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[OVERLAND EXPRESS LOGO]
Telephone: (800) 552-9612
Stephens Inc. -- Sponsor, Administrator and Distributor
Wells Fargo Bank, N.A. -- Investment Adviser, Transfer and Dividend
Disbursing
Agent and Custodian
Overland Express Funds, Inc. (the "Company") is an open-end, series
investment company. This Prospectus contains information about one of the
Company's funds -- the SMALL CAP STRATEGY FUND (the "Fund").
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK ABOVE-AVERAGE LONG-TERM CAPITAL
APPRECIATION IN ORDER TO PROVIDE INVESTORS WITH A RATE OF TOTAL RETURN EXCEEDING
THAT OF THE RUSSELL 2000 INDEX (BEFORE FEES AND EXPENSES) OVER A TIME HORIZON OF
THREE TO FIVE YEARS. THE FUND SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING ALL
OF ITS ASSETS IN THE SMALL CAP MASTER PORTFOLIO ( THE "MASTER PORTFOLIO") OF
MASTER INVESTMENT TRUST (THE "TRUST"), AN OPEN-END, SERIES INVESTMENT COMPANY,
RATHER THAN IN A PORTFOLIO OF SECURITIES. THE MASTER PORTFOLIO HAS THE SAME
INVESTMENT OBJECTIVE AS THE FUND AND THE FUND'S INVESTMENT EXPERIENCE
CORRESPONDS DIRECTLY WITH THE MASTER PORTFOLIO'S INVESTMENT EXPERIENCE.
The Master Portfolio seeks to achieve its investment objective through the
active management of a broadly diversified portfolio consisting primarily of
growth-oriented common stocks with market capitalizations between $50 million
and $1 billion at the time of acquisition.
This Prospectus describes three classes of shares of the Fund -- Class A
Shares, Class B Shares and Class D Shares. Class B Shares are not currently
offered to investors.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
("SAI") dated September 16, 1996, containing additional and more detailed
information about the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is hereby incorporated by reference into this
Prospectus. The SAI is available without charge and can be obtained by writing
the Company at P.O. Box 63084, San Francisco, CA 94163 or by calling the Company
at 1-800-552-9612.
INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
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FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO") OR ANY OF ITS
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 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.
WELLS FARGO IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES TO
THE FUND AND THE MASTER PORTFOLIO, FOR WHICH IT IS COMPENSATED. STEPHENS
INC. ("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO,
IS THE SPONSOR AND DISTRIBUTOR FOR THE FUND.
PROSPECTUS DATED SEPTEMBER 16, 1996
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................... ii
Summary of Expenses........................................................................ v
Investment Objective, Policies and Restrictions............................................ 1
Additional Permitted Investment Activities and Risk Factors................................ 2
How the Fund Works......................................................................... 9
Management of the Fund..................................................................... 11
Determination of Net Asset Value........................................................... 15
Purchase of Shares......................................................................... 16
Exchange Privileges........................................................................ 23
Redemption of Shares....................................................................... 26
Distribution Plans......................................................................... 28
Class A Administrative Servicing Plans..................................................... 29
Class B and D Servicing Plans.............................................................. 29
Dividends and Distributions................................................................ 30
Taxes...................................................................................... 31
Organization and Capital Stock............................................................. 32
</TABLE>
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PROSPECTUS SUMMARY
The Company, as an open-end investment company, provides a convenient way
for you to invest in a portfolio of securities selected and supervised by
professional management. The following provides information about the Fund and
the Master Portfolio.
Q. WHAT ARE THE INVESTMENT OBJECTIVES AND PERMISSIBLE INVESTMENTS OF THE
FUND AND THE MASTER PORTFOLIO?
A. The SMALL CAP STRATEGY FUND seeks above-average long-term capital
appreciation in order to provide investors with a rate of total return
exceeding that of the Russell 2000 Index (before fees and expenses) over
a time horizon of three to five years. The Fund seeks to achieve this
investment objective by investing all of its assets in the Small Cap
Master Portfolio of the Trust, a professionally managed, open-end series
investment company. The Master Portfolio has the same investment
objective as the Fund. The Master Portfolio seeks to achieve this
investment objective through the active management of a broadly
diversified portfolio consisting primarily of growth-oriented common
stocks with market capitalizations between $50 million and $1 billion at
the time of acquisition. The Master Portfolio intends to sell the common
stock of any company in its investment portfolio after such Company's
market capitalization exceeds $2 billion.
The Master Portfolio invests primarily in common stocks expected by Wells
Fargo, as investment adviser, to have above-average prospects for capital
appreciation. In pursuing the Master Portfolio's investment objective,
Wells Fargo seeks to invest in smaller-sized companies, both domestic and
foreign, that it believes to be characterized by new or innovative
products, services or processes which should enhance prospects for growth
of future earnings. The Fund and Master Portfolio are designed to provide
above-average capital growth for investors willing to assume
above-average risk. As with all mutual funds, there can be no assurance
that the Fund and Master Portfolio will achieve their investment
objectives.
The Russell 2000 Index is a subset of the larger Russell 3000 Index. The
Russell 3000 Index includes 3000 large U.S. companies. The Russell 2000
Index consists of the 2000 smallest securities in the larger Russell
3000 Index.
See "Investment Objective, Policies and Restrictions" and "Additional
Permitted Investment Activities and Risk Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo, as the investment adviser of the Master Portfolio, manages
the investments of the Master Portfolio. The Company has not retained the
services of a separate investment adviser for the Fund because the Fund
invests all of its assets in the Master Portfolio. Wells Fargo also
provides the Fund and the Master Portfolio with transfer agency, dividend
disbursing agency and custodial services. Wells Fargo is entitled to
receive a monthly advisory fee at the annual rate of 0.60%of the average
daily net assets of the Master Portfolio.
See "Management of the Fund -- Investment Adviser."
Q. WHO IS THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR?
A. Stephens serves as the sponsor, administrator and distributor for the
Company and the Trust.
See "Management of the Fund."
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Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUND?
A. Investments in the Fund and Master Portfolio are not insured against loss
of principal, are not bank deposits or obligations of Wells Fargo and are
not insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Master Portfolio's equity investments are subject to market risk. Market
risk is the risk that stock prices will decline over short or even
extended periods. The U.S. stock market experiences periods when stock
prices rise and periods when stock prices decline. Therefore, you should
be prepared to accept some risk with the money invested in the Fund. As
with all mutual funds, there can be no assurance that the Fund or the
Master Portfolio will achieve its investment objective.
The Master Portfolio may invest a significant portion of its assets in
the securities of smaller and newer issuers. Investments in such
companies may present opportunities for capital appreciation because of
high potential earnings growth. However, such investments may present
greater risks than investments in larger-size companies with more
established operating histories, diverse product lines and financial
capacity. Securities of small and new companies generally trade less
frequently or in limited volume, or only in the over-the-counter market
or on a regional securities exchange. As a result, the prices of such
securities may be more volatile than those of larger, more established
companies and, as a group, these securities may suffer more severe price
declines during periods of generally declining equity prices. The Master
Portfolio may invest in securities of foreign issuers. Investments in
foreign securities involve risks not typically associated with domestic
securities. Among other things, they may be less liquid than domestic
securities and may be affected by political, social and monetary
instability.
Because the Master Portfolio engages in active portfolio management, the
Master Portfolio may experience relatively high turnover and transaction
(i.e., brokerage commission) costs. Portfolio turnover also can generate
short-term capital gains tax consequences. You should consult your
individual tax advisor with respect to your particular tax situation.
See "Investment Objective, Policies and Restrictions" and "Additional
Permitted Investment Activities and Risk Factors."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of the Fund may be purchased on any day the New York Stock
Exchange (the "Exchange") is open for trading. There is a maximum sales
load of 4.50% (4.71% of the net amount invested) for purchasing Class A
Shares of the Fund. Class B Shares that are redeemed within four years of
purchase are subject to a maximum contingent-deferred sales charge of
3.00% of the lesser of net asset value at purchase or net asset value at
redemption. Class D Shares that are redeemed within a year of purchase
are subject to a maximum contingent deferred sales charge of 1.00% of the
lesser of net asset value at purchase or net asset value at redemption.
Front-end or contingent-deferred sales charges may, in certain cases, be
waived or reduced.
In most cases, the minimum initial purchase amount for Fund shares is
$1,000. The minimum initial purchase amount is $100 for shares purchased
through the Systematic Purchase Plan and $250 for shares purchased
through qualified retirement plans. The minimum subsequent purchase
amount is $100 or more. You may purchase shares of the Fund through
Stephens, Wells Fargo, as transfer agent (the "Transfer Agent"), or any
authorized broker/dealer or
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financial institution. Purchases of Fund shares may be made by wire
directly to the Transfer Agent.
See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends on shares of the Fund are declared and paid annually and are
automatically reinvested in additional shares of the same class of the
Fund. You may elect to receive dividends by check or to have them
deposited in an approved bank account. Any capital gains will be
distributed annually and may be reinvested in Fund shares of the same
class or paid by check at your election. All reinvestments of dividends
and/or capital gain distributions in shares of the Fund are effected at
the then current net asset value free of any sales load. In addition, you
may elect to reinvest Fund dividends and/or capital gain distributions in
shares of the same class of another of the Company's funds with which you
have an established account that has met the applicable minimum initial
investment requirement. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares may be redeemed on any day the Exchange is open upon request to
Stephens or the Transfer Agent directly or through any authorized
broker/dealer or financial institution. Shares may be redeemed by a
request in good form in writing or through telephone direction. Proceeds
are payable by check or, for shareholders who make prior arrangements, by
wire. Accounts maintaining less than the applicable minimum initial
purchase amount may be redeemed at the option of the Company. Except for
any contingent deferred sales charge which may be applicable upon
redemption of Class B or Class D Shares, the Company does not charge for
redeeming its shares. However, the Company reserves the right to impose
charges for wiring redemption proceeds. See "Redemption of Shares."
Q. WHAT ARE DERIVATIVES AND DOES THE FUND OR MASTER PORTFOLIO USE THEM?
A. 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. The Master Portfolio uses derivatives only to a limited extent in
ways that are incidental to its overall strategy of investing directly in
common stocks. For example, the Master Portfolio may, from time to time,
hold options, warrants or debt instruments that are convertible into (and
whose value is, therefore, "derived from") common stocks or may hold
derivatives to hedge against an underlying position in a security.
Q. WHAT STEPS ARE TAKEN TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo, as investment adviser to the Master Portfolio, uses a
variety of internal risk management procedures to ensure that derivatives
use is consistent with the Fund's and the Master Portfolio's investment
objectives, does not expose the Fund or the Master Portfolio to undue
risks and is closely monitored. These procedures include providing
periodic reports to the Boards of Directors and Trustees concerning the
use of derivatives. Derivatives use also is subject to broadly applicable
investment policies. For example, neither the Fund nor the Master
Portfolio may invest more than a specified percentage of its assets in
"illiquid securities," including those derivatives that do not have
active secondary markets. Nor may certain derivatives be used without
establishing adequate "cover" in compliance with SEC rules limiting the
use of leverage.
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SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SMALL CAP STRATEGY FUND
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CLASS A CLASS B CLASS D
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............................... 4.50% 0.00% 0.00%
Sales Charge Imposed in Reinvested Dividends........................ None None None
Maximum Sales Charge Imposed on Redemptions......................... None 3.00% 1.00%
Exchange Fees....................................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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<TABLE>
<CAPTION>
SMALL CAP STRATEGY FUND
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CLASS A CLASS B CLASS D
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees..................................................... 0.60% 0.60% 0.60%
12b-1 Fees.......................................................... 0.25%(1) 0.75% 0.75%
Total Other Expenses:
Servicing Fees.................................................... 0.00%(1) 0.25% 0.25%
Miscellaneous Expenses............................................ 0.50% 0.50% 0.50%
---- ---- ----
Total Fund Operating Expenses....................................... 1.35%(1) 2.10% 2.10%
</TABLE>
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(1) Certain Class A shares will not be subject to a 0.25% 12b-1 Fee but will be
subject to a 0.25% Administrative Servicing Fee. In no case will a
shareholder be charged both 12b-1 and Administrative Servicing Fees, and
Total Fund Operating Expenses will not be greater than 1.35% because of
the combination of such fees. See "Distribution Plans" and "Class A
Administrative Servicing Plan."
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
CLASS A SHARES -- You would pay the following expenses on a $1,000 investment
in Class A Shares of the Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period indicated.......................... $ 58 $ 86
CLASS B SHARES -- You would pay the following expenses on a $1,000 investment
in Class B Shares of the Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period indicated.......................... $ 51 $ 86
You would pay the following expenses on the same investment in Class B Shares
of the Fund, assuming no redemption.......................................... $ 21 $ 66
CLASS D SHARES -- You would pay the following expenses on a $1,000 investment
in Class D Shares of the Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period indicated.......................... $ 31 $ 66
You would pay the following expenses on the same investment in Class D Shares
of the Fund, assuming no redemption.......................................... $ 21 $ 66
</TABLE>
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The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The tables reflect expenses at both the Fund and Master Portfolio
levels. There are no other sales loads, redemption fees or exchange fees charged
by the Fund. However, the Company reserves the right to impose charges for
wiring redemption proceeds. The tables do not reflect any charges that may be
imposed directly by Shareholder Servicing Agents on their customer accounts in
connection with an investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy or
sell Fund shares. You are subject to a front-end sales charge on purchases of
the Fund's Class A Shares and may be subject to a contingent-deferred sales
charge on purchases of the Fund's Class B and Class D Shares if you redeem such
shares within a specified period. In certain instances, you may qualify for a
reduction or waiver of the front-end sales charge. See "Purchase of Shares."
There are no exchange fees. The Company reserves the right to impose a charge
for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES for the Fund are based on applicable
contract amounts currently in effect, except that the amounts shown under
"Miscellaneous Expenses" and "Total Fund Operating Expenses" are based on
estimated amounts for the current fiscal year. Stephens and Wells Fargo each may
elect, in its sole discretion, to otherwise waive its respective fees or
reimburse expenses. Any waivers or reimbursements would reduce the Fund's total
expenses. There can be no assurance that voluntary fee waivers and
reimbursements will continue. Long-term shareholders of the Fund could pay more
in distribution related charges than the economic equivalent of the maximum
front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. ("NASD").
THE EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses
associated with a $1,000 investment over the periods shown, based on the
expenses in the above tables and an assumed annual rate of return of 5%. The
Examples should not be considered a representation of past or future expenses;
actual expenses and returns may be greater or lesser than those shown.
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With regard to the combined fees and expenses of the Fund and the Master
Portfolio, the Board of Directors of the Company has considered whether various
costs and benefits of investing all of the Fund's assets in the Master Portfolio
rather than directly in portfolio securities would be more or less than if the
Fund invested in portfolio securities directly. The Board of Directors has
determined that the aggregate fees assessed by the Fund and the Master Portfolio
should be less than or approximately equal to those expenses that would be
incurred had the Fund invested directly in the portfolio securities held by the
Master Portfolio. See Prospectus sections under "Management of the Fund,"
"Distribution Plans" and "Purchase of Shares" for more complete descriptions of
the various costs and expenses applicable to the Fund. In addition, if the Fund
were to no longer invest in the Master Portfolio, these expenses may change.
In addition to selling its interests to the Fund, the Master Portfolio may
sell its interests to other mutual funds or accredited investors. The expenses
and, correspondingly, the investment returns of other investment options in the
Master Portfolio may differ from those of the Class A, B and D Shares of the
Fund. Information regarding these and other (if any) investment options in the
Master Portfolio may be obtained by calling Stephens at 1-800-643-9691.
Additional information regarding the Fund's and the Master Portfolio's expenses
is included under the heading "Summary of Expenses" and in the SAI under
"Management."
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Set forth below is a description of the investment objective and related
policies of the Fund and the Master Portfolio. As with all mutual funds, there
can be no assurance that the Fund or Master Portfolio will achieve its
investment objective.
