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[OVERLAND EXPRESS LOGO]
Telephone: (800) 552-9612
NATIONAL TAX-FREE INSTITUTIONAL
MONEY MARKET FUND
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 a professionally managed,
open-end, series investment company. This Prospectus describes the NATIONAL
TAX-FREE INSTITUTIONAL MONEY MARKET FUND (the "Fund"). The investment objective
of the Fund is to provide investors with a high level of income exempt from
federal income tax, while preserving capital and liquidity. THE FUND SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN THE TAX-FREE
MONEY MARKET MASTER PORTFOLIO (THE "MASTER PORTFOLIO") OF MASTER INVESTMENT
TRUST (THE "MASTER TRUST"), AN OPEN-END, MANAGEMENT INVESTMENT COMPANY, RATHER
THAN IN A PORTFOLIO OF SECURITIES. THE MASTER PORTFOLIO HAS THE SAME INVESTMENT
OBJECTIVE AS THE FUND. THEREFORE, THE FUND'S INVESTMENT EXPERIENCE CORRESPONDS
DIRECTLY WITH THE MASTER PORTFOLIO'S INVESTMENT EXPERIENCE. Shares of the Master
Portfolio may be purchased only by other investment companies or similar
accredited investors. The Master Portfolio seeks to achieve its investment
objective by investing in high-quality, U.S. dollar-denominated money market
instruments, primarily municipal obligations, with remaining maturities not
exceeding thirteen months.
This Prospectus sets forth concisely the information about the Fund and the
Master Portfolio that a prospective investor should know before investing in the
Fund. A Statement of Additional Information (the "SAI"), dated April 1, 1996,
containing additional information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus. The SAI is available without charge and can be obtained by
writing the Company c/o Overland Express Shareholder Services, P.O. Box 63084,
San Francisco, California 94163 or by calling 1-800-552-9612.
AN INVESTMENT IN THE FUND AND MASTER PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND OR
MASTER PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
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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 BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE 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 THESE AUTHORITIES PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS DATED APRIL 1, 1996
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As noted below under "How the Fund Works," investors may be able to invest
indirectly in the Master Portfolio through other investment companies or series
of the Company which invest substantially all of their assets in the Master
Portfolio.
WELLS FARGO BANK IS THE INVESTMENT ADVISER TO THE MASTER PORTFOLIO AND
PROVIDES CERTAIN OTHER SERVICES TO THE FUND AND MASTER PORTFOLIO FOR WHICH
IT IS COMPENSATED. STEPHENS INC. ("STEPHENS"), WHICH IS NOT AFFILIATED
WITH WELLS FARGO BANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES
AS THE DISTRIBUTOR FOR THE COMPANY AND PLACEMENT AGENT FOR THE
MASTER TRUST.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................................ ii
Summary of Expenses....................................................................... iv
How the Fund Works........................................................................ 1
Risk Factors............................................................................ 3
Management of the Fund and the Master Portfolio........................................... 5
Investing in the Fund..................................................................... 7
Dividends................................................................................. 10
How to Redeem Shares...................................................................... 11
Additional Shareholder Services........................................................... 14
Taxes..................................................................................... 16
General Information....................................................................... 17
Prospectus Appendix -- Additional Investment Policies..................................... A-1
</TABLE>
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PROSPECTUS SUMMARY
The following summary provides investors with basic information about the
Fund. For more information, please refer specifically to the identified
Prospectus sections and generally to the Prospectus and SAI.
Q. WHO CAN INVEST IN THE FUND?
A. Shares of the Fund are offered primarily to a select group of investors.
These include:
Foundations, corporations and other business entities and high net-worth
individuals and Trusts that have a business relationship with one of the
Company's Selling Agents that permits investments in Fund shares, and
persons who invest pursuant to an agreement between such an entity and a
Selling Agent (for example, Wells Fargo Bank). See "Investing in the
Fund -- Purchase of Shares."
