the
16
<PAGE>
offering price on the basis of the net asset value of the interests, and the
Bank shall not be responsible for any loss occasioned by its reasonable and good
faith reliance on any quotations received from a source pursuant to (iii) above.
12.2. Performance Calculations. The Bank will compute the performance
------------------------
results of each Fund (the "Performance Calculations") in accordance with
applicable provisions of the 1933 Act and 1940 Act and the rules under such Acts
related to the computations to be undertaken by the Bank pursuant to this
Agreement, as promulgated by the Securities and Exchange Commission, as such
provisions and or rules may be amended from time to time, and any published
interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such rules or the subject
matter thereof ("Subsequent Staff Positions"), subject to the Registration
Statement, as amended from time to time, and the terms set forth below:
(a) The Bank shall compute the Performance Calculations for
each Fund for the stated periods of time as shall be mutually agreed upon, and
communicate in a timely manner the result of such computation to the Company.
(b) In performing the Performance Calculations, the Bank will
derive from the records it generates and maintains for each Fund pursuant
Section 11 hereof, the data necessary for the computation. The Bank shall have
no responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Company, any of the its designated agents or any of its designated third-
party providers.
(c) At the request of the Bank, the Company shall provide, and
the Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods
pursuant to the rules or any Subsequent Staff Positions as they specifically
apply to a Fund, provided that the Bank shall be responsible for general
knowledge of such rules and any Subsequent Staff Positions. In the event that
the computation methods in a rule or the Subsequent Staff Positions or the
application to a Fund of a standard or guideline is not free from doubt or in
the event there is any question of interpretation as to the characterization of
a particular security or any aspect of a security or a payment with respect
thereto (e.g., original issue discount, participating debt security, income or
return of capital, etc.) or otherwise or as to any other element of the
computation that is pertinent to the Fund, the Company or its designated agent,
BGFA, shall have the full responsibility for making the determination of how the
security, or payment, is to be treated for purposes of the computation and how
the computation is to be made and shall inform the Bank thereof on a timely
basis. The Bank shall have no responsibility to make independent determinations
with respect to any item that is covered by this Section, and the Bank shall not
be responsible for its computations made in accordance with such determinations
so long as such computations are mathematically correct.
(d) The Company shall keep the Bank informed of all publicly
available information, and of any non-public advice or information, obtained by
the Company from its independent auditors
17
<PAGE>
or by its personnel or the personnel of its investment adviser, related to the
computations to be undertaken by the Bank pursuant to this Agreement, and the
Bank shall not be deemed to have knowledge of such information (except as
contained in the Registration Statement) unless it has been furnished to the
Bank in writing; provided that the Bank shall be charged with knowledge of any
material changes to the 1933 Act, the 1940 Act, and any related rules under such
acts related to the computations to be undertaken by the Bank pursuant to this
Agreement without specific notice from the Company.
13. Concerning the Bank.
-------------------
13.1 Bank Warranty. The Bank warrants that it has and will maintain
-------------
at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act
to act as custodian of the Portfolio Securities and other assets including cash
of the Company's Funds.
13.2 Standard of Care and Performance of Duties.
------------------------------------------
(a) The Bank agrees to use reasonable care with regard to its
obligations under this Agreement and the safekeeping of property of the Funds.
In performing its duties hereunder and any other duties listed on the Schedules
hereto, the Bank will be entitled to receive and act upon the advice of
independent counsel of its own selection, which may be counsel for the Company,
and the Bank will be without liability for any action taken or thing done, or
omitted to be done, so long as the Bank's actions or inactions are without
negligence and in accordance with this Agreement in good faith in conformity
with such advice. The Bank shall be liable to, and shall indemnify and hold
harmless the Company from and against any loss which shall occur as the result
of the failure of the Bank or a sub-custodian (other than a foreign securities
depository or clearing agency and except as provided in subsections 6.8, 13.2
and 13.3(i) hereof) to exercise reasonable care with respect to their respective
obligations under this Agreement and the safekeeping of such property. Subject
to the foregoing, the Bank will not be responsible for any act, omission,
default or for the solvency of any foreign securities depository or clearing
agency utilized in connection with the provision of services under this
Agreement.
(b) In the performance of its duties hereunder, the Bank will
be protected and not be liable, and will be indemnified and held harmless for
any action taken or omitted to be taken by it with reasonable care and in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, facsimile, telegram, notice,
request, certificate or other instrument reasonably believed by the Bank to be
genuine and for any other loss to the Fund except in the case of its negligent
actions or inactions or lack of good faith or reasonable care in the performance
of its obligations or duties hereunder.
(c) The Bank will be under no duty or obligation to inquire
into and will not be liable for:
(i) the validity of the issue of any Portfolio Securities
purchased by or for a Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
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<PAGE>
(ii) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(iii) the legality of an issue or sale of any interests of a
Fund or the sufficiency of the amount to be received therefor;
(iv) the legality of the repurchase of any interests of a Fund
or the propriety of the amount to be paid therefor;
(v) the legality of the declaration of any dividend by a Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(vi) any property or moneys of a Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
(d) Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of a Fund are such as may properly be held by the Fund under
the provisions of the Company's Declaration, any federal or state statutes or
any rule or regulation of any governmental agency.