INVESTMENT OBJECTIVE -- The Small Cap Strategy Fund's investment objective
is to seek above-average long-term capital appreciation in order to provide
investors with a rate of total return exceeding that of the Russell 2000 Index
(before fees and expenses) over a time horizon of three to five years. The Small
Cap Strategy Fund seeks to achieve its investment objective by investing all of
its assets in the Small Cap Master Portfolio, which has the same investment
objective as the Fund. The Fund and Master Portfolio seek to provide
above-average capital growth for investors willing to assume above-average risk.
The Small Cap Master Portfolio seeks to achieve this investment objective
through the active management of a broadly diversified portfolio of
growth-oriented common stocks. Under normal market conditions the Master
Portfolio invests at least 65% of its assets in companies with market
capitalizations between $50 million and $1 billion at the time of acquisition,
although it may sometimes invest in companies with capitalizations greater or
less than these amounts. The Master Portfolio invests primarily in common stocks
of domestic and foreign companies believed by Wells Fargo, as investment adviser
to be characterized by new or innovative products, services or processes and to
have above-average prospects for capital appreciation. The Master Portfolio will
sell the common stock of any company in its investment portfolio after such
company's market capitalization exceeds $2 billion.
The equity securities in the Master Portfolio's investment portfolio may
have some of the following characteristics: low or no dividends; smaller market
capitalizations (less than $1 billion); less market liquidity; newly public
companies (i.e., recent initial public offering); relatively short operating
histories; aggressive capitalization structures (including high debt levels);
and involvement in rapidly growing/changing industries and/or new technologies.
Under normal market conditions, the Master Portfolio holds at least 20
common stock issues spread across multiple industry groups and sectors of the
economy. The majority of these holdings consist of smaller capitalization
companies, established growth companies and turnaround or acquisition
candidates. The Master Portfolio may invest in securities through initial public
offerings of companies whose securities have been offered to the general public
for three months or less ("IPOs") and may invest in securities of start-up
companies and other newer issuers. It is expected that no more than 20% of the
Master Portfolio's assets will be invested in these highly aggressive issues at
one time. The Master Portfolio also may invest in securities of foreign
governmental or private issuers and in securities of issuers in emerging or
less-developed markets.
Under ordinary market conditions, up to 5% of the Master Portfolio's net
assets will be invested in convertible debt securities that are not either rated
in the four highest rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs"), such as Moody's Investor Service,
Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), or unrated securities
determined by Wells Fargo to be of comparable quality. Securities rated in the
fourth highest rating category (i.e., rated "BBB" by S&P or "Baa" by Moody's)
are regarded by S&P as having an adequate capacity to pay interest and repay
principal, but changes in economic conditions or other
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circumstances are more likely to lead to a weakened capacity to make such
repayments. Moody's considers such securities as having speculative
characteristics.
From time to time, Wells Fargo may determine that conditions in the
securities markets make pursuing the Master Portfolio's basic investment
strategy inconsistent with the best interests of the Master Portfolio's
investors. At such times, Wells Fargo may use temporary alternative strategies,
primarily designed to reduce fluctuations in the value of the Master Portfolio's
assets. In implementing these temporary "defensive" strategies, the Master
Portfolio may invest in preferred stock or investment-grade debt securities and
in money market securities. It is expected that these temporary "defensive"
investments will not exceed 35% of the Master Portfolio's total assets.
The Master Portfolio pursues an active trading investment strategy, and the
length of time the Master Portfolio has held a particular security is not
generally a consideration in investment decisions. Accordingly, the Master
Portfolio's portfolio turnover rate may be higher than that of other funds that
do not pursue an active trading investment strategy. Portfolio turnover
generally involves some expense to the Master Portfolio, including brokerage
commissions or dealer mark-ups and other transactions costs on the sale of
securities and the reinvestment in other securities. Portfolio turnover also can
generate capital gains tax consequences. These expenses and tax consequences
will be passed on to the Fund.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND RISK FACTORS
INVESTMENT IN FOREIGN SECURITIES
The Master Portfolio may invest up to 25% of its assets in securities of
foreign governmental and private issuers that are denominated in and pay
interest in U.S. dollars. These securities may take the form of American
Depositary Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"), European
Depositary Receipts ("EDRs"), International Depositary Receipts ("IDRs") and
Global Depositary Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are
receipts typically issued by a Canadian bank or trust company, that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe.
EMERGING MARKET SECURITIES
As part of its foreign securities investment strategy, the Master Portfolio
may invest up to 15% of its assets in equity securities of companies in
"emerging markets." The Master Portfolio considers
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countries with emerging markets to include the following: (i) countries with an
emerging stock market as defined by the International Finance Corporation; (ii)
countries with low- to middle-income economies according to the International
Bank for Reconstruction and Development (more commonly referred to as the World
Bank); and (iii) countries listed in World Bank publications as developing. The
adviser may invest in those emerging markets that have a relatively low gross
national product per capita, compared to the world's major economies, and which
exhibit potential for rapid economic growth. The adviser believes that
investments in equity securities of emerging market issuers offer significant
potential for long-term capital appreciation.
Equity securities of emerging market issuers may include common stock,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, CDRs, GDRs, EDRs, and IDRs of such
issuers.
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company is considered in a country, market or region if it conducts its
principal business activities in the country, market or region, namely, if it
derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in such country,
market or region.
PRIVATELY ISSUED SECURITIES
The Master Portfolio may invest in privately issued securities that may be
resold 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. Wells Fargo, using guidelines approved by the Trust's Board
of Trustees, will evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the Master Portfolio 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).
Privately issued securities that are determined by Wells Fargo to be "illiquid"
will be subject to the Master Portfolio's policy of not investing more than 15%
of its net assets in illiquid securities.
OPTIONS
The Master Portfolio may purchase or sell options on individual securities
and options on indices of securities as a means of seeking additional return or
of hedging the value of the Master Portfolio's investment portfolio.
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Call and Put Options on Specific Securities -- The Master Portfolio may
invest up to 15% of its assets, represented by the premium paid, in the purchase
of call and put options in respect of specific securities (or groups of
"baskets" of specific securities). A call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, an underlying
security at the exercise price at any time during the option period. Conversely,
a put option gives the purchaser of the option the right to sell, and obligates
the writer to buy, an underlying security at the exercise price at any time
during the option period. Investments by the Master Portfolio in off-exchange
options will be treated as "illiquid" and therefore subject to the Master
Portfolio's policy of not investing more than 15% of its net assets in illiquid
securities.
The Master Portfolio may write covered call option contracts to the extent
of 15% of the value of its net assets at the time such option contracts are
written. 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
the Master Portfolio expose the Master Portfolio 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.
The Master Portfolio may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the adviser. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. The Master Portfolio 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 Master Portfolio may purchase call and put
options and write covered call options on stock indices listed on national
securities exchanges or traded in the over-the-counter market to the extent of
15% of the value of its net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in the Master Portfolio'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
the Master Portfolio 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 the Master Portfolio of options on stock indices will be
subject to Wells Fargo's ability to correctly analyze movements in the direction
of the stock market generally or of particular industry or market segments.
WARRANTS
The Master Portfolio may invest no more than 5% of its net assets at the
time of purchase in warrants (other than those that have been acquired in units
or attached to other securities) and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock
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Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Master Portfolio may
only purchase warrants on securities in which the Master Portfolio may invest
directly.
CORPORATE REORGANIZATIONS
The Master Portfolio may invest in securities for which a tender or
exchange offer has been made or announced, and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced if, in the judgment of Wells Fargo, there is a reasonable
prospect of capital appreciation significantly greater than the added portfolio
turnover expenses inherent in the short term nature of such transactions. The
principal risk associated with such investments is that such offers or proposals
may not be consummated within the time and under the terms contemplated at the
time of the investment, in which case, unless such offers or proposals are
replaced by equivalent or increased offers or proposals which are consummated,
the Master Portfolio may sustain a loss.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
Certain of the debt instruments that the Master Portfolio may purchase bear
interest at rates that are not fixed, but vary, for example, with changes in
specified market rates or indices or specified intervals. Certain of these
instruments may carry a demand feature that would permit the holder to tender
them back to the issuer at par value prior to maturity. The Master Portfolio
may, in accordance with SEC rules, account for these instruments as maturing at
the next interest rate readjustment date or the date at which the Master
Portfolio may tender the instrument back to the issuer, whichever is later. The
floating- and variable-rate instruments that the Master Portfolio may purchase
include certificates of participation in such obligations.
Wells Fargo, as investment adviser, monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand. Events affecting the ability of the issuer of a demand instrument to
make payment when due may occur between the time the Master Portfolio elects to
demand payment and the time payment is due, thereby affecting the Master
Portfolio's ability to obtain payment at par, except when such demand
instruments permit same-day settlement. Demand instruments whose demand feature
is not exercisable within seven days may be treated as liquid, provided that an
active secondary market exists.
REPURCHASE AGREEMENTS
The Master Portfolio may enter into repurchase agreements wherein the
seller of a security to the Master Portfolio agrees to repurchase that security
from the Master Portfolio at a mutually agreed-upon time and price. The period
of maturity is usually quite short, often overnight or a few days, although it
may extend over a number of months. The Master Portfolio may enter into
repurchase agreements only with respect to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises), ("U.S. Government obligations") certificates
of deposit, bankers acceptances or commercial paper. All repurchase agreements
will be fully collateralized based on values that are marked to market daily. If
the seller
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defaults and the value of the underlying securities has declined, the Master
Portfolio may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Master Portfolio's disposition
of the security may be delayed or limited. The Master Portfolio will only enter
into repurchase agreements with registered broker/dealers, commercial banks and
other financial institutions that meet guidelines established by the Trust's
Board of Trustees and are not affiliated with the investment adviser. The Master
Portfolio may also participate in pooled repurchase agreement transactions with
other funds advised by Wells Fargo.
MONEY MARKET INSTRUMENTS
The Master Portfolio may invest in the following types of 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; and (iii) commercial paper rated at the date of purchase "P-1" by Moody's
or "A-1" or "A-1+" by S&P. The Master Portfolio 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; and (iii) have
branches or agencies in the United States.
OTHER INVESTMENT COMPANIES
The Master Portfolio may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the
Investment Company Act of 1940 (the "1940 Act"), and provided that (i) any such
purchases will be limited to temporary investments in shares of unaffiliated
investment companies and (ii) the investment adviser will waive its advisory
fees for that portion of the Master Portfolio's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. Subject to the limitations of the 1940 Act, the Master Portfolio
may purchase shares of exchange-listed closed-end funds consistent with pursuing
its investment objective. The Master Portfolio does not intend to invest more
than 5% of its net assets in such securities during the coming year.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), as a matter of fundamental policy, the Fund may invest all of its
assets in the securities of a single open-end management investment 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 the approval of
shareholders.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS
The Master Portfolio 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
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the security to be sold increases, before the settlement date. Although the
Master Portfolio will generally purchase securities with the intention of
acquiring them, the Master Portfolio may dispose of securities purchased on a
when-issued, delayed-delivery or a forward commitment basis before settlement
when deemed appropriate by Wells Fargo.
ADDITIONAL INVESTMENT POLICIES
The investment objective of the Master Portfolio and the Fund, as set forth
in the second paragraph under the heading "Investment Objectives, Policies and
Restrictions" is fundamental; that is, the investment objective may be changed
only with approval by the vote of the holders of a majority of the outstanding
voting securities of the Master Portfolio or the Fund, as applicable, and, as
described under "Capital Stock" in the SAI. If the Trust's Board of Trustees
determines, however, that the Master Portfolio's investment objective can best
be achieved by a substantive change in a non-fundamental investment policy or
strategy, the Trust may make such change without shareholder approval, and the
Company will disclose any such material changes in the Fund's then-current
prospectus.
In addition, as matters of fundamental policy, the Master Portfolio may,
among other things: (i) not purchase securities of any issuer (except U.S.
Government obligations) if as a result, with respect to 75% of the Master
Portfolio's assets, more than 5% of the value of the Master Portfolio's total
assets would be invested in the securities of such issuer or the Master
Portfolio would own more than 10% of the outstanding voting securities of such
issuer; (ii) borrow from banks up to 10% of the current value of its net assets
for temporary purposes only in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of its net assets
(but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets); (iii) not make loans of portfolio securities
having a value that exceeds 30% of the current value of its net assets; and (iv)
not invest 25% or more of its assets (i.e., concentrate) in any particular
industry, except that the Master Portfolio may invest 25% or more of its assets
in U.S. Government obligations.
As a matter of non-fundamental policy, the Master Portfolio may invest up
to 15% of the current value of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others: (i) securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale; (ii) fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days; and (iii)
repurchase agreements not terminable within seven days. Disposing of illiquid or
restricted securities may involve additional costs and require additional time.
RISK FACTORS
The price per share of the Fund will fluctuate with changes in value of the
Fund's investment in the Master Portfolio, which in turn, is determined by the
value of the Master Portfolio's investments. Shareholders of the Fund should,
therefore, expect the value of their shares to fluctuate with changes in the
value of the securities owned by the Master Portfolio.
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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.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries,
interest may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation or confiscatory taxation, political, social
and monetary instability or diplomatic developments that could adversely affect
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
There are special risks involved in investing in emerging-market countries.
Most are heavily dependent on international trade, and some are especially
vulnerable to recessions in other countries. Many of these countries are also
sensitive to world commodity prices. Some countries may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. Many
investments in emerging markets can be considered speculative, and their prices
can be much more volatile than in the more developed nations of the world. This
difference reflects the greater uncertainties of investing in less established
markets and economies. The financial markets of emerging markets countries are
generally less well capitalized and thus securities of issuers based in such
countries may be less liquid.
Illiquid securities, which may include certain restricted securities, may
be difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to the Master Portfolio.
The adviser may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of the Master Portfolio's investments. Derivatives are financial
instruments whose value is derived, at least in part, from the price of another
security or a specified asset, index or rate. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms. If the Master Portfolio's
adviser judges market conditions incorrectly, the use of certain derivatives
could result in a loss, regardless of the adviser's intent in using the
derivatives.
The Small Cap Master Portfolio pursues an active trading investment
strategy, and the length of time the Master Portfolio has held a particular
security is not generally a consideration in investment decisions. Accordingly,
the portfolio turnover rate for such Master Portfolio may be higher than that of
other funds that do not pursue an active trading investment strategy. Portfolio
turnover generally involves some expense to a Master Portfolio, including
brokerage commissions or dealer mark-ups
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<PAGE> 17
and other transaction costs on the sale of securities and the reinvestment in
other securities. Portfolio turnover also can generate short-term capital gains
tax consequences. These expenses and capital gain consequences will be passed on
to the Fund.
The market value of the Master Portfolio's investment in fixed-income
securities will change in response to changes in interest rates and the relative
financial strength of each issuer. During periods of falling interest rates, the
value of fixed-income securities generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater 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 also may affect the
value of these investments. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the net asset value of interests in the
Master Portfolio. 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 Master Portfolio, 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. 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 is, of course, no assurance that the Fund or Master Portfolio 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. See "Additional Permitted Investment Activities and Risk Factors" and
the SAI for further information about investment policies and risks.
HOW THE FUND WORKS
MASTER/FEEDER STRUCTURE
The Fund invests all of its assets in the Master Portfolio of the Trust
which has the same investment objective as the Fund. See "Investment Objective,
Policies and Restrictions" for a description of the Fund's and Master
Portfolio's objectives and policies and "Management of the Fund" for a
description of the Fund's and Master Portfolio's management. The Trust is
organized as a trust under the laws of the State of Delaware. See "Organization
and Capital Stock."
The Company's Board of Directors believes that if other investors invest
their assets in the Master Portfolio, certain economic efficiencies may be
realized with respect to the Master Portfolio. For example, fixed expenses that
otherwise would have been borne solely by the Fund would be spread among a
potentially 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 the Master Portfolio
are each liable for all obligations of the Master
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<PAGE> 18
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 the Trust itself is unable to meet its obligations. Accordingly, the
Company's Board of Directors believes that neither the Fund nor its shareholders
will be adversely affected by investing Fund assets in the Master Portfolio.
However, if there is no other investor in the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's 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 Fund" for additional description
of the Fund's and Master Portfolio's expenses and management.