Q. WHAT IS THE INVESTMENT OBJECTIVE OF THE FUND AND THE MASTER PORTFOLIO?
A. The NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND, a diversified
portfolio of securities, seeks to provide investors with a high level of
income exempt from federal income tax, while preserving capital and
liquidity. The Fund seeks to achieve its investment objective by investing
all of its assets in the Tax-Free Money Market Master Portfolio of the
Master Trust, which has the same investment objective as the Fund. The
Master Portfolio seeks to achieve its investment objective by investing in
high-quality, U.S. dollar-denominated money market instruments, primarily
municipal obligations, with remaining maturities not exceeding thirteen
months. See "How the Fund Works -- Investment Objective and Policies" and
"Prospectus Appendix -- Additional Investment Policies."
Q. WHAT ARE SOME OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND?
A. Investments in the Fund are not bank deposits or obligations of Wells
Fargo Bank and are not insured by the Federal Deposit Insurance
Corporation ("FDIC"), nor are they insured or guaranteed against loss of
principal. Therefore, investors should be willing to accept some risk with
money invested in the Fund. Although the Fund and the Master Portfolio
seek to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so. As with all mutual funds, there
can be no assurance that the Fund will achieve its investment objective.
See "How the Fund Works -- Investment Objective and Policies" and
"Prospectus Appendix -- Additional Investment Policies."
Q. HOW MAY INVESTORS PURCHASE SHARES?
A. Investors may invest by purchasing Fund shares at their net asset value
next calculated on any Business Day (as defined below). There are no sales
loads. Investors may open an account by investing at least $150,000 and
may make additional investments of at least $25,000, although certain
exceptions to these minimums may be available. Shares of the Fund may be
purchased on any Business Day by calling an account representative, wiring
money or mailing a check. Shares of the Fund may not be suitable
investments for tax-exempt institutions or tax-exempt retirement plans,
since such investors would not generally benefit from the tax-exempt
status of the Fund's dividends. See "Investing in the Fund." For more
details, investors may contact Stephens (the Fund's sponsor and
distributor) or a Selling Agent (such as Wells Fargo Bank).
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Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as investment adviser to the Master Portfolio, manages
the Master Portfolio's investments. 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 Bank, one
of the largest commercial banks in the United States, was founded in 1852
and is the oldest bank in the western United States. As of January 1,
1996, Wells Fargo Bank provided investment advisory services for over $33
billion of assets for individuals, trusts, estates and institutions. See
"Management of the Fund and the Master Portfolio" and "General
Information" in this Prospectus.
Q. WHAT ARE THE FEES FOR INVESTING?
A. Unlike certain other mutual funds that charge sales loads or other
transactions fees, the Fund does not impose shareholder transaction fees
on the purchase, redemption or exchange of its shares or for reinvesting
dividends. For its advisory services to the Master Portfolio, Wells Fargo
Bank is entitled to receive a monthly fee at the annual rate of 0.30% of
the Master Portfolio's average daily net assets. Wells Fargo Bank also
provides transfer and dividend disbursing agency services and custodial
services to the Fund and the Master Portfolio. No additional compensation
is payable to Wells Fargo Bank for providing such services to the Fund or
the Master Portfolio. For its services as administrator of the Fund and
the Master Portfolio, Stephens is entitled to receive a monthly fee at the
annual rate of 0.05% of the Fund's average daily net assets.
Q. HOW ARE FUND INVESTMENTS VALUED?
A. The price per share or "net asset value" ("NAV") of the Fund depends on
the NAV of the Master Portfolio's shares, which in turn depends on the
total value of the portfolio securities owned by the Master Portfolio
(plus cash and other assets after subtracting all liabilities) and the
number of Master Portfolio shares outstanding. On each Business Day, Wells
Fargo Bank calculates a new NAV for the Fund and the Master Portfolio.
(See "Investing in the Fund -- Share Price")
Although the Fund and Master Portfolio seek to maintain a stable NAV of
$1.00 per share, there can be no assurance that this will be achieved.
Q. DOES THE FUND PAY DIVIDENDS AND DISTRIBUTE CAPITAL GAINS?
A. Dividends from any net investment income are declared daily, paid monthly
and automatically reinvested in additional Fund shares at NAV. Each
reinvestment increases the total number of shares held in an account. Any
capital gains are distributed at least annually. See "Dividends" and
"Investing in the Fund."