(e) Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank be liable hereunder or to any third party:
(i) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events, except
as results from the Bank's own negligence, provided that the Bank shall make all
reasonable efforts, whenever necessary, to use data processing back-up
facilities provided by Electronic Data Systems, Inc.; or
(ii) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages; provided, however, that the parties specifically
acknowledge and agree that damages, if any, incurred by the Company, its Funds
or its agents (including, but not limited to, BGFA or the Company's transfer or
shareholder servicing agents) on account of late or incorrect net asset values
and related information provided to the Company, its Funds, its agents or other
third parties as may be agreed in writing by Stephens Inc. ("Stephens") and IBT
from time to time, are not to be considered special, punitive or consequential
damages for purposes of this subsection 13.2(e)(ii).
(f) The Bank shall supply Stephens with such daily information
regarding the cash and securities positions and activity of each Fund as the
Bank and Stephens shall from time to time agree.
19
<PAGE>
(g) The Bank need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to notify
the Company in the event that such bond is canceled or otherwise lapses.
13.3 Agents and Sub-custodians with Respect to Property of the Funds
---------------------------------------------------------------
Held in the United States. The Bank may employ agents in the performance of its
- - -------------------------
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ sub-custodians,
provided that any such sub-custodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of a Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Company or any other person by reason of any act
or omission of any sub-custodian and the Company shall indemnify the Bank and
hold it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any sub-custodian. Upon
request of the Bank, the Company shall assume the entire defense of any action,
suit, or claim subject to the foregoing indemnity. All fees and expenses of any
sub-custodian shall be paid in accordance with Schedule B hereto.
13.4 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outside of the United States.
- - ----------------------------
(a) Appointment of Foreign Sub-custodians. The Company hereby
-------------------------------------
authorizes and instructs the Bank to employ as sub-custodians for the Company's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated by
the Board (each, a "Selected Foreign Sub-custodian"). Upon receipt of Proper
Instructions, together with a certified resolution of the Company's Board, the
Bank and the Company may agree to designate additional foreign banking
institutions and foreign securities depositories to act as Selected Foreign Sub-
custodians hereunder. Upon receipt of Proper Instructions, the Company may
instruct the Bank to cease the employment of any one or more such Selected
Foreign Sub-custodians for maintaining custody of a Fund's assets, and the Bank
shall so cease to employ such sub-custodian as soon as alternate custodial
arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
-------------------------------
agreed upon in writing by the Bank and the Company, assets of a Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Company, the Company authorizes
the deposit in Euro-Clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Securities eligible for deposit therein
20
<PAGE>
and to utilize such securities depository in connection with settlements of
purchases and sales of securities and deliveries and returns of securities,
until notified to the contrary pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books
-------------------------
as belonging to a Fund the Foreign Securities held by each Selected Foreign Sub-
custodian. Each agreement pursuant to which the Bank employs a foreign banking
institution shall require that such institution establish a custody account for
the Bank and hold in that account, Foreign Securities and other assets of the
Funds, and, in the event that such institution deposits Foreign Securities in a
foreign securities depository, that it shall identify on its books as belonging
to the Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
--------------------------------------------
agreements pursuant to which a foreign banking institution holds assets of the
Company's Funds (each, a "Foreign Sub-custodian Agreement") shall be
substantially in the form previously made available to the Company and shall
provide that: (a) such assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of such
assets will be freely transferable without the payment of money or value other
than for custody or administration (including, without limitation, any fees or
taxes payable upon transfers or reregistration of securities); (c) adequate
records will be maintained identifying the assets as belonging to the Bank; (d)
officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent auditors
for the Company, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the Bank;
and (e) assets of a Fund held by the Selected Foreign Sub-custodian will be
subject only to the instructions of the Bank or its agents.
(e) Access of Independent Auditors of the Company. Upon request of
---------------------------------------------
the Company, the Bank will use its best efforts to arrange for the Company's
independent auditors to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-custodian Agreement.