The investment objective and other fundamental policies of the 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, Policies and Restrictions." Whenever the Fund, as an
interestholder of the 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 the Master Portfolio which are non-fundamental may be
changed by vote of a majority of the Trust's Trustees without interestholder
approval. If the Master Portfolio's investment objective or fundamental or
non-fundamental policies are changed, the 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, 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. The 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 Objective, Policies and Restrictions" for
additional information regarding the Fund's and the Master Portfolio's
investment objectives and policies. Additional information regarding the
officers and Directors/Trustees of the Company and the Trust is located in the
Fund's SAI under "Management."
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
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. For a description of the management and expenses of the Fund
and the Master Portfolio, see the Prospectus section "Management of the Fund."
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MANAGEMENT OF THE FUND
The Company has retained the services of Stephens as administrator and
distributor for the Fund but has not retained the services of an investment
adviser for the Fund since the Company seeks to achieve the investment objective
of the Fund by investing all of the Fund's assets in the Master Portfolio. The
Company's Board of Directors supervises the actions of the Fund's administrator
and distributor, as set forth below, and decides upon matters of general policy.
As noted above, the Fund may withdraw its investment in the Master Portfolio
only if the Board of Directors of the Company determines that it is in the best
interests of the Fund and its shareholders to do so. Upon any such withdrawal,
the Board of Directors of the Company would consider what action might be taken,
including the investment of all the assets of the Fund in another pooled
investment entity having the same investment objective as the Fund or the hiring
of an investment adviser to manage the Fund's assets in accordance with the
investment policies described above with respect to the Master Portfolio.
The Master Portfolio has retained the services of Wells Fargo as investment
adviser and Stephens as administrator and distributor. The Board of Trustees of
the Trust is responsible for the general management of the Master Portfolio and
supervising the actions of Wells Fargo and Stephens in these capacities.
Additional information regarding the Officers and Directors of the Company and
the Officers and Trustees of the Trust is included in the Fund's SAI under
"Management."
INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, the Master Portfolio is
advised by Wells Fargo. Wells Fargo, one of the largest banks in the United
States, was founded in 1852 and is the oldest bank in the western United States.
As of June 30, 1996, Wells Fargo and its affiliates managed more than $56
billion of assets of individuals, trusts, estates and institutions. Wells Fargo
is the investment adviser to the other separately managed series of the Company
(other than those structured as "feeder funds"), and acts as adviser or
sub-adviser to five other registered open-end management investment companies,
each of which consists of several separately managed investment portfolios.
Wells Fargo is located at 420 Montgomery Street, San Francisco, California 94105
and is a wholly owned subsidiary of Wells Fargo & Company.
Under the Investment Advisory Contract with the Master Portfolio, Wells
Fargo has agreed to furnish to the Master Portfolio investment guidance and
policy direction in connection with the daily portfolio management of the Master
Portfolio. Pursuant to the Investment Advisory Contract, Wells Fargo also
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Master Portfolio.
For its services under the Investment Advisory Contract, Wells Fargo is
entitled to receive a monthly advisory fee at the annual rate of 0.60% of the
average daily net assets of the Master Portfolio. From time to time, Wells Fargo
may waive such fees in whole or in part. Any waiver would reduce expenses of the
Master Portfolio and, accordingly, have a favorable impact on the performance of
the Master Portfolio and, in turn, the Fund.
Mr. Jon Hickman, as Manager of the Growth Equity Team, has overseen the
management of the Master Portfolio since its inception. In addition, Mr. Hickman
also manages equity and balanced
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portfolios for individuals and employee benefit plans. He has over ten years of
experience in the investment management field and is a member of Wells Fargo's
Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in finance from
Brigham Young University and has been with Wells Fargo since its merger with
Crocker National Bank in 1986.
Ms. Sandra Thornton, as portfolio co-manager of the Master Portfolio, is
primarily responsible for the day-to-day management of the Master Portfolio. Ms.
Thornton has been co-manager of the Master Portfolio since its inception. Ms.
Thornton co-managed the Small Capitalization Fund from November, 1994 until the
transfer of its assets to the Master Portfolio in September 1996. Ms. Thornton
manages other equity portfolios for Wells Fargo and is a member of the Wells
Fargo Growth Equity Team. Prior to joining Wells Fargo in 1993, she worked in
the research department of RCM Capital Management beginning in 1991. She
obtained her license as a Certified Public Accountant from the State of
California while performing tax/financial planning services at Price Waterhouse.
She holds a B.A. from Albertus Magnus College and is a Chartered Financial
Analyst.
Mr. Steve Enos, as portfolio co-manager of the Master Portfolio, also is
primarily responsible for the day-to-day management of the Master Portfolio. Mr.
Enos has been co-manager of the Master Portfolio since its inception. Mr. Enos
co-managed the Collective Investment Fund since November 1994 until the transfer
of its assets to the Master Portfolio in September 1996. Mr. Enos joined Wells
Fargo and is a member of the Wells Fargo Growth Equity Team. He began his career
with First Interstate Bank, where he was assistant vice president and portfolio
manager. From 1991 to 1993, Mr. Enos was a principal at Dolan Capital Management
where he managed both personal and pension portfolios. Mr. Enos received his
undergraduate degree in economics from the University of California at Davis.
Mr. Enos is a Chartered Financial Analyst and a member of the Association for
Investment Management and Research.
Purchase and sale orders of the securities held by the Master Portfolio may
be combined with those of other accounts that Wells Fargo manages, and for which
it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo determines that a particular
security should be bought or sold for the Master Portfolio and other accounts
managed by Wells Fargo, Wells Fargo undertakes to allocate those transactions
among the participants equitably. From time to time, the Master Portfolio, to
the extent consistent with its investment objective, policies and restrictions,
may invest in securities of companies with which Wells Fargo has a lending
relationship.
Morrison & Foerster, LLP, counsel to the Company and special counsel to
Wells Fargo, has advised the Company and Wells Fargo that Well Fargo Bank and
its affiliates may perform the services contemplated by the Investment Advisory
Contract and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations 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, that 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.
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SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens, 111 Center Street, Little Rock, Arkansas 72201, has entered into
agreements with the Company and the Trust under which Stephens acts as
administrator for the Fund and the Master Portfolio. For these administrative
services, Stephens is entitled to receive from the Fund a monthly fee at the
annual rate of 0.10% of its average daily net assets. From time to time,
Stephens may waive fees from the Fund in whole or in part. Any such waiver will
reduce expenses of the Fund and, accordingly, have a favorable impact on the
yield or return of the Fund. Under the agreement with the Trust, Stephens is not
entitled to receive a fee for providing administrative services to the Master
Portfolio so long as Stephens is entitled to be compensated for providing
administrative services to another mutual fund that invests all of its assets in
the Master Portfolio.
Under the respective Administration Agreements with the Fund and the Master
Portfolio, Stephens has agreed to provide as administrative services, among
other things, (i) general supervision of the operation of the Fund and the
Master Portfolio, including coordination of the services performed by the
various service providers, including the investment adviser (for the Master
Portfolio), transfer agent, custodian, 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 the preparation of proxy
statements and shareholder reports for the Fund and the Master Portfolio; and
(iii) general supervision of the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors and the Trust's Board of Trustees. Stephens also furnishes office
space and certain facilities required for conducting the business of the Fund
and the Master Portfolio and pays the compensation of the directors, officers
and employees of the Company and the Trust who are affiliated with Stephens.
Stephens, as the principal underwriter of the Fund within the meaning of
the 1940 Act, has entered into a Distribution Agreement with the Company
pursuant to which Stephens has the responsibility for distributing Fund shares.
Stephens bears the cost of printing and mailing prospectuses to potential
investors and any advertising expenses incurred by it in connection with the
distribution of shares. In addition, Stephens has established a non-cash
compensation program, pursuant to which broker/dealers or financial institutions
that sell shares of the Funds may earn additional compensation in the form of
trips to sales seminars or vacation destinations, tickets to sporting events,
theater or other entertainment, opportunities to participate in golf or other
outings and gift certificates for meals or merchandise. See "Distribution Plans"
for additional information.
Stephens serves as placement agent for the Master Portfolio for which it is
not compensated. Stephens is a full service broker/dealer and investment
advisory firm. Stephens and its predecessor have been providing securities and
investment services for more than 60 years. Additionally, they have been
providing discretionary portfolio management services since 1983. Stephens
currently manages investment portfolios for pension and profit sharing plans,
individual investors, foundations, insurance companies and university
endowments.
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SERVICING AGENTS
The Fund may enter into servicing agreements with one or more servicing
agents on behalf of Class B and Class D Shares of the Fund. Under such
agreements, servicing agents provide shareholder liaison services, which may
include responding to customer inquiries and providing information on
shareholder investments, and provide such other related services as the Fund or
a Class B or Class D shareholder may reasonably request. For these services, a
servicing agent receives a fee which will not exceed, on an annualized basis for
the Fund's then current fiscal year, the lesser of 0.25% of the average daily
net asset value of the Class B and Class D Shares of the Fund owned by investors
with whom the servicing agent maintains a servicing relationship, or an amount
which equals the maximum amount payable to the servicing agent under applicable
laws, regulations or rules.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo has been retained to act as the custodian and transfer and
dividend disbursing agent for the Fund and the Master Portfolio. Wells Fargo's
principal place of business is 420 Montgomery Street, San Francisco, California
94105, and its transfer and dividend disbursing agency activities are managed at
525 Market Street, San Francisco, California 94105. For its services as
custodian to the Fund, Wells Fargo is entitled to a net asset charge at the
annual rate of 0.0167%, payable monthly, plus specified transaction charges. For
its services as transfer and dividend disbursing agent to the Fund, Wells Fargo
is entitled to receive a monthly fee at the annual rate of 0.070% of the Fund's
average daily net assets.
FUND EXPENSES
The Master Portfolio's Investment Advisory Contract and the Administration
Agreements with the Master Portfolio and the Fund provide that, if in any fiscal
year, the total aggregate expenses of the Master Portfolio and the Fund incurred
by, or allocated to, the Master Portfolio and the Fund (excluding taxes,
interest, brokerage commissions and other portfolio transaction expenses,
expenditures that are capitalized in accordance with generally accepted
accounting principles, extraordinary expenses and amounts accrued or paid under
a Plan) exceed the most restrictive expense limitation applicable to a Fund
imposed by the securities laws or regulations of the states in which the Fund's
shares are registered for sale, Wells Fargo and Stephens shall waive their fees
proportionately under the Investment Advisory Contract and the Administration
Agreements, respectively, for the fiscal year to the extent of the excess, or
reimburse the excess, but only to the extent of their respective fees. The
Investment Advisory Contract and the Administration Agreements further provide
that the total expenses shall be reviewed monthly so that, to the extent the
annualized expenses for such month exceed the most restrictive applicable annual
expense limitation, the monthly fees under the Investment Advisory Contract and
the Administration Agreements shall be reduced as necessary. Currently, the most
stringent applicable state expense ratio limitation is 2.50% of the first $30
million of the Fund's average net assets for its current fiscal year, 2% of the
next $70 million of such assets, and 1.50% of such assets in excess of $100
million.
Except for the expenses borne by Wells Fargo and Stephens, the Fund and the
Master Portfolio bear all costs of their respective operations, including the
compensation of the Company's directors and the Trust's trustees who are not
officers or employees of Wells Fargo or Stephens or any of their
14
<PAGE> 23
affiliates; advisory (in the case of the Master Portfolio), shareholder
servicing (in the case of the Fund), and administration fees; payments pursuant
to any Plans (in the case of the Fund); interest charges; taxes; fees and
expenses of independent auditors; legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming Fund shares or interests in the Master
Portfolio; expenses of preparing and printing prospectuses (except the expense
of printing and mailing prospectuses used for promotional purposes, unless
otherwise payable pursuant to a Plan), shareholders' or investors' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of the custodian, including those of
keeping books and accounts and calculating the net asset value of the Fund and
the Master Portfolio; expenses of shareholders' or investors' meetings; expenses
relating to the issuance, registration and qualification of shares of the Fund;
pricing services; organizational expenses; and any extraordinary expenses.
Expenses attributable to the Fund and/or the Master Portfolio are charged
against the respective assets of the Fund and/or the Master Portfolio. A pro
rata portion of the expenses of the Company or Trust are charged against the
assets of the Fund or Master Portfolio as applicable.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined by Wells Fargo on each
day that the Exchange is open for trading as of the close of regular trading on
the Exchange (referred to hereafter as the "close of the Exchange"), which is
currently 1:00 p.m. Pacific time. The net asset value of each class is expected
to fluctuate daily and is based on the net asset value of the Small Cap Master
Portfolio in which the Fund invests. The net asset value of a share of a class
of the Fund is the value of total net assets attributable to such Class divided
by the number of outstanding shares of that class.
The net asset value of the Master Portfolio is determined as of the close
of the Exchange, which is currently 1:00 p.m. Pacific time. The net asset value
of an interest in the Master Portfolio is the value of the Master Portfolio's
total assets divided by the number of Master Portfolio interests outstanding.
Except for debt obligations with remaining maturities of 60 days or less, which
are valued at amortized cost, assets are valued at current market prices or, if
such prices are not readily available, at fair value as determined in good faith
by the Board of Trustees. Prices used for such valuations may be provided by
independent pricing services.
PERFORMANCE DATA
The performance of each class of shares of the Fund may be advertised in
terms of average annual total return and cumulative total return. These
performance figures are based on historical results and are not intended to
indicate future performance. Performance figures are calculated separately for
each class.
Average annual total return on the shares of each class is based on the
overall dollar or percentage change in value of a hypothetical investment in
such shares and assumes that all dividends and capital gain distributions
attributable to such class are reinvested in shares of that
15
<PAGE> 24
class. The standardized average annual total return as calculated for Class A
Shares assumes that you have paid the maximum sales charge and, as calculated
for Class B and Class D Shares, assumes you have paid the maximum applicable
contingent deferred sales charge on your hypothetical investment. Cumulative
total return is calculated similarly except that the return figure is aggregated
over the relevant period instead of annualized.
In addition to presenting standardized total return, the Funds also may
present nonstandardized total returns and distribution rates for purposes of
sales literature. For example, the performance figure of a class may be
calculated on the basis of an investment at the net asset value per share or at
net asset value per share plus a reduced sales charge (see "Investing in the
Funds -- How to Buy Shares"), rather than the public offering price per share.
In this case, the figure might not reflect the effect of the sales charge that
you may have paid.
Because of differences in the fees and/or expenses borne by each class of
shares, the performance on any such class of shares can be expected, at any
given time, to differ from the performance on any other such class of shares.
Additional information about the performance of the Fund will be contained in
the Annual Report for the Fund. The Annual Report, when available, may be
obtained free of charge by calling the Company at 800-552-9612.
The performance information advertised by the Fund for periods prior to
September 16, 1996, the date the Master Portfolio commenced operations, is based
upon the prior performance of the Small Capitalization Growth Fund for BRP
Employee Retirement Plans, a Wells Fargo Bank Collective Investment Fund for
Business Retirement Programs (the "CIF"). The performance information is
adjusted to reflect the Fund's and the Master Portfolio's current level of
operating expenses, including any front-end sales loads or contingent deferred
sales charges. The prior performance of the CIF is deemed relevant because the
Fund invests all of its assets in the Master Portfolio which acquired the assets
of the CIF immediately prior to the commencement of the Fund's operations. The
Master Portfolio, as successor to the assets of the CIF, is managed by Wells
Fargo in a manner that is in all material respects equivalent to the management
of the CIF.
PURCHASE OF SHARES
The minimum initial purchase amount for the Fund is generally $1,000. The
minimum initial purchase amount is $100 for purchases through the Systematic
Purchase Plan and $250 for purchases through a retirement plan qualified under
the Code. The minimum subsequent purchase amount is generally $100. The minimum
initial or subsequent purchase amount requirements may be waived or lowered for
investments effected on a group basis by certain entities and their employees,
such as pursuant to a payroll deduction or other accumulation plan. The Company
reserves the right to reject any purchase order. All funds, net of sales loads,
will be invested in full and fractional shares. Checks will be accepted for the
purchase of the Fund's shares, subject to collection at full face value in U.S.
dollars. Inquiries concerning purchases may be directed to the Company at (800)
572-7797 or at the address on the front cover of the Prospectus.