Q. HOW MAY AN INVESTOR REDEEM SHARES?
A. Investors may redeem Fund shares at NAV, without paying any sales charge
or redemption fee, on any Business Day by calling an account
representative, by letter, by an automatic feature called the Systematic
Withdrawal Plan, or by telephone (unless the investor specifically
declines telephone privileges). See "How To Redeem Shares." For more
information, investors should contact an account representative, Stephens
or a Selling Agent (such as Wells Fargo Bank).
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SUMMARY OF EXPENSES1
ANNUAL FUND OPERATING EXPENSES2
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Master Portfolio Management Fee (after waivers or reimbursements)3.................. 0.20%
Other Expenses:
Administrative Fee................................................................ 0.05%
Miscellaneous Expenses (after waivers or reimbursements)3......................... 0.05%
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Total Other Expenses (after waivers or reimbursements)3............................. 0.10%
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Total Fund Operating Expenses (after waivers or reimbursements)3.................... 0.30%
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1 Other mutual funds may invest in the Master Portfolio and such other funds'
expenses and, correspondingly, investment returns may differ from those of the
Fund.
2 ANNUAL FUND OPERATING EXPENSES summarize expenses charged at the Master
Portfolio level as well as expenses charged at the Fund level.
3 The amount shown under "Administrative Fee" reflects contract rates. The
amounts shown above under "Master Portfolio Management Fee," "Miscellaneous
Expenses," "Total Other Expenses" and "Total Fund Operating Expenses" reflect
certain anticipated voluntary fee waivers and expense reimbursements that are
expected to reduce expenses during the current fiscal year. Absent waivers and
reimbursements, the amounts shown under "Master Portfolio Management Fee,"
"Miscellaneous Expenses," "Total Other Expenses" and "Total Fund Operating
Expenses" would be 0.30%, 0.30%, 0.35% and 0.65%, respectively. For a further
description of the Master Portfolio's and Fund's fee structure, see
"Management of the Fund and the Master Portfolio." Wells Fargo Bank and
Stephens may each elect, in its sole discretion, to waive fees or reimburse
all or a portion of their respective expenses. Any such fee waivers or expense
reimbursements would reduce the Fund's total expenses. There can be no
assurance that such waivers or reimbursements would continue. Investors should
see the Prospectus section captioned "Management of the Fund and the Master
Portfolio" for more complete descriptions of the various costs and expenses
they can expect to incur as investors in the Fund.
iv
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EXAMPLE
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1 YEAR 3 YEARS
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An investor would pay the following expenses on a $1,000 investment in the
Fund, assuming (A) a 5% annual return and (B) redemption at the end of each
time period indicated:...................................................... $ 3 $ 10
</TABLE>
The purpose of the foregoing tables is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. There are no 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 table summarizes expenses for
both the Master Portfolio and the Fund. The 5% rate of return reflected in the
Example should not be considered an indication of actual or expected performance
of the Fund. In addition, the Example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown.
With regard to the combined fees and expenses of the Fund and the Master
Portfolio, the Company's Board of Directors has considered whether various costs
and benefits of investing all the Fund's assets in the Master Portfolio would be
more or less than if the Fund invested in portfolio securities directly, and
believes that the Fund should achieve economic efficiencies by investing in the
Master Portfolio. Additionally, the Board of Directors has determined that the
aggregate fees assessed by the Fund and the Master Portfolio should be less than
those expenses that the Directors believe would be incurred if the Fund had
invested directly in the securities held by the Master Portfolio. See the
Prospectus section captioned "Management of the Fund and the Master Portfolio"
for more complete descriptions of the various costs and expenses applicable to
investors in the Fund. In addition, if the Fund were to change its investment
strategy and no longer invest in the Master Portfolio, these expenses could
change.
v
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HOW THE FUND WORKS
INVESTMENT OBJECTIVE AND POLICIES
The NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND seeks to provide
investors with a high level of income exempt from federal income tax, while
preserving capital and liquidity. The Fund, which is a diversified portfolio,
seeks to achieve its investment objective by investing all of its assets in the
Master Portfolio, which has the same investment objective as the Fund. The
Master Portfolio seeks to achieve its investment objective by investing in
high-quality, short-term U.S. dollar-denominated money market instruments,
primarily municipal obligations, with remaining maturities not exceeding
thirteen months.