(f) Reports by the Bank. The Bank will supply to the Company from
-------------------
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of a Fund held by Selected Foreign Sub-custodians, including
but not limited to an identification of entities having possession of the
Foreign Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Accounts. Transactions with
----------------------------------------
respect to the assets of a Fund held by a Selected Foreign Sub-custodian shall
be effected pursuant to Proper Instructions from the Company to the Bank and
shall be effected in accordance with the applicable Foreign Sub-custodian
Agreement. If at any time any Foreign Portfolio Securities shall be registered
in the name of the nominee of the Selected Foreign Sub-custodian, the
21
<PAGE>
Company agrees to hold any such nominee harmless from any liability by reason of
the registration of such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Securities received for the account of a Fund and
delivery of Foreign Securities maintained for the account of a Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Company or
its investment adviser such information in connection therewith as is made
available to the Bank by the Foreign Sub-custodian, and the Bank shall promptly
forward to the applicable Foreign Sub-custodian any instructions, forms or
certifications with respect to such Rights, and any instructions relating to the
actions to be taken in connection therewith, as the Bank shall receive pursuant
to Proper Instructions. The Bank agrees to use its best efforts to obtain and
forward to the Company or its designated agent, BGFA, information regarding
Rights with respect to Foreign Securities held hereunder. Notwithstanding the
foregoing, the Bank shall have no further duty or obligation with respect to
such Rights, including, without limitation, the determination of whether a Fund
is entitled to participate in such Rights under applicable U.S. and foreign
laws, or the determination of whether any action proposed to be taken with
respect to such Rights by the Fund or by the applicable Foreign Sub-custodian
will comply with all applicable terms and conditions of any such Rights or any
applicable laws or regulations, or market practices within the market in which
such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-custodians. Each Foreign Sub-
--------------------------------------------
custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and Company from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-custodian Agreement. The Company
acknowledges that the Bank, as a participant in Euroclear, is subject to the
Terms and Conditions Governing the Euroclear System, a copy of which has been
made available to the Company. The Company acknowledges that pursuant to such
Terms and Conditions, Morgan Guaranty Brussels shall have the sole right to
exercise or assert any and all rights or claims in respect of actions or
omissions of, or the bankruptcy or insolvency of, any other depository,
clearance system or custodian utilized by Euroclear in connection with a Fund's
Portfolio Securities and other assets.
22
<PAGE>
(i) Liability of Bank. The Bank shall have no more or less
-----------------
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-custodian employed hereunder than any such Selected Foreign Sub-
custodian has to the Bank and, without limiting the foregoing, the Bank shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish
---------------------------
annually to the Company, information concerning the Selected Foreign Sub-
custodians employed hereunder for use by the Company's Board or its designated
agent in evaluating such Selected Foreign Sub-custodians to ensure compliance
with the requirements of Rule 17f-5 of the 1940 Act. In addition, the Bank will
promptly inform the Company in the event that the Bank is notified by a Selected
Foreign Sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles) or any other capital adequacy test applicable to it by
exemptive order, or if the Bank has actual knowledge of any material loss of the
assets of a Fund held by a Foreign Sub-custodian.
(k) Tax Law. The Bank shall have no liability for any
-------
obligations now or hereafter imposed on the Trust, or its Funds, or the Bank as
custodian of the Trust by the tax laws of any jurisdiction. The sole
responsibility of the Bank with regard to such taxes shall be to use reasonable
efforts to assist the Company with respect to the withholding and payment by the
Company of such taxes and with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Company is entitled to such
exemptions or refunds.
13.5 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Company's Funds held by it
as it uses in respect of its own similar property but need not maintain any
special insurance for the benefit of the Company.
13.6. Fees and Expenses of Bank. The Company, on behalf of a Fund,
-------------------------
will pay or reimburse the Bank from time to time for any transfer taxes payable
upon transfer of Portfolio Securities made hereunder. All necessary proper
disbursements, expenses and charges made or incurred by the Bank in the
performance of this Agreement (including any duties listed on Schedule C hereto)
including any indemnities for any loss, liabilities or expense to the Bank as
provided above shall be paid in accordance with Schedule B hereto, provided that
the Bank shall not be entitled to compensation and/or reimbursement for services
and/or expenses and liabilities by the Company, with respect to the Funds,
hereunder so long as the Bank is entitled to receive compensation and
reimbursements from Stephens for providing sub-administration services to the
Company on behalf of the Funds. If the Bank no longer is entitled to receive
such compensation and reimbursements from Stephens, the Bank shall be entitled
hereunder to such compensation or fees and reimbursements at such rate and at
such times as it may from time to time negotiate with the Company, and such
Schedule B shall be amended accordingly.
23
<PAGE>
13.7 Advances by Bank. The Bank may, in its sole discretion, advance
----------------
funds on behalf of a Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such
payments. Should such a payment or payments, with advanced funds, result in an
overdraft (due to insufficiencies of a Fund's account with the Bank, or for any
other reason) this Agreement deems any such overdraft or related indebtedness, a
loan made by the Bank to the Fund payable on demand and bearing interest at the
current rate charged by the Bank for such loans unless the Fund shall provide
the Bank with agreed upon compensating balances. The Company agrees that the
Bank shall have a continuing lien and security interest to the extent of any
overdraft or indebtedness, in and to any property at any time held by it for a
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Company authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of a
Fund on the Bank's books.