Shares of the Fund may be purchased on any day the Exchange is open for
trading through Stephens, the Transfer Agent, or any authorized broker/dealers
or financial institutions with which
16
<PAGE> 25
Stephens has entered into agreements. Such broker/dealers or financial
institutions are responsible for the prompt transmission of purchase, exchange
or redemption orders, and may independently establish and charge additional fees
to their clients for such services, other than services related to purchase
orders, which would reduce the clients' overall yield or return. The Exchange is
closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day (each, a
"Holiday"). When any Holiday falls on a Saturday, the Exchange usually is closed
the preceding Friday, and when any Holiday falls on a Sunday, the Exchange is
usually closed the following Monday.
Shares of the Fund are offered continuously at the applicable offering
price (including any sales load) next determined after a purchase order is
received. Payment for shares purchased through a broker/dealer will not be due
from the broker/dealer until the settlement date, three business days after the
order is placed. It is the broker/dealer's responsibility to forward payment for
shares being purchased to the Fund promptly. Payment for orders placed directly
through the Transfer Agent must accompany the order.
Wells Fargo, as investment adviser, reserves the right to close the Small
Cap Strategy Fund to new investors at its discretion and may reopen and close
the Fund thereafter to new investors. If the Fund is closed, shareholders who
maintain open accounts with the Fund may make additional investments in the
Fund.
When payment for shares of the Fund through the Transfer Agent is by a
check that is drawn on any member bank of the Federal Reserve System, federal
funds normally become available to the Fund on the business day after the day
the check is deposited. Checks drawn on a non-member bank or a foreign bank may
take substantially longer to be converted into federal funds and, accordingly,
may delay execution of an order.
When shares of the Fund are purchased through a broker/dealer or financial
institution, Stephens reallows that portion of the sales load designated below
as the Dealer Allowance. Stephens has established a non-cash compensation
program, pursuant to which broker/dealers or financial institutions that sell
shares of the Fund may earn additional compensation in the form of trips to
sales seminars or vacation destinations, tickets to sporting events, theater or
other entertainment, opportunities to participate in golf or other outings and
gift certificates for meals or merchandise. If all sales charges are paid or
reallowed to a broker/dealer or financial institution, it may be deemed an
"underwriter" under the Securities Act of 1933. When shares are purchased
directly through the Transfer Agent and no broker/dealer or financial
institution is involved with the purchase, the entire sales load is paid to
Stephens.
17
<PAGE> 26
Sales loads relating to orders for the purchase of Class A Shares in the
Fund are as follows:
<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD ALLOWANCE
AS % OF AS % OF NET AS % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------------------------------------------------ ---------- ----------- ---------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.50% 4.71% 4.05%
$100,000 up to $199,999..................................... 4.00 4.17 3.60
$200,000 up to $399,999..................................... 3.50 3.63 3.15
$400,000 up to $599,999..................................... 2.50 2.56 2.25
$600,000 up to $799,999..................................... 2.00 2.04 1.80
$800,000 up to $999,999..................................... 1.00 1.01 0.90
$1,000,000 up to $2,499,999................................. 0.60 0.60 0.50
$2,500,000 up to $4,999,999................................. 0.40 0.40 0.40
$5,000,000 up to $8,999,999................................. 0.25 0.25 0.25
$9,000,000 and over......................................... 0.00 0.00 0.00
</TABLE>
The Fund's Class B and Class D Shares are not subject to front-end sales
charges. Class B Shares that are redeemed within one, two, three or four years
from the receipt of a purchase order affecting such shares are subject to a
contingent-deferred sales charge equal to 3.00%, 2.00%, 2.00% or 1.00%,
respectively, of the dollar amount equal to the lesser of the net asset value at
the time of purchase of the shares being redeemed or the net asset value of such
shares at the time of redemption (the "Net Asset Value Amount"). Class D Shares
that are redeemed within one year from the receipt of a purchase order affecting
such shares are subject to a contingent-deferred sales charge equal to 1.00% of
the Net Asset Value Amount. See "Investing in the Funds -- Contingent-Deferred
Sales Charges -- Class B and Class D Shares."
A selling agent or servicing agent and any other person entitled to receive
compensation for selling or servicing shares may receive different compensation
for selling or servicing Class A Shares as compared with Class B and Class D
Shares.
REDUCED SALES CHARGE -- CLASS A SHARES
The above Volume Discounts are available to you based on the combined
dollar amount being invested in Class A Shares of the Fund or of Class A Shares
of one or more of the other portfolios of the Company which assess a sales load
(the "Load Funds"). Because Class B and Class D Shares are not subject to a
front-end sales charge, the amount of Class B or Class D Shares you hold is not
considered in determining any volume discount.
The Right of Accumulation allows you to combine the amount being invested
in Class A Shares of the Fund with the total net asset value of Class A Shares
in any of the Load Funds already owned in accordance with the above sales load
schedule to reduce the sales load. For example, if you own Class A Shares of the
Load Funds with an aggregate net asset value of $90,000 and invest an additional
$20,000 in the Class A Shares of the Fund, the sales load on the entire
additional amount would be 4.00% of the offering price. To obtain such discount,
you must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales load,
18
<PAGE> 27
and confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time with respect to all
Class A Shares purchased thereafter.
A Letter of Intent allows you to purchase Class A Shares of the Fund over a
13-month period at reduced sales loads based on the total amount intended to be
purchased plus the total net asset value of Class A Shares in any of the Load
Funds already owned. Each investment made during the period receives the reduced
sales load applicable to the total amount of the intended investment. If such
amount is not invested within the period, you must pay the difference between
the sales loads applicable to the purchases made and the charges previously
paid.
You may Reinvest proceeds from a redemption of Class A Shares of the Fund
in the Class A Shares of the Fund or in Class A Shares of another of the
Company's investment portfolios that offers Class A Shares at net asset value,
without a sales load, within 120 days after such redemption. However, if the
other investment portfolio charges a sales load that is higher than the sales
load you have paid in connection with the Class A Shares you have redeemed, you
pay the difference. In addition, the Class A Shares of the other investment
portfolio to be acquired must be registered for sale in your state of residence.
The amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of the Class A Shares must be
received by the Fund or the Transfer Agent within 120 days after the effective
date of the redemption.
If you realized a gain on your redemption, the reinvestment will not alter
the amount of any federal capital gains tax payable on the gain. If you realized
a loss on your redemption, the reinvestment may cause some or all of such loss
on the redemption to be disallowed as a tax deduction, depending on the number
of Class A Shares purchased by reinvestment during the period of time that has
elapsed after the redemption, although for tax purposes, the amount disallowed
is added to the cost of the Class A Shares acquired upon the reinvestment.
Reductions in front-end sales loads apply to purchases by a single
"person," including an individual, members of a family unit, consisting of a
husband, wife, and children under the age of 21 purchasing securities for their
own account, or a trustee or other fiduciary purchasing for a single fiduciary
account or single trust estate.
Reductions in front-end sales loads also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A Shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring shares of the Fund at a
reduced sales load, and the "related parties" of such company. For purposes of
this paragraph, a "related party" of a company is: (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote five
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote five percent or more of its outstanding voting securities;
(iii) any other company under common control with such company; (iv) any
executive officer, director or partner of such company or of a related party;
and (v) any partnership of which such company is a partner.
Purchases may be made at net asset value, without a front-end sales charge,
to the extent that you are investing proceeds from a redemption of shares of
another open-end investment company for
19
<PAGE> 28
which you paid a front-end sales load and such redemption occurred within thirty
(30) days prior to the date of the purchase order. You must notify the Fund
and/or the transfer agent at the time you place such purchase order of your
eligibility for the waiver of front-end sales charges and provide satisfactory
evidence thereof (e.g., a confirmation of the redemption and the load paid).
Such purchases may not be made at net asset value to the extent the proceeds are
from a redemption of shares of another open-end investment company that is
affiliated with the Company on which you paid a contingent deferred sales charge
upon redemption.
Class A Shares of the Fund may be purchased at net asset value, without a
sales load, by Directors, officers and employees (and their spouses, parents,
children and siblings) of the Company, Stephens, its affiliates and other
broker/dealers that have entered into agreements with Stephens to sell such
shares. Class A Shares of the Fund also may be purchased at a purchase price
equal to the net asset value of such shares, without a sales load, by present
and retired Directors, officers and employees (and their spouses, parents,
children and siblings) of Wells Fargo and its affiliates if Wells Fargo and/or
the respective affiliates agree. Such shares also may be purchased at such price
by employee benefit and thrift plans for such persons and by any investment
advisory, trust or other fiduciary account (other than an individual retirement
account) that is maintained, managed or advised by Wells Fargo or Stephens or
their affiliates.
Class A Shares of the Fund may be purchased at net asset value (without
payment of a sales load) by the following types of investors when the trades are
placed through an omnibus account maintained with the Fund by a broker/dealer:
trust companies; retirement and deferred compensation plans and the trusts used
to fund these plans; investment advisers and financial planners who charge a
management, consulting or other fee for their services and who place trades on
their own behalf or on behalf of their clients; and clients of such investment
advisers or financial planners who place trades on their own behalf if the
clients' accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker/dealer.
By investing in the Fund, a shareholder appoints the Transfer Agent, as
agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares of the Fund can be obtained on request. It is more complicated to redeem
shares held in certificated form, and the expedited redemption described below
is not available with respect to certificated shares.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B AND CLASS D SHARES
The Fund's Class B and Class D Shares are not subject to front-end sales
charges but may be subject to contingent-deferred sales charges. Class B Shares
that are redeemed within one, two, three or four years from receipt of a
purchase order for such shares are subject to a contingent-deferred sales charge
equal to 3.00%, 2.00%, 2.00% and 1.00%, respectively, of the dollar amount equal
to the lesser of the net asset value at the time of purchase of the shares being
redeemed or the net asset value of such shares at the time of redemption. Class
D Shares that are redeemed within one year from the receipt of a purchase order
for such shares are subject to a contingent-deferred sales charge equal to 1.00%
of the dollar amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of such shares at
the time of redemption.
20
<PAGE> 29
Contingent-deferred sales charges are not imposed on amounts representing
increases in net asset value above the net asset value at the time of purchase
and are not assessed on Class B and Class D Shares purchased through
reinvestment of dividends or capital gains distributions. Class B Shares
automatically convert to Class A Shares of the same Fund seven years after the
end of the month in which such Class B Shares were acquired.
The amount of a contingent-deferred sales charge, if any, paid upon
redemption of Class B and Class D Shares is determined in a manner designed to
result in the lowest sales charge rate being assessed. When a redemption request
is made, Class B and Class D Shares acquired pursuant to the reinvestment of
dividends and capital gain distributions are considered to be redeemed first.
After this, Class B and Class D Shares are considered redeemed on a first-in,
first-out basis so that such shares held for a longer period of time are
considered redeemed prior to more recently acquired Class B and Class D Shares.
For a discussion of the interaction between the optional Exchange Privilege and
contingent-deferred sales charges on Class B and Class D Shares, see "Additional
Shareholder Services -- Exchange Privilege."
The contingent deferred sales charge is waived on redemptions of Class B or
Class D Shares (i) following the death or disability (as defined in the Code) of
a shareholder, (ii) to the extent that the redemption represents a minimum
required distribution from an individual retirement account or other retirement
plan to a shareholder who has reached age 59 1/2, (iii) effected pursuant to the
Company's right to liquidate a shareholder's account if the aggregate net asset
value of the shareholder's account is less than the minimum account size, or
(iv) in connection with the combination of the Company with any other registered
investment company by a merger, acquisition of assets, or by any other
reorganization transaction.
Investors who are entitled to purchase Class A Shares of the Fund at net
asset value without a sales load should not purchase Class B or Class D Shares.
Other investors, including those who are entitled to purchase Class A Shares of
the Fund at a reduced sales load, should compare the fees assessed on Class A
Shares against those assessed on Class B and Class D Shares (including potential
contingent deferred sales charges and higher Rule 12b-1 Fees) in light of the
amount to be invested and the anticipated time that the shares will be owned.
Shares of the Fund may be purchased by any of the methods described below.
INITIAL PURCHASE OF FUND SHARES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name of the Fund, the class
of shares to be purchased, the name(s) in which the shares are to be registered,
the address and social security number (or tax identification number, where
applicable) of the person or entity in whose name(s) the shares are to be
registered, dividend payment election, amount to be wired, name of the wiring
bank and name and telephone number of the person to be contacted in connection
with the order. An account number will be assigned.
21
<PAGE> 30
2. Instruct the wiring bank, which may charge a separate fee, to transmit
the specified amount in federal funds ($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: Overland Express Small Cap Strategy Fund (designate Class)
Account Name(s): (name(s) in which to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by
telefacsimile with the original subsequently mailed, to the following address
immediately after the funds are wired and must be received and accepted by the
Transfer Agent before an account can be opened:
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the public offering price, or, in the
case of Class B and Class D Shares, at the net asset value, next determined
after the Account Application is received and accepted.
INITIAL PURCHASE OF FUND SHARES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Overland Express Small Cap Strategy Fund (designate Class)" to its mailing
address set forth above.
ADDITIONAL PURCHASES
Additional purchases of $100 or more may be made by instructing the Fund's
Transfer Agent to debit an approved account designated in your Account
Application, by wire by instructing the wiring bank to transmit the specified
amount as directed above for initial purchases, or by mail with a check payable
to "Overland Express Small Cap Strategy Fund (designate Class)" to the above
address. Write the Fund account number on the check and include the detachable
stub from a Statement of Account or a letter providing the account number.
SYSTEMATIC PURCHASE PLAN
The Company's Systematic Purchase Plan provides you with a convenient way
to establish and automatically add to your existing accounts on a monthly basis.
If you elect to participate in this plan you must specify an amount ($100 or
more) to be withdrawn automatically by the Transfer Agent on a monthly basis
from an approved bank account designated in your Account Application (an
"Approved Bank Account"). The Transfer Agent withdraws and uses this amount to
purchase shares of the Fund on or about the fifth business day of each month.
The Transfer Agent requires a minimum
22
<PAGE> 31
of ten (10) business days to implement your Systematic Purchase Plan upon
notification. There are no additional fees charged for participating in this
plan.
You may change the investment amount, the date on which your Systematic
Purchase is effected and suspend purchases or terminate the election at any time
by providing written notice to the Transfer Agent at least five (5) business
days prior to any scheduled transaction. An election will be terminated
automatically if your Approved Bank Account balance is insufficient to make a
scheduled withdrawal, or if either the Approved Bank Account or your Fund
Account is closed.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for shares of the Fund placed through authorized
broker/dealers and financial institutions by the close of the Exchange on any
day that the Fund's shares are offered for sale, including orders for which
payment is to be made from free cash credit balances in securities accounts held
by a dealer, will be effective on the same day the order is placed if received
by the Transfer Agent before the close of business. Purchase orders that are
received by a dealer or financial institution after the close of the Exchange or
by the Transfer Agent after the close of business generally will be effective on
the next day that shares are offered. The broker/dealer or financial institution
is responsible for the prompt transmission of purchase orders to the Transfer
Agent. Payment for Fund shares is not due until settlement date. Broker/dealers
and financial institutions may benefit from temporary use of payments to the
Fund during the settlement period. A broker/dealer or financial institution that
is involved in a purchase transaction may charge separate account, service or
transaction fees. Financial institutions may be required to register as dealers
pursuant to applicable state securities laws, which may differ from federal law
and any interpretations expressed herein.
EXCHANGE PRIVILEGES
CLASS A SHARES -- Class A Shares of the Fund may be exchanged for shares of
the same class of the Company's other investment portfolios or for shares of the
California Tax-Free Money Market Fund, the Money Market Fund or the U.S.
Treasury Money Market Fund in an identically registered account at respective
net asset values. However, if the other investment portfolio charges a sales
load on the purchase of the class of shares being exchanged that is higher than
the sales load that you have paid in connection with the shares you are
exchanging, you must pay the difference between sales loads. In addition, shares
of the other investment portfolio to be acquired must be registered for sale in
your state of residence. You should obtain, read and retain the Prospectus for
the portfolio which you desire to exchange into before submitting an exchange
order.