Since the investment characteristics of the Fund correspond directly to
those of the Master Portfolio, the following is a discussion of the various
investments of, and techniques employed by, the Master Portfolio.
Wells Fargo Bank, as investment adviser to the Master Portfolio, pursues
the Master Portfolio's investment objective by investing (under normal market
conditions) substantially all of the Master Portfolio's assets in the following
types of municipal obligations that pay interest which is exempt from federal
income tax: bonds, notes and commercial paper issued by or on behalf of states,
territories, and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies, instrumentalities
(including government-sponsored enterprises) and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
federal income tax. These municipal obligations and the taxable investments
described below may bear interest at rates that are not fixed ("floating- and
variable-rate instruments").
The Master Portfolio may temporarily invest some of its assets in cash
reserves or certain high-quality, taxable money market instruments, or may
engage in certain other investment activities as described in this Prospectus.
The Master Portfolio may elect to invest temporarily up to 20% of its net assets
in certain permitted taxable investments, including cash reserves, U.S.
Government obligations, obligations of domestic banks, commercial paper, taxable
municipal obligations and repurchase agreements. The Master Portfolio may also
invest in U.S. dollar-denominated obligations of foreign banks and foreign
securities. Such temporary investments would most likely be made when there is
an unexpected or abnormal level of investor purchases or redemptions of
interests in the Master Portfolio or because of unusual market conditions. The
income from these temporary investments and investment activities may be subject
to federal income tax. However, as stated above, Wells Fargo Bank seeks to
invest substantially all of the Master Portfolio's assets in securities exempt
from such tax. A more complete description of tax-free municipal obligations,
taxable money market instruments, and other investment activities is contained
in the "Prospectus Appendix -- Additional Investment Policies."
As a matter of fundamental policy, at least 80% of the net assets of the
Master Portfolio is invested (under normal market conditions) in municipal
obligations that pay interest which is exempt from federal income tax and is not
subject to the federal alternative minimum tax. However, as a matter of general
operating policy, the Master Portfolio seeks to invest substantially all of its
assets in such municipal obligations. The Master Portfolio's investment adviser
may rely either on the opinion of bond counsel or counsel to the issuer of the
municipal obligations regarding the tax treatment of these obligations. In
addition, the Master Portfolio may invest 25% or more of its assets in municipal
obligations that are related
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in such a way that an economic, business or political development or change
affecting one such obligation would also affect the other obligations. These
municipal obligations may include obligations which pay interest based on the
revenues of similar types of projects, such as pollution control bonds, electric
and gas utilities bonds and water authority bonds. Adverse economic conditions
or conditions or developments affecting a particular state, municipality or
issuing authority could impact the obligations issued by such entities and
decrease the value of the Master Portfolio's investments in such obligations.
MASTER/FEEDER STRUCTURE
The Fund is a feeder fund in a master/feeder structure, which means that it
invests all of its assets in the Master Portfolio, which has the same investment
objective as the Fund. The Master Trust is organized as a trust under the laws
of the State of Delaware. See "General Information -- Description of the
Company." In addition to selling its shares to the Fund, the Master Portfolio
may sell its shares to other mutual funds or qualified investors. Such other
mutual funds and other qualified investors may have different expenses and,
accordingly, may experience different investment returns and yields compared
with the Fund. Information regarding additional options, if any, for investing
in shares of the Master Portfolio is available from Stephens and may be obtained
by calling (800) 643-9691.