14. Termination.
-----------
(a) This Agreement shall be effective for an initial term of
two (2) years commencing upon the date hereof (the "Initial Term") unless
earlier terminated as provided in subsection (b) below. Thereafter, the
Agreement may be terminated at any time, without penalty upon sixty (60) days'
written notice delivered by either party to the other by means of registered
mail, and upon the expiration of such sixty (60) days, this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety (90) days from the date of delivery of
such notice (i) by the Bank in order to prepare for the transfer by the Bank of
all of the assets of the Funds held hereunder, or (ii) by the Company in order
to give it an opportunity to make suitable arrangements for a successor
custodian. At any time after the termination of this Agreement, the Bank agrees
to make available to the Company, at its request, the records maintained by the
Bank relating to the performance of its duties as custodian and to preserve such
records for the periods prescribed in Rule 31a-2 under the 1940 Act.
(b) Notwithstanding subsection (a) above, either party hereto
may terminate this Agreement at any time prior to the expiration of the Initial
Term in the event that the other party violates any material provision of this
Agreement, provided that the violating party does not cure such violation within
ninety (90) days of receipt of written notice from the non -violating party of
such violation.
(c) Notwithstanding subsection (a) above, the Company may
terminate this Agreement at any time prior to the expiration of the Initial Term
in the event that (i) the Board of Directors determines that the performance of
the Bank does not meet the reasonable satisfaction (considered in light of
industry standards) of the Board, provided that the Bank does not cure such
unsatisfactory performance within ninety (90) days of receipt of written notice
specifying such unsatisfactory performance; or (ii) if the Bank becomes the
subject of any state or federal bankruptcy proceeding that is not dismissed
within sixty (60) days of the initiation of such proceeding.
24
<PAGE>
(d) In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Company. The obligation of the Bank to deliver and transfer over the assets of
the Company's Funds held by the Bank directly to such successor custodian will
commence as soon as such successor is appointed and will continue until
completed as aforesaid. If the Company does not select a successor custodian
within ninety (90) days from the date of delivery of notice of termination the
Bank may, subject to the provisions of subsection 14(c), deliver the Portfolio
Securities and cash of the Company's Fund held by the Bank to a bank or trust
company of its own selection that meets the requirements of Section 17(f)(1) of
the 1940 Act and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the
Company's Funds under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Company's Funds with the same
effect as though selected by the Board.
(e) Prior to the expiration of ninety (90) days after notice of
termination has been given, the Company may furnish the Bank with an order of
the Company advising that a successor custodian cannot be found willing and able
to act upon reasonable and customary terms and that there has been submitted to
the Fund's interestholders the question of whether a Fund will be liquidated or
will function without a custodian for the assets of the Fund. In that event the
Bank will deliver the Portfolio Securities and cash of the Company's Funds,
subject as aforesaid, in accordance with one of such alternatives that may be
approved by the requisite vote of shareholders, upon receipt by the Bank of a
copy of the minutes of the meeting of shareholders at which action was taken,
certified by the Company's Secretary and an opinion of counsel to the Company in
form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, in addition to all other remedies at law or in equity and without bond
or other security, to an injunction or injunctions to prevent breaches of this
provision.
16. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered, via registered U.S.
Mail or facsimile with written confirmation via registered U.S. Mail, to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Company or a Fund to:
Stagecoach Trust
111 Center Street
25
<PAGE>
Little Rock, AR 72201
Attention: Richard H. Blank, Jr.
With a copy to:
C. David Messman, Esq.
Wells Fargo Bank, N.A.
111 Sutter Street, 18th Floor
San Francisco, CA 94104
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Andrew Nesvet
With a copy to: John E. Henry, Esq.
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties, and in the case of the
Company, such alteration or amendment will be authorized and approved by its
Board.
18. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Company
without the written consent of the Bank or by the Bank without the written
consent of the Company, authorized and approved by its Board; and provided
further that termination proceedings pursuant to Section 14 hereof will not be
deemed to be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
21. Limitation of Liability. The Company and the Bank agree that the
-----------------------
Company's obligations under this Agreement shall not be binding upon any
Trustee, interestholder, officer, employee or agent of the Company individually
but are binding only upon the assets and property of the appropriate Fund.
26
<PAGE>
22. Single Agreement. This Agreement (including any exhibits, appendices
----------------
and schedules hereto) constitutes the entire agreement between the Bank and the
Company as to the subject matter hereof and supersedes any and all agreements,
representations and warranties, written or oral, regarding such subject matter
made prior to the time at which this Agreement has been executed and delivered
between the Bank and the Company.
23. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
Stagecoach Trust
By: /s/ Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
Investors Bank & Trust Company
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Managing Director
27
<PAGE>
SCHEDULE A
----------
CUSTODY AGREEMENT
STAGECOACH TRUST
List of Funds /1/
-------------
LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
Dated : October 21, 1996
- - ------------
/1/ Does not include existing Institutional Class of each Fund.
A-1
28
<PAGE>
SCHEDULE B
----------
FEE SCHEDULE
Fund Accounting and Calculation of N.A.V.