CLASS B SHARES -- Class B Shares of the Fund may be exchanged for Class A
Shares of the Money Market Fund in an identically registered account at
respective net asset values. You are not charged a contingent deferred sales
charge on exchanges of Class B Shares for shares of the Class A Shares of the
Money Market Fund. If you exchange Class B Shares for shares of the Class A
Shares of the Money Market Fund, the remaining period of time (if any) that the
contingent deferred sales charge is in effect will be computed from the time of
the initial purchase of the previously held shares. Accordingly, if you exchange
Class B Shares for Class A Shares of the Money Market Fund, and
23
<PAGE> 32
redeem the shares of the Money Market Fund within one year of the receipt of the
purchase order for the exchanged Class B Shares, you will have to pay a deferred
sales charge equal to the contingent deferred sales charge applicable to the
previously exchanged Class B Shares. If you exchange Class B Shares for Class A
Shares of the Money Market Fund, you may subsequently re-exchange the acquired
Class A Shares only for such Class B Shares. If you re-exchange the Class A
Shares of the Money Market Fund for Class B Shares, the remaining period of time
(if any) that the contingent deferred sales charge is in effect will be computed
from the time of your initial purchase of such Class B Shares. In addition, the
Class A Shares of the Money Market Fund to be acquired in an exchange must be
registered for sale in your state of residence. You should obtain, read and
retain the Prospectus for the Class A Shares of the Money Market Fund before
submitting an exchange order.
CLASS D SHARES -- Class D Shares of the Fund may be exchanged for Class D
Shares of one of the Company's other investment portfolios that offer such
shares or for Class A Shares of the Money Market Fund in an identically
registered account at respective net asset values. You are not charged a
contingent deferred sales charge on exchanges of Class D Shares for shares of
the same class of another of the Company's investment portfolios or for Class A
Shares of the Money Market Fund. If you exchange Class D Shares for shares of
the same class of another investment portfolio, or for Class A Shares of the
Money Market Fund, the remaining period of time (if any) that the contingent
deferred sales charge is in effect will be computed from the time of the initial
purchase of the previously held shares. Accordingly, if you exchange Class D
Shares for Class A Shares of the Money Market Fund, and redeem the shares of the
Money Market Fund within one year of the receipt of the purchase order for the
exchanged Class D Shares, you will have to pay a deferred sales charge equal to
the contingent deferred sales charge applicable to the previously exchanged
Class D Shares. If you exchange Class D Shares of an investment portfolio for
Class A Shares of the Money Market Fund, you may subsequently re-exchange the
acquired Class A Shares only for such Class D Shares. If you re-exchange the
Class A Shares of the Money Market Fund for Class D Shares, the remaining period
of time (if any) that the contingent deferred sales charge is in effect will be
computed from the time of your initial purchase of such Class D Shares. In
addition, shares of the other investment portfolio to be acquired must be
registered for sale in your state of residence. You should obtain, read and
retain the Prospectus for the portfolio which you desire to exchange into before
submitting an exchange order.
GENERAL PROCEDURES -- You may exchange shares by writing the Transfer Agent
as indicated below under Redemption by Mail, or by calling the Transfer Agent or
your authorized broker/dealer or financial institution or servicing agent,
unless you have elected not to authorize telephone exchanges in the Account
Application (in which case you may subsequently authorize such telephone
exchanges by completing a Telephone Exchange Authorization Form and submitting
it to the Transfer Agent in advance of the first such exchange). Shares held in
certificated form may not be exchanged by telephone. The Transfer Agent's number
for telephone exchanges is (800) 572-7797.
Procedures applicable to redemption of the Fund's shares are also
applicable to exchanging shares, except that, with respect to an exchange
transaction between accounts registered in identical names, no signature
guarantee is required unless the amount being exchanged exceeds $25,000. The
Company reserves the right to limit the number of times shares may be exchanged
between
24
<PAGE> 33
investment portfolios, or to reject in whole or in part any exchange request
into a fund when management believes that such action would be in the best
interest of the Fund's other shareholders, such as when management believes that
such action would be appropriate to protect such fund against disruptions in
portfolio management resulting from frequent transactions by those seeking to
time market fluctuations. 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 Company reserves the
right to modify or discontinue exchange privileges at any time. Under SEC rules,
60 days prior notice of any amendments or termination of exchange privileges
will be given to shareholders, except under certain extraordinary circumstances.
A capital gain or loss for federal income tax purposes may be realized upon an
exchange, depending upon the cost or other basis of shares exchanged.
TELEPHONE EXCHANGE PRIVILEGES -- Telephone redemption or exchange
privileges are made available to you automatically upon opening an account,
unless you decline such 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 Company will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine. If the Transfer Agent does not follow such procedures,
the Company and the Transfer Agent may be liable for any losses attributable to
unauthorized or fraudulent instructions. Neither the Company nor the Transfer
Agent will be liable for following telephone instructions reasonably believed to
be genuine.
CONVERSION -- CLASS B SHARES
The Fund's Class B Shares that have been outstanding for seven years after
the end of the month in which the shares were initially purchased automatically
convert to the Fund's Class A Shares. Consequently, such converted shares will
no longer be subject to the higher Rule 12b-1 fees applicable to Class B Shares
of the Fund. Such conversion is effected on the basis of the relative net asset
value of the two classes, without the imposition of any sales charge or other
charge except that the lower Rule 12b-1 fees applicable to Class A Shares shall
thereafter be applied to such converted shares. Because the per share net asset
value of the Class A Shares may be higher than that of the Class B Shares at the
time of conversion, a shareholder may receive fewer Class A Shares than the
number of Class B Shares converted, although the dollar value will be the same.
Reinvestments of dividends and distributions in Class B are considered new
purchases for purposes of the conversion feature. A conversion should not
provide a gain or loss for federal income tax purposes.
If a shareholder effects one or more exchanges among Class B Shares of any
fund, or among shares of the Money Market Mutual Funds during the seven-year
period and exchanges back into Class B Shares, the holding period for the shares
so exchanged is counted toward the seven-year period, and any Class B Shares
held at the end of seven years are converted into Class A Shares.
25
<PAGE> 34
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after
receipt of a request in proper form by the Transfer Agent directly or through
any authorized broker/dealer or financial institution.
Except for any contingent deferred sales charge which may be applicable
upon redemption of Class B or Class D Shares, as described under "Purchase of
Shares," the Company does not charge for redemption transactions. However, a
broker/dealer or financial institution that is involved in a redemption
transaction may charge separate account, service or transaction fees. On a day
the Fund is open for business, redemption orders received by an authorized
broker/dealer or financial institution before the close of the Exchange, and
received by the Transfer Agent before the close of business on the same day will
be executed at the net asset value per share determined at the close of the
Exchange on that day. Redemption orders received by authorized broker/dealers or
financial institutions after the close of the Exchange, or not received by the
Transfer Agent prior to the close of business, will be executed at the net asset
value determined at the close of the Exchange on the next business day.
Redemption proceeds, net of any contingent deferred sales charge applicable
with respect to Class B or Class D Shares, ordinarily will be remitted within
seven days after the order is received in proper form, except proceeds may be
remitted over a longer period to the extent permitted by the SEC under
extraordinary circumstances. If an expedited redemption is requested, redemption
proceeds will be distributed only if the check used for investment is deemed to
be cleared for payment by your bank, currently considered by the Company to be a
period of ten (10) days after investment. The proceeds, of course, may be more
or less than cost. Payment of redemption proceeds may be made in securities,
subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction. Indicate the dollar amount of or number
of shares to be redeemed. Refer to your Fund account number and provide either a
social security or a tax identification number (as applicable).
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. 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, the
signature(s) must be guaranteed by an "eligible guarantor institution," which
includes a commercial bank that is a member of the Federal Deposit Insurance
Corporation, 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 will be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
4. If shares to be redeemed are held in certificated form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
26
<PAGE> 35
5. Mail the letter to the Transfer Agent at the mailing address set forth
under "Purchase of Shares -- Initial Purchase of Shares by Wire."
Unless other instructions are given in proper form, a check for the
proceeds of redemption, net of any contingent deferred sales charge applicable
with respect to Class B or Class D Shares, will be sent to your address of
record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides a way for you to have
shares redeemed from your accounts and the proceeds, net of any contingent
deferred sales charge applicable with respect to Class B or Class D Shares,
distributed to you on a monthly basis. You may elect to participate in this plan
if you have a shareholder account valued at $10,000 or more as of the date of
your election to participate and are not a participant in the Company's
Systematic Purchase Plan at any time while participating in this plan. To
participate in the plan, specify an amount ($100 or more) to be distributed by
check to your address of record or deposited in your Approved Bank Account. The
Transfer Agent redeems sufficient shares and mails or deposits the proceeds of
the redemption, net of any contingent deferred sales charge applicable with
respect to Class B or Class D Shares, as instructed on or about the fifth
business day prior to the end of each month. There are no additional fees
charged for participating in this plan.
It may take up to ten (10) business days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
the withdrawal amount, suspend withdrawals or terminate your participation in
the Systematic Withdrawal Plan at any time by providing written notice to the
Transfer Agent at least five (5) business days prior to a scheduled transaction.
An election will be terminated automatically if your account balance is
insufficient to make a scheduled withdrawal or if your Fund account or Approved
Bank Account is closed.
EXPEDITED REDEMPTIONS
If shares are not held in certificated form, you may request an expedited
redemption of shares by letter or telephone (unless you have specifically
declined telephone redemptions on your Account Application or other form that is
on file with the Transfer Agent) on any day the Fund is open for business. See
"Exchange Privileges" for additional information regarding telephone redemption
privileges.
You may request expedited redemption by telephone by calling the Transfer
Agent at (800) 572-7797.
You may request expedited redemption by mail by mailing your expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Purchase of Shares -- Initial Purchase of Fund Shares by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more, net of
any contingent deferred sales charge applicable with respect to Class B or Class
D Shares, will be wired or credited to your Approved Bank Account or wired to an
authorized broker/dealer or financial institution designated in your Account
Application. The Company reserves the right to impose charges for
27
<PAGE> 36
wiring redemption proceeds. When proceeds of an expedited redemption are to be
paid to someone other than yourself, to an address other than that of record, or
to a bank, broker/dealer or other financial institution that has not been
predesignated, 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 business on any day the Fund is open for business, the
redemption proceeds will be transmitted to your bank or predesignated
broker/dealer or financial institution on the next business day (assuming the
investment check has cleared as described above), absent extraordinary
circumstances. A check for proceeds of less than $5,000 will be mailed to your
address of record, except that, in the case of investments in the Company that
have been effected through broker/dealers, banks and other institutions that
have entered into special arrangements with the Company, the full amount of the
redemption proceeds may be transmitted by wire or credited to a designated
account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Redemption requests placed through authorized broker/dealers and financial
institutions by the close of the Exchange on any day that the Fund's shares are
offered for sale will be effective on the same day the request is placed if
received by the Transfer Agent before the close of business. Redemption requests
that are received by a dealer or financial institution after the close of the
Exchange or by the Transfer Agent after the close of business generally will be
effective on the next day that shares are offered. The broker/dealer or
financial institution is responsible for the prompt transmission of redemption
requests to the Transfer Agent. Unless you have made other arrangements, and
have informed the Transfer Agent of such arrangements, proceeds of redemptions
made through authorized broker/dealers and financial institutions will be
credited to your account with such broker/dealer or institution. You may request
a check from the broker/dealer or financial institution or may elect to retain
the redemption proceeds in your account. The broker/dealer or financial
institution may benefit from the use of the redemption proceeds prior to the
clearance of a check issued to you for such proceeds or prior to disbursement or
reinvestment of such proceeds on your behalf.
The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal and state
income tax purposes.
Due to the high cost of maintaining small accounts, the Company reserves
the right to redeem accounts that fall below $1,000. Prior to such a redemption,
you will be notified in writing and permitted 30 days to make additional
investments to raise the account balance to the specified minimum.
DISTRIBUTION PLANS
The Company's Board of Directors has adopted separate Distribution Plans
(the "Plans") on behalf of each class of shares of the Fund. Under the Plans and
pursuant to the Distribution Agreement, the Fund may pay the distributor a
monthly fee at the annual rate of up to 0.25% of the average daily net assets of
the Class A Shares of the Fund and a monthly fee at the annual rate of up to
0.75% of the respective average daily net assets of each of the Class B and
Class D Shares of the
28
<PAGE> 37
Fund as compensation for distribution-related services or to reimburse the
distributor for distribution-related expenses incurred. The actual fee payable
to the distributor shall, within such limits, be determined from time to time by
mutual agreement between the Company 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 Class A, B and D 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. The Fund may participate in joint distribution activities with any
other portfolio of the Company, in which event expenses reimbursed out of the
assets of the Fund may be attributable, in part, to the distribution-related
activities of another portfolio. Generally, the expenses attributable to joint
distribution activities will be allocated among the Fund and any other portfolio
of the Company in proportion to their relative net asset sizes, although the
Board of Directors may allocate such expenses in any other manner that it deems
fair and equitable. See "Sponsor, Administrator and Distributor" for additional
information.
CLASS A ADMINISTRATIVE SERVICING PLAN
The Company's Board of Directors has adopted a Shareholder Administrative
Servicing Plan (the "Administrative Servicing Plan") on behalf of the Class A
Shares of the Fund. Pursuant to the Administrative Servicing Plan, the Fund may
enter into administrative servicing agreements with administrative servicing
agents (which may include Wells Fargo and its affiliates) who are
dealers/holders of record, or that otherwise have a servicing relationship with
the beneficial owners, of the Fund's Class A Shares. Administrative servicing
agents agree to perform administrative shareholder services which may include,
among other things, maintaining an omnibus account with the Fund, aggregating
and transmitting purchase, exchange and redemption orders to the Fund's Transfer
Agent, answering customer inquiries regarding a shareholder's accounts in the
Fund, and providing such other services as the Company or a customer may
reasonably request. Administrative servicing agents are entitled to a fee which
will not exceed 0.25%, on an annualized basis, of the average daily net assets
of the Class A Shares represented by the shares owned of record or beneficially
by the customers of the administrative servicing agent during the period for
which payment is being made. In no case shall shares be sold pursuant to the
Fund's Rule 12b-1 Plan while being sold pursuant to its Administrative Servicing
Plan.
CLASS B AND D SERVICING PLANS
The Company's Board of Directors has adopted servicing plans ("Servicing
Plans") on behalf of each of the Class B and Class D Shares of the Fund.
Pursuant to the Servicing Plans, the Fund may enter into servicing agreements
with one or more servicing agents (which may include Wells Fargo and its
affiliates) who agree to provide shareholder support services to their customers
who are the record or beneficial owners of such Class B or Class D Shares. These
services may include, among other things, shareholder liaison services, such as
answering customer inquiries regarding purchases, account balances or
redemptions. Servicing agents are entitled to receive a fee which will not
exceed, on an annualized basis for the Fund's then-current fiscal year, the
lesser of 0.25% of the average daily
29
<PAGE> 38
net asset value of the Class B and Class D Shares, or an amount which equals the
maximum amount payable to the servicing agent under applicable laws, regulations
or rules. For additional information, see "Management of the Fund -- Servicing
Agents."
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare as a dividend substantially all of its net
investment income annually to shareholders of record at 4:00 p.m. (New York
time) on the day of declaration. Net capital gains of the Fund, if any, will be
distributed annually (or more frequently to the extent permitted to avoid
imposition of the 4% excise tax described in the SAI).
Dividends and/or capital gain distributions will have the effect of
reducing the net asset value per share by the amount distributed on the record
date. Although a distribution paid to an investor on newly issued shares shortly
after purchase would represent, in substance, a return of capital, the
distribution would consist of net investment income and, accordingly, would be
taxable as ordinary income.
Dividends and/or capital gain distributions paid by the Fund will be
invested in additional shares of the same class of the Fund at net asset value
(without any sales load) and credited to your account on the reinvestment date
or, at your election, paid by check. Dividend checks and Statements of Account
will be mailed approximately three business days after the payment date. In
addition, you may elect to reinvest Fund dividends and/or capital gain
distributions in shares of another portfolio of the Company with which you have
an established account that has met the applicable minimum initial investment
requirement.