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 across a
potentially larger asset base provided by more than one fund investing in the
Master Portfolio. The Fund and any other entities investing in the Master
Portfolio are each liable for all obligations of the Master Portfolio. The risk
of the Fund incurring financial loss on account of such liability, however, is
limited to circumstances in which both inadequate insurance exists and the
Master 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 reason of investing the Fund's assets in the
Master Portfolio. However, if a mutual fund or other investor withdraws its
investment from the Master Portfolio, the economic efficiencies (e.g., spreading
fixed expenses across a larger asset base) that the Company's Board believes
should be available through investment in the Master Portfolio may not be fully
achieved. In addition, given the relatively novel nature of the master/feeder
structure, accounting and operational difficulties, although unlikely, could
occur.
The Fund may withdraw its investments 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 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 in this section with respect to the
Master Portfolio. For a description of the management and expenses of the Master
Portfolio, see the Prospectus section captioned "Management of the Fund and the
Master Portfolio."
The investment objective and other fundamental policies of the Fund or the
Master Portfolio cannot be changed without approval by the holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Fund's or Master Portfolio's, as applicable, outstanding
voting securities. Whenever the Fund, as a Master Portfolio interestholder, is
requested to vote on matters
2
<PAGE> 9
pertaining to any fundamental policy of the Master Portfolio, the Company will
hold a meeting of the Fund's shareholders to consider such matters, and the
Fund's votes will be cast in proportion to the votes received from Fund
shareholders. The Fund will vote those Fund shares for which it receives no
voting instructions in the same proportion as the votes received from Fund
shareholders. In addition, certain policies of the Master Portfolio that are
non-fundamental could be changed by vote of a majority of the Master Trust's
Trustees without interestholder vote. If the Master Portfolio's investment
objective or fundamental or non-fundamental policies are changed, the Fund could
subsequently change its objective or policies to correspond to those of the
Master Portfolio, or the Fund could redeem its Master Portfolio interests and
either seek a new investment company with a matching objective in which to
invest or it could retain its own investment adviser to manage the Fund's
portfolio in accordance with its investment 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
and Policies" and "Prospectus Appendix -- Additional Investment Policies" for
additional information regarding the Fund's and the Master Portfolio's
investment objective and policies and "Management of the Fund and the Master
Portfolio" for additional information regarding the Fund's and the Master
Portfolio's expenses and management. Additional information regarding the
officers and directors/trustees of the Company and the Master Trust is located
in Fund's SAI under "Management."
RISK FACTORS
Investments in the Fund and Master Portfolio are not bank deposits and are
not insured or guaranteed against loss of principal. Although both the Fund and
the Master Portfolio seek to maintain a stable NAV of $1.00 per share, there is
no assurance that they will be able to do so. As with all mutual funds, there
can be no assurance that the Fund and the Master Portfolio will achieve their
respective investment objectives. See "Prospectus Appendix -- Additional
Investment Policies" for further discussion of investment objectives and risks.
The Master Portfolio and the Fund, under the 1940 Act, must comply with
certain investment criteria designed to provide liquidity, reduce risk and allow
the Fund and the Master Portfolio each to maintain a stable NAV of $1.00 per
share. The dollar-weighted average portfolio maturity of the Master Portfolio or
the Fund must not exceed 90 days. In addition, any security that the Fund or
Master Portfolio purchases must have a remaining maturity of not more than
thirteen months. Any security that the Fund or Master Portfolio purchases must
present minimal credit risks and be of high-quality (i.e., be rated in the top
two rating categories by the required number of nationally recognized
statistical rating organizations ("NRSROs") or, if unrated, determined to be of
comparable quality to such rated securities). These determinations are made by
Wells Fargo Bank, as the Master Portfolio's investment adviser, under guidelines
adopted by the Master Trust's Board of Trustees.
The Fund and the Master Portfolio seek to reduce risk by investing in
securities of various issuers. As such, the Fund and the Master Portfolio are
considered to be diversified for purposes of the 1940 Act. In addition, the Fund
and the Master Portfolio, since their inception, have emphasized safety of
principal and high credit quality. In particular, the internal investment
policies of the Master Portfolio's investment adviser, Wells Fargo Bank, have
always prohibited the purchase of many types of floating-rate instruments,
3
<PAGE> 10
commonly referred to as "derivatives," that are considered potentially volatile.