-----------------------------------------
The following annual fee will be charged for each feeder for which IBT acts
as fund accountant:
Annual Fee
----------
Per Feeder Annual Charge $12,000
Per Class Annual Charge (applies only to any new classes
beyond the original five classes) $ 4,500
Miscellaneous
--------------
A. Out-of-Pocket
These charges consist of:
- External printing, delivery and postage costs
- Extraordinary travel expenses
- InvestView (only if requested by the Administrator)
- Any future legal expenses associated with substantially altering IBT's
standard contracts
- Customized systems development; customized reporting; and customized
extracts
B. Payment
The above fees will be charged against the feeder's account five business
days after the invoice is mailed.
C. Systems
The details of any systems work will be determined after a thorough business
analysis. Systems work will not be performed until approved by the
Administrator. Systems work will be billed on a time and material basis.
B-1
29
<PAGE>
Schedule C
----------
CUSTODY AGREEMENT
STAGECOACH TRUST
Fund Accounting Duties
----------------------
I. A. Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of cash and
all other debits and credits, as required by subsection (b)(1) of rule 31a-1
under the 1940 Act (the "Rule");
B. General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest accrued and
interest received, as required by subsection (b)(2)(i) of the Rule;
C. Separate ledger accounts required by subsection (b) (2) (ii) and
(iii) of the Rule; and
D. A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule.
II. All such books and records shall be the property of the Company, and
IBT agrees to make such books and records available for inspection by the
Company or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all records and other information relative to the
Company; except when requested to divulge such information by duly constituted
authorities or court process, or when requested by the Company.
III. In addition to the maintenance of the books and records specified
above, IBT shall perform the following accounting services daily for each Fund;
A. Calculate the net asset value per interest;
B. Calculate changes in net asset value;
C-1
30
<PAGE>
C. Calculate the per share dividend distribution rates:
D. Calculate dividends and any capital-gain distributions;
E. Calculate yield;
F. Provide the following reports:
1. a current security position report;
2. a summary report of transactions and pending maturities; and
3. a current cash position report;
G. Such other similar services with respect to a Fund as may be
reasonably requested by the Company.
IV. IBT shall forward the information contained in Section III of this
Schedule to third-party service providers reasonably requested by the Company,
the Company's Administrator or BGFA.
C-2
31
<PAGE>
STAGECOACH TRUST
SERVICING PLAN
--------------
CLASS B SHARES
--------------
Section 1. Each of the proper officers of Stagecoach Trust (the "Trust")
is authorized to execute and deliver, in the name and on behalf of the Trust,
written agreements based substantially on the form attached hereto as Exhibit A
or any other form duly approved by the Trust's Board of Trustees ("Agreements")
with broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Class B shares ("Servicing Agents") of the Trust's Funds
listed on the attached Appendix (each a "Fund"). Pursuant to such Agreements,
Servicing Agents shall provide support services as set forth therein to their
clients who beneficially own Class B shares of the Fund in consideration of a
fee, computed monthly in the manner set forth in the Fund's then current
prospectus, at the annual rates set forth in the attached Appendix. The Trust's
distributor, administrator and adviser, if any, and their respective affiliates
are eligible to become Servicing Agents and to receive fees under this Servicing
Plan. All expenses incurred by the Fund in connection with the Agreements and
the implementation of this Servicing Plan shall be borne entirely by the holders
of the Class B shares of the Fund.
Section 2. The Trust's administrator shall monitor the arrangements
pertaining to the Trust's Agreements with Servicing Agents. The Trust's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Trust shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Trust's
administrator shall provide to the Trust's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended
pursuant to this Servicing Plan and the purposes for which such expenditures
were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by "vote of a majority of the outstanding voting securities," as
defined in the Investment Company Act of 1940, as amended, and rules and
regulations thereunder, of Class B shares of the Fund and a majority of the
Trustees of the Trust, including a majority of the Qualified Trustees, pursuant
to a vote cast in person at a meeting or meetings called for the purpose of
voting on the approval of the Plan, or on the date the Fund commences
operations, if such date is later.
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its date of
approval and shall continue thereafter for successive annual periods, provided
that such Plan is not specifically terminated by a majority of the Board of
Trustees, including a majority of the Trustees who are not "interested persons,"
as defined in the Investment Company Act of
1
<PAGE>
1940, of the Trust and have no direct or indirect financial interest in the
operation of this Servicing Plan or in any Agreement related to this Servicing
Plan (the "Disinterested Trustees") cast in person at a meeting called for the
purpose of voting on such approval.
Section 6. This Servicing Plan may be amended at any time with respect to
the Fund by the Trust's Board of Trustees, provided that any material amendment
of the terms of this Servicing Plan (including a material increase of the fee
payable hereunder) shall become effective only upon the approvals set forth in
Section 5.
Section 7. This Servicing Plan is terminable at any time with respect to
the Fund by vote of a majority of the Disinterested Trustees.
Section 8. While this Servicing Plan is in effect, the selection and
nomination of the Disinterested Trustees shall be committed to the discretion of
such Disinterested Trustees.
Section 9. Notwithstanding anything herein to the contrary, the Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
Section 10. The Trust will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Trustees for a period of not less than six years.