The Fund's net investment income available for distribution to the holders
of Class B and Class D Shares will be reduced by the amount of shareholder
servicing fees payable to shareholder servicing agents under the Servicing Plan
and by the incremental distribution fees payable under the Distribution Plan.
There may be certain other differences in fees between Class A Shares and Class
B and Class D Shares that would affect their relative dividends.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out an Account Application, you can choose from three
dividend and distribution options:
A. The Automatic Reinvestment Option provides for the reinvestment of
dividends and capital gain distributions in additional shares of the same
class of the Fund. Dividends and distributions declared in a month are
reinvested at net asset value early in the following month. You are
assigned this option automatically if you make no choice on your Account
Application.
B. The Automatic Clearing House Option permits you to have dividends
and capital gain distributions deposited in an Approved Bank Account. In
the event your Approved Bank Account is closed, and such distribution is
returned to the Fund's dividend disbursing agent, the distribution will be
reinvested in your Fund account at the net asset value next determined
after the distribution has been returned. Your Automatic Clearing House
Option will be converted to the Automatic Reinvestment Option.
30
<PAGE> 39
C. The Check Payment Option allows you to receive a check for a
dividend or capital gain distribution, which is mailed either to the
designated address, or your Approved Bank Account, early in the month
following declaration. If the U.S. Postal Service cannot deliver such
checks, or if such checks remain uncashed for six months, those checks will
be reinvested in your Fund account at the net asset value next determined
after the earlier of the date the checks have been returned to the dividend
disbursing agent or the date six months after the payment of such dividend
or distribution. Your Check Payment Option will be converted to the
Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue investors dividend checks under
the Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
TAXES
By complying with applicable provisions of the Code, the Fund will not be
subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to its shareholders. Dividends from the
investment income (which includes net short-term capital gains, if any) declared
and paid by the Fund will be taxable as ordinary income to the Fund's
shareholders. Whether you take dividend payments in cash or have them
automatically reinvested in additional shares, they will be taxable. Generally,
dividends are taxable to shareholders at the time they are paid. However,
dividends declared payable in October, November and December and made payable to
shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that such dividends are actually paid no
later than January 31 of the following year. You may be eligible to defer the
taxation of dividend and capital gain distributions on shares of a Fund which
are held under a qualified tax-sheltered retirement plan. The Fund intends to
pay out all its net investment income and net realized capital gains (if any)
for each year. Corporate shareholders may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain dividends) paid by
the Fund to the extent the Fund's income is derived from certain dividends
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the Fund shares
paying the dividends upon which a dividend-received deduction is based for at
least 46 days.
Portions of the Fund's investment income may be subject to foreign taxes
withheld at the source; however, the Fund does not expect to be able to pass
through any portion of the foreign taxes to its shareholders.
The Fund will inform you of the amount and nature of such dividends and
capital gains. You should keep all statements you receive to assist in your
personal record keeping. The Company is required to withhold, subject to certain
exemptions, at a rate of 31% on dividends paid and redemption proceeds
(including proceeds from exchanges) paid or credited to individual shareholders
of the Fund if a correct Taxpayer Identification Number, certified when
required, is not on file with the Company or the Transfer Agent. In connection
with this withholding requirement, you will be asked to certify on your Account
Application that the social security or taxpayer identification
31
<PAGE> 40
number you provide is correct and that you are not subject to 31% backup
withholding for previous underreporting to the IRS.
The Fund seeks to comply with the applicable provisions of the Code by
investing all of its assets in the Master Portfolio. The Trust intends to
qualify for federal income tax purposes as a partnership. As such, the Fund will
be deemed to own directly its proportionate share of the Trust's assets.
Therefore, any interest, dividends and gains or losses of a Master Portfolio
will be deemed to have been "passed through" to the Fund and other investors in
the Master Portfolio, regardless of whether such interest, dividends, gains or
losses have been distributed by the Master Portfolio or losses have been
realized by the Fund and other investors. Accordingly, if the Master Portfolio
were to accrue but not distribute any interest, dividends or gains, the Fund
would be deemed to have realized and recognized its proportionate share of
interest, dividends, gains or losses without receipt of any corresponding
distribution. However, the Master Portfolio will seek to minimize recognition by
investors of interest, dividends, gains or losses without a corresponding
distribution.
Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Tax -- Foreign Shareholders" in the SAI.
Further federal tax considerations are discussed in the SAI. You should
consult your individual tax advisor with respect to your particular tax
situation as well as the state and local tax status of investments in shares of
the Fund.
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end investment company, was incorporated in Maryland
on April 27, 1987. The authorized capital stock of the Company consists of
20,000,000,000 shares having a par value of $.001 per share. The Company
currently offers fourteen series of shares, each representing an interest in one
of the Overland Express Funds -- the Asset Allocation, California Tax-Free Bond,
California Tax-Free Money Market, Money Market, Municipal Income, National
Tax-Free Institutional Money Market, Overland Sweep, Short-Term
Government-Corporate Income, Short-Term Municipal Income, Small Cap Strategy,
Strategic Growth, U.S. Government Income, U.S. Treasury Money Market and
Variable Rate Government Funds. The Board of Directors may, in the future,
authorize the issuance of other series of capital stock representing shares of
additional investment portfolios or funds. All shares of the Company have equal
voting rights and will be voted in the aggregate, and not by series or class,
except where voting by series is required by law or where the matter involved
affects only one series. The Company may dispense with the annual meeting of
shareholders in any fiscal year in which it is not required by the 1940 Act to
elect Directors; however, shareholders are entitled to call a meeting of
shareholders for purposes of voting on removal of a director or directors. In
addition, whenever the Fund is requested to vote on matters pertaining to the
Master Portfolio, the Company will hold a meeting of the Fund's shareholders and
will cast its vote as instructed by Fund shareholders. The Directors of the
Company will vote shares for which they receive no voting instructions in the
same proportion as the shares for which they do receive voting instructions. A
more detailed statement of the voting rights of shareholders is contained in the
SAI. All shares of the Company, when issued, will be fully paid and
nonassessable.
32
<PAGE> 41
The Trust was established on August 15, 1991, as a Delaware business trust.
The Trust's Declaration of Trust permits the Board of Trustees to issue
beneficial interests in the Trust to investors based on their proportionate
investments in the Trust. The Trust currently offers nine series of beneficial
interests -- the Asset Allocation, Capital Appreciation, Cash Investment Trust,
Corporate Stock, Short-Term Government-Corporate Income, Short-Term Municipal
Income, Small Cap, Tax-Free Money Market and U.S. Government Allocation Master
Portfolios. The Trust is no longer offering interests of the 1-3 Year Duration
Government Income Master Portfolio.
33
<PAGE> 42
<TABLE>
<S> <C>
OVERLAND EXPRESS FUNDS, INC. SMALL CAP STRATEGY FUND
ACCOUNT APPLICATION
C/O OVERLAND EXPRESS SHAREHOLDER SERVICES, WELLS FARGO BANK, N.A PAGE 1 OF 5
POST OFFICE BOX 63084, SAN FRANCISCO, CALIFORNIA 94163
FOR PERSONAL SERVICE PLEASE CALL
YOUR INVESTMENT SPECIALIST OR 1-800-572-7797
</TABLE>
1. ACCOUNT REGISTRATION / / NEW ACCOUNT / / ADDITIONAL INVESTMENT OR CHANGE
TO ACCOUNT #
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
/ / INDIVIDUAL 1. Individual --------------------------------- --------------------------
USE LINE 1 First Name Initial Last Name Soc. Security No.
/ / JOINT OWNERS 2. Joint Owner
--------------------------------- (Only one Soc. Security No.
USE LINES 1 & 2 First Name Initial Last Name is required for Joint Owners)
Joint Tenancy with right of survivorship is presumed unless Tenancy in Common is
indicated:
/ / Tenants in Common
/ / TRANSFER TO 3. Uniform
-----------------------------------------------------------
MINORS Transfer Custodian's Name (only one) Minor's State
of Residence
USE LINE 3 to Minors --
---------------------------------
Minor's Soc.
Minor's Name (only one) Security No.
/ / TRUST* 4. Trust Name
-----------------------------------------------------------
USE LINE 4 Trustee(s)
-----------------------------------------------------------
(If you would like Trustee's name included in
registration.)
Trust ID Number ---------------------------------------------
Please attach title page, the page(s) allowing investment in a mutual fund
("powers page") and signature page, and complete Section 7, "Authorization
for Trusts and Organizations."
/ / ORGANIZATION* 5. Organization Name
USE LINE 5 ----------------------------------- ------------------------------
*Complete "Authorization for Trusts and Tax I.D. No.
Organizations" (Section 7).
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDRESS:
<S> <C>
Number and Street Apartment No.
------------------------------------------------------------------ --------------------------
City State Zip Code
-------------------------------------------------------------- ----------------- -----------------------
Telephone Numbers: (DAY) (EVENING)
-------------------------------------------- ----------------------------------------------
(Area Code) (Area Code)
</TABLE>
(CONTINUED)
<PAGE> 43
<TABLE>
<S> <C>
SMALL CAP STRATEGY FUND
[LOGO] ACCOUNT APPLICATION
PAGE 2 OF 5
</TABLE>
2. INVESTMENT INSTRUCTIONS (Minimum initial investment: $1,000.)
- --------------------------------------------------------------------------------
INVESTMENT AMOUNT: $ __________________
TYPE OF ACCOUNT (CHOOSE ONE ONLY):
/ / Class A Shares, or
/ / Class B Shares (not available for
purchases of $9,000,000 or more)
/ / Class D Shares (not available for
purchases of $9,000,000 or more)
Note: If no choice is indicated, Class A Shares will be selected.
METHOD OF PAYMENT: / / Debit bank account designated in Section 3.
/ / Check attached (payable to Overland Express
Small Cap Strategy Fund
(designate Class A, B or D)).
/ / Funds have been wired to my Overland Express Account #
- --------------------------------------------------------------------------------
SETTLEMENT ARRANGEMENTS: (Check only one if applicable)
/ / Automatic debit/credit of an account with a bank that has been authorized
by the Transfer Agent. (If you check this box, your initial and/or
subsequent purchases and redemptions can be settled through the bank
account you designate in Section 3.) Please attach a voided check or
deposit slip and fill in bank account information in Section 3.
/ / Bank wire instructions. (If you check this box, redemptions can be
settled by wire through the bank account you designate below. Some banks
impose fees for wires; check with your bank to determine policy. The
Company reserves the right to impose a charge for wiring redemption
proceeds.) Please attach a voided check or deposit slip and fill in bank
account information in Section 3.
- --------------------------------------------------------------------------------
SYSTEMATIC PURCHASE PLAN:
/ / I hereby authorize you to systematically withdraw from the bank account
designated in Section 3 the following amount to purchase shares of the
Fund. I understand and agree that the designated account will be debited
on or about the fifth business day of each month to effect the Fund
purchase and that such monthly investments shall continue until my
written notice to cancel has been received by you at least five (5)
business days prior to the next scheduled Fund purchase.
Monthly Investment Amount: $
______________________ (minimum $100)
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN:
/ / I hereby authorize you to systematically redeem a sufficient number of
shares from my Overland Express account and to distribute the amount
specified below by check to the registration address set forth in Section
1 or the bank account designated in Section 3. I understand and agree
that the redemption of shares and mailing or depositing of proceeds will
occur on or about the fifth business day prior to the end of each month
and that such monthly payments shall continue until my written notice to
cancel has been received by you at least five (5) business days prior to
the next scheduled withdrawal.
Monthly Withdrawal
Amount: $ ______________________ (minimum $100)
/ / Mail check to registration set forth in Section 1.
/ / Distribute funds to bank account designated in Section 3.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
3. BANK ACCOUNT INFORMATION
</TABLE>
- --------------------------------------------------------------------------------
Bank Name
Address City State Zip
Bank Account Number Bank Routing Number
(CONTINUED)
<PAGE> 44
<TABLE>
<S> <C>
SMALL CAP STRATEGY FUND
LOGO ACCOUNT APPLICATION
PAGE 3 OF 5
</TABLE>
4. REDUCED SALES CHARGES (If Applicable.)
- --------------------------------------------------------------------------------
LETTER OF INTENT -- CLASS A SHARES
I may qualify for a reduced sales charge based on the total amount I intend to
invest over a 13-month period (the "Period"), plus the value of any shares I
already own, by agreeing to this Letter of Intent (the "Letter"). Stephens
Inc. will hold in escrow shares registered in my name equal to 5% of the
amount invested. Dividends and distributions on the escrowed shares will be
paid to me or credited to my Account. Upon completion of the specified minimum
purchase within the Period, all shares held in escrow will be deposited in my
Account or delivered to me. I may include the combined asset value of shares
of any of the portfolios of the Overland Express Funds which assess a sales
charge ("Load Funds"), owned as of the date of the Letter toward the
completion of the total purchase. If the total amount invested within the
Period does not equal or exceed the specified minimum purchase, I will be
requested to pay the difference between the amount of the sales charge paid
and the amount of the sales charge applicable to the total purchases made. If,
within 20 days following the mailing of a written request, I have not paid
this additional sales charge to Stephens Inc., sufficient escrowed shares will
be redeemed for payment of the additional sales charge. Shares remaining in
escrow after this payment will be deposited in my Account. The intended
purchase amount may be increased at any time during the Period by filing a
revised Letter for the Period.
/ / I agree to the Letter of Intent set forth above. It is my intention to
invest over a 13-month period in the Load Funds an aggregate amount equal
to at least:
/ / $100,000 / / $200,000 / / $400,000 / / $600,000
/ / $800,000 / / $1,000,000 / / $2,500,000 / / $5,000,000 /
/ $9,000,000
Existing accounts must be identified in advance. If the value of currently
owned shares is to be applied towards completion of this Letter of Intent,
please list accounts below.
Account # __________________________ Account
# __________________________
RIGHT OF ACCUMULATION -- CLASS A SHARES
/ / I qualify for reduced sales charges under the Right of Accumulation. The
value of shares presently held in the Overland Express accounts listed
below, combined with this investment, totals $100,000 or more.
Account # __________________________ Account
# __________________________
- --------------------------------------------------------------------------------
5. TELEPHONE INSTRUCTIONS (Do NOT check this box if you wish to authorize
telephone instructions.)
- --------------------------------------------------------------------------------
/ / If this box is checked, you are NOT authorized to honor my telephone
instructions for purchase of additional Fund shares, redemptions of Fund
shares and exchanges of shares between Overland Express Funds. If this
box is not checked, I understand that telephone instructions will be
effected by debiting/crediting the account designated in Section 3 (if
approved) and that if a designated account has not been authorized and
approved, a check or wire transfer will be required for a purchase and a
check will be sent for a redemption.
- --------------------------------------------------------------------------------
6. DISTRIBUTIONS (Do NOT check boxes if you want reinvestment.)
- --------------------------------------------------------------------------------
All dividends and capital distributions will be automatically reinvested in
shares of the same class of the Fund unless otherwise indicated:
/ / Invest dividends in Account # _____________________ of Fund
of the Overland Express Funds.
/ / Invest capital gain distributions in Account # _____________________ of
Fund
of the Overland Express Funds.
/ / Pay dividends by check and/or / / pay capital gains distributions by check
AND MAIL CHECKS TO:
/ / The registration address set forth in Section 1. / / The bank account
designated in Section 3.
(CONTINUED)
<PAGE> 45
<TABLE>
<S> <C>
SMALL CAP STRATEGY FUND
LOGO ACCOUNT APPLICATION
PAGE 4 OF 5
</TABLE>
7. AUTHORIZATION FOR TRUSTS AND ORGANIZATIONS (If Applicable.)
- --------------------------------------------------------------------------------
CORPORATIONS, TRUSTS, PARTNERSHIPS OR OTHER ORGANIZATIONS MUST COMPLETE
THIS SECTION.
<TABLE>
<S> <C> <C> <C> <C>
Registered Owner is a: / / Trust / / Corporation, Incorporated Association
/ / Partnership / / Other: _
(such as Non-Profit Organization, Religious Organization,
Sole
Proprietorship, Investment Club, Non-incorporated
Association, etc.)