Dated: October 24, 1996
2
<PAGE>
APPENDIX
--------
Fees are expressed as a percentage of the average daily net asset value of
the Class B shares of the particular Fund beneficially owned by or attributable
to such clients of the Servicing Agent.
MAXIMUM
ANNUAL
FUND FEE RATE
----- --------
LifePath Opportunity Fund 0.20%
LifePath 2010 Fund 0.20%
LifePath 2020 Fund 0.20%
LifePath 2030 Fund 0.20%
LifePath 2040 Fund 0.20%
Approved: October 24, 1996
Approved as Amended: April 30, 1998 to include the LifePath Opportunity Fund
3
<PAGE>
STAGECOACH TRUST
SERVICING PLAN
--------------
CLASS C SHARES
--------------
Section 1. Each of the proper officers of Stagecoach Trust (the "Trust")
is authorized to execute and deliver, in the name and on behalf of the Trust,
written agreements based substantially on the form attached hereto as Exhibit A
or any other form duly approved by the Trust's Board of Trustees ("Agreements")
with broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Class C shares ("Servicing Agents") of the Trust's Funds
listed on the attached Appendix (each a "Fund"). Pursuant to such Agreements,
Servicing Agents shall provide support services as set forth therein to their
clients who beneficially own Class C shares of the Fund in consideration of a
fee, computed monthly in the manner set forth in the Fund's then current
prospectus, at an annual rate of up to 0.20% of the average daily net asset
value of the Class C shares beneficially owned by or attributable to such
clients. The Trust's distributor, administrator and adviser, if any, and their
respective affiliates are eligible to become Servicing Agents and to receive
fees under this Servicing Plan. All expenses incurred by the Fund in connection
with the Agreements and the implementation of this Servicing Plan shall be borne
entirely by the holders of the Class C shares of the Fund.
Section 2. The Trust's administrator shall monitor the arrangements
pertaining to the Trust's Agreements with Servicing Agents. The Trust's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Trust shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Trust's
administrator shall provide to the Trust's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended
pursuant to this Servicing Plan and the purposes for which such expenditures
were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by "vote of a majority of the outstanding voting securities," as
defined in the Investment Company Act of 1940, as amended, and rules and
regulations thereunder, of Class C shares of the Fund and a majority of the
Trustees of the Trust, including a majority of the Qualified Trustees, pursuant
to a vote cast in person at a meeting or meetings called for the purpose of
voting on the approval of the Plan, or on the date the Fund commences
operations, if such date is later.
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its date of
approval and shall continue thereafter for successive annual periods, provided
that such Plan is not specifically terminated by a majority of the Board of
Trustees, including a majority of the
1
<PAGE>
Trustees who are not "interested persons," as defined in the Investment Company
Act of 1940, of the Trust and have no direct or indirect financial interest in
the operation of this Servicing Plan or in any Agreement related to this
Servicing Plan (the "Disinterested Trustees") cast in person at a meeting called
for the purpose of voting on such approval.
Section 6. This Servicing Plan may be amended at any time with respect to
the Fund by the Trust's Board of Trustees, provided that any material amendment
of the terms of this Servicing Plan (including a material increase of the fee
payable hereunder) shall become effective only upon the approvals set forth in
Section 5.
Section 7. This Servicing Plan is terminable at any time with respect to
the Fund by vote of a majority of the Disinterested Trustees.
Section 8. While this Servicing Plan is in effect, the selection and
nomination of the Disinterested Trustees shall be committed to the discretion of
such Disinterested Trustees.
Section 9. Notwithstanding anything herein to the contrary, the Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
Section 10. The Trust will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Trustees for a period of not less than six years.
Dated: April 30, 1998
2
<PAGE>
APPENDIX
--------
Fees are expressed as a percentage of the average daily net asset value of
the Class B shares of the particular Fund beneficially owned by or attributable
to such clients of the Servicing Agent.
MAXIMUM
ANNUAL
Fund FEE RATE
----- --------
LifePath 2040 Fund 0.20%
Approved: April 30, 1998
3
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
June 30, 1998
Stagecoach Trust
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock of Stagecoach Trust
------------------------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 9 and Amendment No. 11 to the
Registration Statement on Form N-1A (SEC File Nos. 33-64352 and 811-7780) (the
"Registration Statement") of Stagecoach Trust (the "Trust") relating to the
registration of an indefinite number of shares of common stock of the Trust
(collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as Exhibit 10
to the Registration Statement.