</TABLE>
The following named persons are currently officers/trustees/general
partners/other authorized signatories of the Registered Owner; this(these)
Authorized Person(s) is(are) currently authorized under the applicable
governing document to act with full power to sell, assign or transfer
securities of Overland Express Funds, Inc. for the Registered Owner and to
execute and deliver any instrument necessary to effectuate the authority
hereby conferred:
<TABLE>
<S> <C> <C>
Name Title Specimen Signature
---------------------------------- ---------------------------------- ----------------------------------
---------------------------------- ---------------------------------- ----------------------------------
---------------------------------- ---------------------------------- ----------------------------------
</TABLE>
Overland Express Funds, Inc., Stephens Inc. and Wells Fargo Bank, N.A.
may, without inquiry, act upon the instruction of ANY PERSON(S) purporting
to be (an) Authorized Person(s) as named in the Authorization Form last
received by you, and shall not be liable for any claims, expenses
(including legal fees) or losses resulting from acting upon any
instructions reasonably believed to be genuine.
FOR CORPORATIONS AND INCORPORATED ASSOCIATIONS:
I, _____________________________________ , Secretary of the above-named
Registered Owner, do hereby certify that at a meeting on
________________ at which a quorum was present throughout, the Board of
Directors of the corporation/the officers of the association duly adopted
a resolution, which is in full force and effect and in accordance with the
Registered Owner's charter and by-laws, which resolution: (1) empowered
the above-named Authorized Person(s) to effect securities transactions for
the Registered Owner on the terms described above; (2) authorized the
Secretary to certify, from time to time, the names and titles of the
officers of the Registered Owner and to notify you when changes in the
office occur; and (3) authorized the Secretary to certify that such a
resolution has been duly adopted and will remain in full force and effect
until you receive a duly executed amendment to the Authorization Form.
Witness my hand on behalf of the corporation/association on this
_____ day of _ ,19 __
<TABLE>
<S> <C>
------------------------------------------------
Secretary (Signature Guarantee or
Corporate Seal is Required)
FOR ALL OTHER ORGANIZATIONS: ------------------------------------------------
Certifying Trustee, General Partner, or Other
</TABLE>
(CONTINUED)
<PAGE> 46
<TABLE>
<S> <C>
SMALL CAP STRATEGY FUND
LOGO ACCOUNT APPLICATION
PAGE 5 OF 5
---------------------------------------------------------------------------------------------------------------
8. SIGNATURE, TAX INFORMATION & CERTIFICATION
---------------------------------------------------------------------------------------------------------------
/ / U.S. CITIZEN OR RESIDENT
I understand that the Federal Government requires Overland Express Funds, Inc. to withhold and pay to
the Internal Revenue Service 31% from all interest, dividends, capital gains distributions and
proceeds from redemptions UNLESS I have provided a certified taxpayer identification (Social Security
or Employer Identification) number and certify in the Withholding Status below that I am NOT subject
to backup withholding. The taxpayer identification number I provided in Section 1 will be the number
under which any taxable earnings will be reported to the IRS.
WITHHOLDING STATUS: Unless I indicate that I am subject to backup withholding by checking the box
below, I certify that 1) I have NOT been notified by the IRS that I am subject to backup withholding
as a result of a failure to report all interest or dividends, OR 2) I have been notified by the IRS
that I am no longer subject to backup withholding: / / I am currently subject to backup withholding.
/ / NON-RESIDENT ALIEN (In order to claim this exemption, ALL owners on the account must be non-resident
aliens and sign below.)
I am not a U.S. citizen or resident (nor is this account held by a foreign corporation, partnership,
estate or trust) and my permanent address is:
Country: _____________________
By signing below, I (we) certify, under penalties of perjury, that I (we) have full authority and legal
capacity to purchase shares of the Fund and affirm that I (we) have received a current prospectus and agree
to be bound by its terms and further certify that 1) the correct taxpayer identification number has been
provided in Section 1 of this Application and that the Withholding Status information, above, is correct OR
2) all owners are entitled to claim non-resident alien status. Investors should be aware that the failure to
check the box under "Telephone Instructions" above means that the telephone exchange and redemption
privileges will be provided. A shareholder would bear the risk of loss in the event of the fraudulent use of
the pre-authorized redemption or exchange privileges. Please see "Exchange Privileges" and "Redemption of
Shares" in the Prospectus for more information on these privileges.
X SIGNATURE GUARANTEE: NOT REQUIRED WHEN
Individual (or Custodian) date ESTABLISHING NEW ACCOUNTS. Required only if
establishing privileges in Block 2 on an
X existing account. Signature Guarantee may be
Joint Owner (if any) date provided by an "eligible guarantor
institution," which includes a commercial bank,
X trust company, member firm of a domestic stock
Corporate Officer or Trustee date exchange, savings association, or credit union
that is authorized by its charter to provide a
Title of Corporate Officer or Trustee signature guarantee.
AFFIX SIGNATURE GUARANTEE STAMP
Signature Guaranteed By
---------------------------------------------------------------------------------------------------------------
</TABLE>
DEALER INFORMATION
<TABLE>
<S> <C> <C>
Dealer Name Branch ID #
Representative's Last Name Rep ID # Rep Phone #
X
Authorized signature of Broker/Dealer Title date
</TABLE>
<PAGE> 47
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
TRANSFER AND DIVIDEND DISBURSING AGENT
AND CUSTODIAN
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Three Embarcadero Center
San Francisco, California 94111
NOT FDIC INSURED
FOR MORE INFORMATION ABOUT THE FUND,
SIMPLY CALL (800) 552-9612,
OR WRITE:
OVERLAND EXPRESS FUNDS, INC.
C/O OVERLAND EXPRESS
SHAREHOLDER SERVICES
WELLS FARGO BANK, N.A.
P.O. BOX 63084
SAN FRANCISCO, CALIFORNIA 94105
[OVERLAND EXPRESS LOGO]
------------------------
PROSPECTUS
------------------------
Small Cap Strategy Fund
------------------------
September 16, 1996
------------------------
NOT FDIC INSURED
85P 9/96
<PAGE> 48
OVERLAND EXPRESS FUNDS, INC.
SMALL CAP STRATEGY FUND
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 16, 1996
----------------------------------
Overland Express Funds, Inc. (the "Company") is an open-end,
series investment company. This Statement of Additional Information ("SAI")
contains information about one of the Company's series -- the SMALL CAP
STRATEGY FUND (the "Fund"). The Fund offers three classes of shares -- Class A
Shares, Class B Shares and Class D Shares. This SAI relates to all three
classes of shares. The investment objective of the Fund is described in the
Prospectus under the heading "Investment Objective, Policies and Restrictions."
The Fund seeks to achieve its investment objective by investing all of its
assets in the Small Cap Master Portfolio (at times, the "Master Portfolio") of
Master Investment Trust (the "Trust"), which has the same investment objective
as the Fund. The Fund may withdraw its investment in the Small Cap Master
Portfolio at any time, if the Board of Directors of the Company determines that
such action is in the best interests of the Fund and its shareholders. Upon
such withdrawal, the Company's 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 and
restrictions described in the Prospectus and below with respect to the Trust.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated September 16, 1996. All terms used in this
SAI that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201, or calling the Transfer Agent at
the telephone number indicated above.
----------------------------------
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Class A Administrative Servicing Plan . . . . . . . . . . . . . . . . . . 8
Class B and D Servicing Plans . . . . . . . . . . . . . . . . . . . . . . 8
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . 9
Determination of Net Asset Value.... . . . . . . . . . . . . . . . . . . 12
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Income Tax... . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
i
<PAGE> 50
INVESTMENT RESTRICTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies."
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are fundamental policies. These restrictions cannot be changed, as to either
the Fund or the Master Portfolio, without approval by the holders of a majority
(as defined by the 1940 Act) of the outstanding voting securities of the Fund
or the Master Portfolio, as appropriate. Whenever the Fund is requested to
vote on a fundamental policy of the Master Portfolio, the Fund will hold a
meeting of Fund shareholders and it will cast its votes as instructed by such
shareholders.
Neither the Fund nor the Master Portfolio may:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's investments in that
industry would equal or exceed 25% of the current value of the Fund's total
assets, provided that there is no limitation with respect to investments in
securities issued or guaranteed by the United States Government, its agencies
or instrumentalities; and provided further, that the Fund may invest all its
assets in a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (1);
(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein, including mortgage passthrough
securities), commodities or commodity contracts or interests in oil, gas, or
other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or
a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund shall not constitute an underwriting for purposes
of this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management
1
<PAGE> 51
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (5);
(6) issue senior securities, except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 33 1/3% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
With respect to fundamental investment policy (7), the Fund and
the Master Portfolio do not intend to loan their portfolio securities during
the coming year.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of the Trust, as the
case may be, at any time.
Neither the Fund nor the Master Portfolio may:
(1) purchase or retain securities of any issuer if the officers
or directors of the Fund or its Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets;
2
<PAGE> 52
(4) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer;
(5) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the
Fund may invest in shares of other open-end, management investment companies,
subject to the limitations of Section 12(d)(1) of the Act, provided that any
such purchases will be limited to temporary investments in shares of
unaffiliated investment companies and the Investment Adviser will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition; nor
(7) invest more than 25% of their respective net assets in
securities of foreign governmental and foreign private issues that are
denominated in and pay interest in U.S. dollars.
Notwithstanding any other investment policy or limitation (whether
or not fundamental), the Fund may invest all of its assets in the securities of
a single open-end management investment 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.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>
3
<PAGE> 53
<TABLE>
<S> <C> <C>
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School of
Business and Accounting
at Wake Forest
University since 1983.
*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
4
<PAGE> 54
<TABLE>
<S> <C> <C>
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate
Charleston, SC 29401 Developer; Chairman
of Renaissance
Properties Ltd.;
President of
Morse Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ------------------------ ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
</TABLE>
5
<PAGE> 55
<TABLE>
<S> <C> <C>
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers of
Stagecoach Funds, Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.),
and as trustees and/or officers of Stagecoach Trust, Master Investment
Portfolio, Life & Annuity Trust, Master Investment Trust and Managed Series
Investment Trust, each of which is a registered open-end management investment
company and each of which, prior to January 1, 1996 and the reorganization of
Wells Fargo Nikko Investment Advisors, a former affiliate of Wells Fargo was
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. Effective January 1, 1996, the
Company, Stagecoach Funds, Inc., Stagecoach Trust, Life & Annuity Trust and
Master Investment Trust are considered to be members of the same fund complex
and are no longer part of the same fund complex as MasterWorks Funds Inc.,
Master Investment Portfolio and Managed Series Investment Trust. The Directors
are compensated by other companies and trusts within the fund complex for their
services as directors/trustees to such companies and trusts. Currently the
Directors do not receive any retirement benefits or deferred compensation from
the Company or any other member of the fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
Investment Adviser. The Fund has not engaged an investment
adviser. The Master Portfolio (which has the same investment objective as the
Fund, and in which the Fund invests all its assets) is advised by Wells Fargo.
The Advisory Contract provides that Wells Fargo shall furnish to the Master
Portfolio investment guidance and policy direction in connection with the daily
portfolio management of the Master Portfolio. Pursuant to the Advisory
Contract, Wells Fargo furnishes to the Board of Trustees of the Trust periodic
reports on the investment strategy and performance of the Master Portfolio.
Wells Fargo has agreed to provide to the Master Portfolio, among
other things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Master Portfolio.
6
<PAGE> 56
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Master Portfolio's outstanding voting securities or by the
Trust's Board of Trustees and (ii) by a majority of the Trustees of the Trust
who are not parties to the Advisory Contract or "interested persons" (as
defined in the Act) of any such party. The Advisory Contract may be terminated
on 60 days' written notice by either party and will terminate automatically if
assigned.
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. In addition, the Trust
has retained Stephens as administrator on behalf of the Master Portfolio.
Under the respective Administration Agreements with the Company and the Trust,
Stephens furnishes the Company and the Trust with office facilities, together
with those ordinary clerical and bookkeeping services that are not furnished by
Wells Fargo. Stephens also has entered into a Distribution Agreement with the
Company pursuant to which Stephens has the responsibility of distributing
shares of the Fund.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
has been retained to act as custodian and transfer and dividend disbursing
agent for the Fund and the Master Portfolio. The custodian, among other
things, maintains a custody account or accounts in the name of the Fund and the
Master Portfolio, receives and delivers all assets for the Fund and the Master
Portfolio upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of the
Fund and the Master Portfolio and pays all expenses of the Fund and the Master
Portfolio. For its services as custodian, Wells Fargo receives an asset-based
fee and transaction charges from the Master Portfolio; and for its services as
transfer and dividend disbursing agent, it receives a base fee and per-account
fees from the Fund.
Collective Investment Fund Management Fees. Prior to September 6,
1996, Wells Fargo provided management and administrative services to the
Collective Investment Fund. For these services Wells Fargo charged fees at an
annual rate of 0.75% of the Collective Investment Fund's average net assets.
Wells Fargo was also entitled to be reimbursed by the Collective Investment
Fund for expenses incurred on its behalf, excluding costs incurred in
establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses." There
were no sales charges. The Collective Investment Fund paid all brokerage
commissions incurred on its portfolio transactions.
7
<PAGE> 57
DISTRIBUTION PLANS
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Distribution Plans." As
indicated in the Prospectus, the Fund, on behalf of each class of its shares,
has adopted a Plan under Section 12(b) of the Act and Rule 12b-1 thereunder
(the "Rule"). Each Plan was adopted by a majority of the directors who were
not "interested persons" (as defined in the Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plans (the "Qualified Directors"). Under the Plans
and pursuant to the Distribution Agreement, the Fund may pay the distributor a
monthly fee at the annual rate of up to 0.25% of the average daily net assets
of the Class A Shares of the Fund and a monthly fee at the annual rate of up to
0.75% of the respective average daily net assets of each of the Class B and
Class D Shares of the Fund as compensation for distribution-related services
and as reimbursement for distribution-related expenses. The actual fee payable
to the distributor shall, within such limits, be determined from time to time
by mutual agreement between the Company and the distributor.
Each Plan will continue in effect from year to year if its
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plans may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to a Plan may be made except by a majority of both the directors of
the Company and the Qualified Directors.
The Plans require that the Treasurer of the Fund shall provide to
the directors, and the directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefore) under such Plan. The
Rule also requires that the selection and nomination of directors who are not
"interested persons" of the Company be made by such disinterested directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
on behalf of the Class A Shares of the Fund. Pursuant to the Administrative
Servicing Plan, the Fund may enter into administrative servicing agreements
with administrative servicing agents (which may include Wells Fargo and its
affiliates) who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners, of the Fund's Class A
Shares. Administrative servicing agents agree to perform administrative
shareholder services which may include, among other things, maintaining an
omnibus account with the Fund, aggregating and transmitting purchase, exchange
and redemption orders to the Fund's Transfer Agent, answering customer
inquiries regarding a shareholder's accounts in the Fund, and providing such
other services as the Company or a customer may reasonably request.
Administrative servicing agents are entitled to a fee which will not exceed
0.25%, on an annualized basis, of the average daily net assets of the Class A
Shares represented by the shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Fund's
Rule 12b-1 Plan while being sold pursuant to its Administrative Servicing Plan.
See the Prospectus section entitled "Summary of Expenses" for more information
regarding administrative servicing fees.
CLASS B AND D SERVICING PLANS
As indicated in the Fund's Prospectus, the Fund has adopted
Servicing Plans ("Servicing Plans") with respect to each of its Class B and
Class D Shares.
Under the Servicing Plans and pursuant to the Servicing
Agreements, the Fund may pay one or more servicing agents, as compensation for
performing shareholder administrative and liaison services, a fee at an annual
rate of up to 0.25% of the average daily net assets of the Fund attributable to
its Class B and Class D Shares. The actual fee payable to servicing agents is
determined, within such limit, from time to time by mutual agreement between
the Company and each servicing agent and will not exceed the
8
<PAGE> 58
maximum service fees payable by mutual funds sold by members of the NASD under
the NASD Rules of Fair Practice.