We have examined documents relating to the organization of the Trust and
its series and the authorization and issuance of shares of its series. We have
also verified with the Trust's transfer agent the maximum number of shares
issued by the Trust during the fiscal year ended February 28, 1998.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Trust has been duly and validly
authorized by all appropriate corporate action, and assuming delivery by sale or
in accord with the Trust's dividend reinvestment plan in accordance with the
description set forth in the Funds' current prospectuses, the Shares will be
validly issued, fully paid and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE>
Stagecoach Trust
June 30, 1998
Page Two
In addition, we hereby consent to the use of our name and to the reference
to our firm under the caption "Counsel" in the Statement of Additional
Information and the description of advice rendered by our firm under the heading
"Additional Services and Other Information - Glass-Steagall Act" in the
Prospectus which are included as part of this Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Stagecoach Trust
The Board of Trustees Master Investment Portfolio
We consent to the use of our report dated April 3, 1998 for LifePath 2000 Fund
(subsequently changed to LifePath Opportunity Fund), LifePath 2010 Fund,
LifePath 2020 Fund, LifePath 2030 Fund, and LifePath 2040 Fund (five of the
series constituting Stagecoach Trust) incorporated by reference herein.
We also consent to the use of our report dated April 3, 1998 for LifePath 2000
Master Portfolio, LifePath 2010 Master Portfolio, LifePath 2020 Master
Portfolio, LifePath 2030 Master Portfolio, and LifePath 2040 Master Portfolio
(five of the series constituting Master Investment Portfolio) incorporated by
reference herein.
We also consent to the reference to our Firm under the headings "Financial
Highlights" and "How to Read the Financial Highlights" in the prospectuses and
"Independent Auditors" in the Statements of Additional Information.
/s/ KPMG Peat Marwick, LLP
San Francisco, CA
June 29, 1998
<PAGE>
STAGECOACH TRUST
DISTRIBUTION PLAN
CLASS B SHARES
WHEREAS, Stagecoach Trust ("Trust") is an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended ("Act"); and
WHEREAS, the Trust desires to adopt a Distribution Plan ("Plan") pursuant
to Rule 12b-1 under the Act on behalf of the Class B shares of each Fund listed
on the attached Appendix A as it may be amended from time to time (each, a
"Fund" and collectively, the "Funds") and the Board of Trustees, including a
majority of the Qualified Trustees (as defined below), has determined that there
is a reasonable likelihood that adoption of the Plan will benefit the Fund and
its Class B shareholders;
NOW THEREFORE, the Fund hereby adopts the Plan in accordance with Rule 12b-
1 under the Act on the following terms and conditions:
Section 1. Pursuant to the Plan, the Trust may pay to Stephens Inc.
("Distributor"), as compensation for distribution-related services provided, or
reimbursement for distribution-related expenses incurred, a monthly fee at
annual rates as set forth on Appendix A. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by mutual
agreement between the Trust and the Distributor. The Distributor may enter into
selling agreements with one or more selling agents 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 them. The
Distributor may retain any portion of the total distribution fee payable
hereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
Section 2. The Plan shall be effective on the date upon which it is
approved by "vote of a majority of the outstanding voting securities" (as
defined below) of Class B shares of the Fund and a majority of the Trustees of
the Trust, including a majority of the Qualified Trustees, pursuant to a vote
cast in person at a meeting or meetings called for the purpose of voting on the
approval of the Plan, or the date the Fund commences operations, if such date is
later.
Section 3. The Plan (and each related agreement) will continue in effect
for one year from its effective date, unless earlier terminated in accordance
with its terms, and will remain in effect from year to year thereafter if such
continuance is specifically approved at least annually by vote of a majority of
both (a) the Trustees of the Trust and
<PAGE>
(b) the Qualified Trustees, cast in person at a meeting (or meetings) called for
the purpose of voting on such approval.
Section 4. The Trust shall provide to the Trust's Board of Trustees and
the Trustees shall review, at least quarterly, a written report of the amounts
expended by the Trust under the Plan and each related agreement and the purposes
for which such expenditures were made.
Section 5. The Plan may be terminated at any time by vote of a majority of
the Qualified Trustees or by vote of a majority of the outstanding voting
securities of Class B shares of the Fund.
Section 6. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Trustees of the Trust
and (b) the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Trustees or by vote
of a majority of the outstanding voting securities of Class B shares of
the Fund, on not more than 60 days' written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the event of its
"assignment" (as defined below).
Section 7. The Plan may not be amended to increase materially the amount
that may be expended by the Fund pursuant to the Plan without the approval by a
vote of a majority of the outstanding voting securities of Class B shares of the
Fund, and no material amendment to the Plan shall be made unless approved by
vote of a majority of both (a) the Trustees of the Trust and (b) the Qualified
Trustees, cast in person at a meeting (or meetings) called for the purpose of
voting on such approval.
Section 8. While the Plan is in effect, the selection and nomination of
each Director who is not an "interested person" (as defined below) of the Trust
shall be committed to the discretion of the Trustees who are not interested
persons.
Section 9. To the extent any payments made by the Fund pursuant to a
Servicing Agreement are deemed to be payments for the financing of any activity
primarily intended to result in the sale of Class B shares within the context of
Rule 12b-1 under the Act, such payments shall be deemed to have been approved
pursuant to this Plan. Notwithstanding anything herein to the contrary, the
Fund shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Article III, Section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
2
<PAGE>
Section 10. The Trust shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan; such agreement or such report, as
the case may be, being kept the first two years in an easily accessible place.