The Servicing Plans will continue in effect for successive annual
periods provided that such Plans are not specifically terminated by a majority
vote of both the Directors of the Company and the Servicing Plans Qualified
Directors. Any form of Servicing Agreement related to the Servicing Plans also
must be approved by such vote of the Directors and the Servicing Plans
Qualified Directors. Servicing Agreements will terminate automatically if
assigned, and may be terminated at any time, without payment of any penalty, by
a vote of a majority of the outstanding Class B or Class D Shares of the Fund.
The Servicing Plans may not be amended to increase materially the amount
payable thereunder without the approval of a majority of the outstanding Class
B or Class D Shares of the Fund, and no material amendment to the Servicing
Plans may be made except by a majority of both the Directors of the Company and
the Qualified Directors.
The Servicing Plans require that the Company's Administrator shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the
Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Determination of Net
Asset Value" and "Performance Data."
As indicated in the Prospectus, the Fund may advertise certain
total return information for a class of shares, computed in the manner
described in the Prospectus. As and to the extent required by the Commission,
an average annual compound rate of return ("T") will be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, as indicated
in the Prospectus, the Fund also may, at times, calculate total return for a
class of shares based on net asset value per share (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or would be based on
the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of a class. The cumulative total
return for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
9
<PAGE> 59
Performance information may be advertised for non-standardized
periods, including year-to-date and other periods less than a year.
The total return information presented below and advertised by the
Fund for the period prior to September 16, 1996, the date the Fund commenced
operations, is based upon the prior performance of the Collective Investment
Fund. The performance information is adjusted to reflect each class' current
level of operating expenses.
Average Annual Total Return*
<TABLE>
<CAPTION>
Commencement of Commencement
Operations to Year Ended of Operations to
Class 12/31/95 12/31/95 8/31/96
----- -------- -------- -------
<S> <C> <C> <C>
A 57.52% 61.00% 47.50%
B 61.00% 64.43% 49.34%
D 62.58% 66.43% 50.12%
</TABLE>
- -------------------------
*Reflects the performance of the Collective Investment Fund adjusted to reflect
the current level of expenses and up- front or contingent deferred sales
charges applicable to each class of shares.
Cumulative Total Return*
<TABLE>
<CAPTION>
Commencement of Eight-Month Period
Operations to Year Ended Ended
Class 12/31/95 8/31/96 8/31/96
----- -------- ------- -------
<S> <C> <C> <C>
A 69.91% 103.92% 14.60%
B 74.30% 108.60% 16.46%
D 76.30% 110.60% 18.46%
</TABLE>
- -------------------------
*Reflects the performance of the Collective Investment Fund adjusted to reflect
the current level of expenses and up- front or contingent deferred sales
charges applicable to each class of shares.
From time to time and only to the extent the comparison is
appropriate for a class of shares of the Fund, the Company may quote the
performance or price-earning ratio of a class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
1-Year Treasury Bill Rate, the S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, the Russell 2000 Index, the Russell 3000 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
10
<PAGE> 60
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices. The performance of a class of shares of the Fund also may be
compared to the performance of other mutual funds having similar objectives.
This comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The performance of a class of shares of the Fund
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment
of all gains distributions and dividends paid, at the end of the period. Any
such comparisons may be useful to investors who wish to compare the class' past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
From time to time, the Company may quote in advertising and other
types of literature, the average market capitalization and the weighted market
capitalization of the Fund's portfolio, as well as the portfolio's beta
coefficient ("beta") and may compare such quotations to similar quotations from
a benchmark index such as the Russell 2000 or Russell 3000 Index or other
managed or unmanaged indices and mutual funds having similar objectives. The
market capitalization of a company is an amount equal to the market price per
share multiplied by the number of shares outstanding. The average market
capitalization of the Fund's portfolio is the average of the market
capitalizations of the companies in which the Fund invests. The weighted market
capitalization of the Fund's portfolio is the total of the market
capitalizations of the companies in which the Fund invests, adjusted to reflect
the percentage of the Fund's portfolio invested in each such company. The "beta"
is a coefficient measuring the volatility of a stock or portfolio relative to
the rest of the market for such stocks or portfolios. For example, if an index
has a beta coefficient of 1, then stocks or portfolios represented in that index
with a beta higher than 1 are more volatile than the market represented by that
index, and those with a beta lower than 1 will rise and fall more slowly than
such market.
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, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares
11
<PAGE> 61
of the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys
(e.g., S&P Industry Surveys) to evaluate the historical performance or current
or potential value of a class of shares of the Fund with respect to the
particular industry or sector.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by an NRSRO, such as S&P or
Moody's. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold 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 the unavailability of,
information relating to the Fund or its investments. The Company may compare
the performance of the Fund with other investments that are assigned ratings by
the NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo, is listed in the top 100 by Institutional
Investor magazine in its July 1996 survey "America's Top 300 Money Managers."
This survey ranks money managers in several asset categories. The Company may
also disclose in advertising and other types of sales literature the assets and
categories of assets under management by the Company's investment adviser and
the total amount of assets under management by WFIM. As of December 31, 1995,
WFIM had $30.1 billion in assets under management. The Company also may
disclose in advertising and other types of sales literature the amount of
assets and mutual fund assets managed by Wells Fargo Bank and its affiliates
and Wells Fargo Investment Management. As of June 30, 1996, Wells Fargo Bank
and its affiliates provided investment Advisory services for approximately $56
billion of assets of individual, trusts, estates and institutions and $17
billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and
other literature may disclose that Wells Fargo Bank may maintain Web sites,
pages or other information sites accessible through Electronic Channels (an
"Information Site") and may describe the contents and features of the
Information Site and instruct investors on
12
<PAGE> 62
how to access the Information Site and open a Sweep Account. Advertising and
other literature may also disclose the procedures employed by Wells Fargo Bank
to secure information provided by investors, including disclosure and
discussion of the tools and services for accessing Electronic Channels. Such
advertising or other literature may include discussions of the advantages of
establishing and maintaining a Sweep Account through Electronic Channels and
testimonials from Wells Fargo Bank customers or employees and may also include
descriptions of locations where product demonstrations may occur. The Company
may also disclose the ranking of Wells Fargo Bank as one of the largest money
managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Purchase of Shares."
Net asset value per share for each class of the Fund and net asset
value per unit of the Master Portfolio are each determined by Wells Fargo on
each day the Exchange is open for trading as of the close of regular trading on
the Exchange, which is currently 1:00 p.m. Pacific time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Master
Portfolio for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Trust's Trustees and in
accordance with procedures adopted by the 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
the Master Portfolio's interests and the Fund's shares.
PORTFOLIO TRANSACTIONS
13
<PAGE> 63
Purchases and sales of securities by the Master Portfolio are
usually principal transactions. Portfolio securities normally are purchased or
sold from or to dealers serving as market makers for the securities at a net
price. The Master Portfolio also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the issuer.
The cost of executing the Master Portfolio's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Trust are prohibited from dealing with
the Trust as a principal in the purchase and sale of securities unless an
exemptive order or other relief allowing such transactions is obtained from the
SEC or an exemption is otherwise available. The Master Portfolio may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo is a
member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Trustees.
The Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Trust's Board of Trustees, Wells Fargo is
responsible for the Master Portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Trust 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. While Wells Fargo
generally seeks reasonably competitive spreads or commissions, the Master
Portfolio will not necessarily be paying the lowest spread or commission
available.
In assessing the best overall terms available for any transaction,
Wells Fargo 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. Wells Fargo may cause the Master Portfolio to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond,
and government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo and does
not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
14
<PAGE> 64
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Master Portfolio may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other account
or investment company.
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 the 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.
Broker/dealers utilized by Wells Fargo may furnish statistical,
research and other information or services which are deemed by Wells Fargo to
be beneficial to the Master Portfolio's investment programs. Research services
received from brokers supplement Wells Fargo's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo and to the Trust's Trustees with respect to
the performance, investment activities and fees and expenses of other mutual
Funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment
used to communicate research information, the arranging of meetings with
management of companies and the providing of access to consultants who supply
research information.
The outside research assistance is useful to Wells Fargo since the
brokers utilized by Wells Fargo as a group tend to follow a broader universe of
securities and other matters than the staff of Wells Fargo can follow. In
addition, this research provides Wells Fargo with a diverse perspective on
financial markets. Research services which are provided to Wells Fargo by
brokers are available for the benefit of all accounts managed or advised by
Wells Fargo. It is the opinion of Wells Fargo that this material is beneficial
in supplementing their research and analysis; and, therefore, it may benefit
the Master Portfolio by improving the quality of Wells Fargo's investment
advice. The advisory fees paid by the Master Portfolio are not reduced because
Wells Fargo receives such services.
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<PAGE> 65
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transactions costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences. The portfolio turnover rate will not
be a limiting factor when Wells Fargo deems portfolio changes appropriate.
FEDERAL INCOME TAX
The following information supplements and should be read in
conjunction with the Prospectus sections entitled "Dividends and Distributions"
and "Taxes." The Prospectus describes generally the tax treatment of
distributions by the Company. This section of the SAI includes additional
information concerning federal income tax.
Qualification of the Fund as a regulated investment company under
the Code requires, among other things, that (i) the Fund derive (a) at least
90% of its annual gross income from interest, payments with respect to
securities loans, dividends and gains from the sale or other disposition of
securities or options thereon; (ii) the Fund derive less than 30% of its gross
income from gains from the sale or other disposition of securities or options
thereon held for less than three months; and (iii) the Fund diversify its
holdings so that, at the end of each quarter of the taxable year, (a) 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 (b) not more than 25% of the value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. As a regulated investment
company, the Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that it distributes to its stockholders at least 90% of the sum of its
net investment income and net tax-exempt income earned in each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. For this purpose, any income or gain retained by the Fund
that is subject to income tax will be considered to have been distributed by
year-end. In addition, dividends and distributions declared payable as of a
record date in October, November or December of any calendar year are deemed
under the Code to have been distributed by the Fund and received by the
shareholders on December 31 of that calendar year if the dividend is actually
paid no later than January 31 of the following year. Such dividends will,
accordingly, be subject to income tax for the year in which the record date
falls. The Fund intends to distribute
16
<PAGE> 66
substantially all of its net investment income and net capital gains and, thus,
expects to avoid the excise tax.
Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates from 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because the Fund does not expect to hold more than 50% of the value of its
total assets in securities of foreign issuers, the Fund does not expect to be
eligible to elect to "pass through" foreign tax credits to shareholders.
The Master Portfolio will be treated as a non-publicly traded
partnership rather than as a regulated investment company or a corporation
under the Code. As a non-publicly traded partnership under the Code, any
interest, dividends and gains or losses of the Master Portfolio will be deemed
to have been "passed through" to the Fund and other investors in the Master
Portfolio, regardless of whether such interest, dividends or gains have been
distributed by the Master Portfolio or losses have been realized by the Fund
and other investors. Therefore, to the extent the Master Portfolio were to
accrue but not distribute any interest, dividends or gains, or accrue losses,
the Fund would be deemed to have realized and recognized its proportionate
share of interest, dividends, gains or losses without receipt of any
corresponding distribution. However, the Trust will seek to minimize
recognition by investors of interest, dividends, gains or losses without a
corresponding distribution.
Gains or losses on sales of portfolio securities by the Master
Portfolio will be long-term capital gains or losses if the securities have been
held by it for more than one year, except in certain cases including the case
where the Master Portfolio acquires a put or writes a call thereon. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. To the extent that the Fund recognizes long-term capital gains, such
gains will be distributed at least annually. Such distributions will be
taxable to shareholders as long-term capital gains, 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
shareholders not later than 60 days after the close of the Fund's taxable year.
If a shareholder receives such a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any
Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long- term capital loss to the extent of the designated capital
gain distribution. Gain recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by
the Master Portfolio at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent such accrued
market discount had not been previously included as taxable income during the
period of time the Master Portfolio held the debt obligation.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (effective rates may be higher for some
individuals due to phase
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<PAGE> 67
out of exemptions and eliminations of deductions); the maximum individual
marginal tax rate applicable to net capital gains is 28%; and the maximum
marginal corporate tax rate applicable to ordinary income and net capital gains
is 35% (except that to eliminate the benefit of lower marginal corporate income
tax rates, corporations which have taxable income in excess of $100,000 for a
taxable year will be required to pay an additional amount of income tax up to
$11,750 on taxable income exceeding $100,000 in a taxable year and corporations
which have taxable income in excess of $15,000,000 for a taxable year will be
required to pay an additional tax of up to $100,000). 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.
If a shareholder exchanges or otherwise disposes of shares of the
Fund 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 for shares of the Fund or of a different fund, the sales charge
previously incurred in acquiring the Fund's shares shall not be taken into
account (to the extent such previous sales charges do not exceed the reduction
in sales charges) for the purpose of determining the amount of gain or loss on
the exchange, 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 reacquired within the 61-day period beginning 30 days before and ending 30
days after the shares are disposed of.
If, in the opinion of the Company, ownership of its shares has or
may become concentrated to an extent that could cause the Company to be deemed
a personal holding company within the meaning of the Code, the Company may
require the redemption of shares or reject any order for the purchase of shares
in an effort to prevent such concentration.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules such as
marked to market rules
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that would result in income or gain recognition by the Master Portfolio without
corresponding current cash receipts. Although the Master Portfolio will seek
to avoid significant noncash income, such noncash income could be recognized by
the Master Portfolio, in which case the Master Portfolio may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
The Fund is comprised of three classes of shares, Class A Shares,
Class B Shares and Class D Shares. With respect to matters that affect one
class but not another, shareholders vote as a class; for example, the approval
of a Plan. Subject to the foregoing, on any matter submitted to a vote of
shareholders, all shares then entitled to vote will be voted separately by
portfolio unless otherwise required by the Act, in which case all shares will
be voted in the aggregate. For example, a change in the Fund's fundamental
investment policies would be voted upon only by shareholders of the Fund and
not shareholders of the Company's other investment portfolios. Additionally,
approval of an advisory contract is a matter to be determined separately by the
Fund. Approval by the shareholders of one portfolio is effective as to that
portfolio whether or not sufficient votes are received from the shareholders of
the other portfolios to approve the proposal as to those portfolios. As used
in the Prospectus and in this Statement of Additional Information, the term
"majority," when referring to approvals to be obtained from shareholders of a
class of the Fund, means the vote of the lesser of (i) 67% of the shares of
such class of the Fund represented at a meeting if the holders of more than 50%
of the outstanding shares of such class of the Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of such class of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect directors under the Act.
However, the Company undertakes to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a director or directors
if requested in writing of the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared
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in the discretion of the Directors. In the event of the liquidation or
dissolution of the Company, shareholders of the Fund are entitled to receive
the assets attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to the Fund that are
available for distribution in such manner and on such basis as the Directors in
their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by the Trust, the Trust's Declaration of Trust provides that
its investors would be personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also
provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of Trust
obligations. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act. However, nothing in the Declaration of Trust protects a Trustee
against any liability to which the Trustee would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for Fund shares. The
Trust also intends to dispense with annual meetings, but will hold a special
meeting and assist investor communications under the circumstances described
above with respect to the Company in accord with provisions under Section 16(c)
of the Act. Whenever the Fund is requested to vote on a matter with respect to
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes as instructed by such shareholders. In a situation where
the Fund does not receive instruction from certain of its shareholders on how
to vote the corresponding shares of the Master Portfolio, the Fund will vote
such shares in the same proportion as the shares for which the Fund does
receive voting instructions.
As of the date of this SAI, Stephens owned approximately 99% of
the outstanding Class A, Class B and Class D Shares of the Fund and such could
be considered a "control person" of the Fund for purposes of the 1940 Act.
However, upon commencement of the initial public offering of the Fund's shares,
it is expected that
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Stephens will own a significantly smaller percentage of the Fund's outstanding
voting securities and will no longer be considered a control person of the
Fund.
OTHER
The Registration Statements of the Trust and the Company,
including the Fund's Prospectus, the SAI and the exhibits filed therewith, may
be examined at the office of the Commission in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and the Trust. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain Securities & Exchange Commission filings. KPMG Peat
Marwick LLP's address is Three Embarcadero Center, San Francisco, California
94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Company's other Funds are contained in
the Company's Annual Report which is available by calling 1-800-552-9612.
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APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate bonds, municipal securities and commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Commercial Paper/Municipal Securities
Moody's: The highest rating for commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A- 1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