Section 11. As used in the Plan, (a) the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemption as may be granted by the Securities and
Exchange Commission and (b) the term "Qualified Trustees" shall mean the
Trustees of the Trust who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan.
Dated: October 24, 1996
3
<PAGE>
APPENDIX A
----------
<TABLE>
<S> <C>
Percentage of Fund's
Average Daily Net Assets
------------------------
LifePath Opportunity Fund 0.75%
LifePath 2010 Fund 0.75%
LifePath 2020 Fund 0.75%
LifePath 2030 Fund 0.75%
LifePath 2040 Fund 0.75%
</TABLE>
Approved: October 24, 1996
Approved as Amended: April 30, 1998 to include the LifePath Opportunity Fund
4
<PAGE>
STAGECOACH TRUST
DISTRIBUTION PLAN
CLASS C SHARES
WHEREAS, Stagecoach Trust ("Trust") is an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended ("Act"); and
WHEREAS, the Trust desires to adopt a Distribution Plan ("Plan") pursuant
to Rule 12b-1 under the Act on behalf of the Class C shares of each Fund listed
on the attached Appendix A as it may be amended from time to time (each, a
"Fund" and collectively, the "Funds") and the Board of Trustees, including a
majority of the Qualified Trustees (as defined below), has determined that there
is a reasonable likelihood that adoption of the Plan will benefit the Fund and
its Class C shareholders;
NOW THEREFORE, the Fund hereby adopts the Plan in accordance with Rule 12b-
1 under the Act on the following terms and conditions:
Section 1. Pursuant to the Plan, the Trust may pay to Stephens Inc.
("Distributor"), as compensation for distribution-related services provided, or
reimbursement for distribution-related expenses incurred, a monthly fee at
annual rates as set forth on Appendix A. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by mutual
agreement between the Trust and the Distributor. The Distributor may enter into
selling agreements with one or more selling agents 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 them. The
Distributor may retain any portion of the total distribution fee payable
hereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
Section 2. The Plan shall be effective on the date upon which it is
approved by "vote of a majority of the outstanding voting securities" (as
defined below) of Class C shares of the Fund and a majority of the Trustees of
the Trust, including a majority of the Qualified Trustees, pursuant to a vote
cast in person at a meeting or meetings called for the purpose of voting on the
approval of the Plan, or the date the Fund commences operations, if such date is
later.
Section 3. The Plan (and each related agreement) will continue in effect
for one year from its effective date, unless earlier terminated in accordance
with its terms, and will remain in effect from year to year thereafter if such
continuance is specifically approved at least annually by vote of a majority of
both (a) the Trustees of the Trust and
<PAGE>
(b) the Qualified Trustees, cast in person at a meeting (or meetings) called for
the purpose of voting on such approval.
Section 4. The Trust shall provide to the Trust's Board of Trustees and
the Trustees shall review, at least quarterly, a written report of the amounts
expended by the Trust under the Plan and each related agreement and the purposes
for which such expenditures were made.
Section 5. The Plan may be terminated at any time by vote of a majority of
the Qualified Trustees or by vote of a majority of the outstanding voting
securities of Class C shares of the Fund.
Section 6. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Trustees of the Trust
and (b) the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Trustees or by vote
of a majority of the outstanding voting securities of Class C shares of
the Fund, on not more than 60 days' written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the event of its
"assignment" (as defined below).
Section 7. The Plan may not be amended to increase materially the amount
that may be expended by the Fund pursuant to the Plan without the approval by a
vote of a majority of the outstanding voting securities of Class C shares of the
Fund, and no material amendment to the Plan shall be made unless approved by
vote of a majority of both (a) the Trustees of the Trust and (b) the Qualified
Trustees, cast in person at a meeting (or meetings) called for the purpose of
voting on such approval.
Section 8. While the Plan is in effect, the selection and nomination of
each Director who is not an "interested person" (as defined below) of the Trust
shall be committed to the discretion of the Trustees who are not interested
persons.
Section 9. To the extent any payments made by the Fund pursuant to a
Servicing Agreement are deemed to be payments for the financing of any activity
primarily intended to result in the sale of Class C shares within the context of
Rule 12b-1 under the Act, such payments shall be deemed to have been approved
pursuant to this Plan. Notwithstanding anything herein to the contrary, the
Fund shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Article III, Section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
2
<PAGE>
Section 10. The Trust shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan; such agreement or such report, as
the case may be, being kept the first two years in an easily accessible place.
Section 11. As used in the Plan, (a) the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemption as may be granted by the Securities and
Exchange Commission and (b) the term "Qualified Trustees" shall mean the
Trustees of the Trust who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan.
Dated: April 30, 1998
3
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
Percentage of Fund's
Average Daily Net Assets
------------------------
<S> <C>
LifePath 2040 Fund 0.75%
</TABLE>
Approved: April 30, 1998
4