The following types of derivative securities ARE NOT permitted investments for
the Master Portfolio or the Fund:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified rate);
- dual index floaters (whose interest-rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their
indices).
Additionally, neither the Master Portfolio nor the Fund may invest in
instruments whose interest-rate reset provisions are tied to an index that
materially lags short-term interest rates, such as Cost of Funds Index ("COFI")
floaters. The Master Portfolio and the Fund may only invest in floating-rate
instruments that bear interest at a rate that resets quarterly or more
frequently, and which resets based on changes in standard money market rate
indices such as U.S. Government Treasury bills, London Interbank Offered Rate
("LIBOR"), the prime rate, published commercial paper rates, federal funds
rates, Public Securities Associates ("PSA") Floaters or JJ Kenney index
floaters.
PERFORMANCE
The performance of the Fund may be advertised in terms of current yield,
effective yield, tax-equivalent yield or effective tax-equivalent yield. These
performance figures are based on historical results and are not intended to
indicate future performance. The investment performance of the Fund corresponds
to the investment performance of the Master Portfolio.
The Fund's yield refers to the income generated by an investment in shares
of the Fund over a seven- or thirty-day period (which period will be specified
in any advertisement) expressed as an annual percentage rate. Effective yields
are calculated similarly but assume that the income earned from the Fund is
reinvested in the Fund. Because of the effects of compounding, effective yields
are slightly higher than yields. The tax-equivalent yield and the effective
tax-equivalent yield of the Fund assume that a stated income tax rate has been
applied to determine the tax-equivalent figures. The application of the stated
income tax rate results in higher effective yield figures. The Fund may also
present nonstandard performance information, such as distribution rate, for
purposes of sales literature.
Additional performance information will be contained in the Company's
annual report which will be available upon request without charge by calling the
Company at (800) 552-9612.
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MANAGEMENT OF THE FUND AND THE MASTER PORTFOLIO
MASTER PORTFOLIO INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company located at 420 Montgomery Street, San
Francisco, California 94104, is the Master Portfolio's investment adviser. Wells
Fargo Bank, one of the largest banks in the United States, was founded in 1852
and is the oldest bank in the western United States. As of January 1, 1996,
Wells Fargo Bank provided investment advisory services for over $33 billion of
assets for individuals, trusts, estates and institutions. The Investment
Advisory Contract provides that Wells Fargo Bank furnish to the Master Portfolio
investment guidance and policy direction in connection with the daily portfolio
management of the Master Portfolio, subject to the supervision of the Master
Trust's Board of Trustees and in conformity with Delaware law and the stated
policies of the Master Portfolio. Pursuant to the Investment Advisory Contract,
Wells Fargo Bank furnishes to the Trust's Board of Trustees periodic reports on
the investment strategy and performance of the Master Portfolio. Wells Fargo
Bank also serves as the investment adviser or sub-adviser to certain other
separately managed funds of the Company, to the Master Trust and to five other
registered, open-end management investment companies, each of which consists of
several separately managed investment portfolios.
Wells Fargo Bank deals, trades and invests for its own account in the types
of securities in which the Master Portfolio may invest and may have deposit,
loan and commercial banking relationships with the issuers of securities
purchased by the Master Portfolio. Wells Fargo Bank has informed the Master
Trust that in making its investment decisions it does not obtain or use material
inside information in its possession.
Under the terms of the Investment Advisory Contract, the Master Trust has
agreed to pay Wells Fargo Bank a monthly fee at the annual rate of 0.30% of the
Master Portfolio's average daily net assets. From time to time Wells Fargo Bank
may voluntarily waive all or a portion of its advisory fees. There can be no
assurance that such fee waivers would continue. Any fee waivers reduce the
Master Portfolio's and the Fund's expenses and, accordingly, increase amounts
that are available for distribution to shareholders.
Morrison & Foerster LLP, counsel to the Company and the Master Trust and
special counsel to Wells Fargo Bank, has advised the Company, the Master Trust
and Wells Fargo Bank that Wells Fargo Bank and its affiliates may perform the
services contemplated by the Investment Advisory Agreement and this Prospectus
without violation of the Glass-Steagall Act. Such counsel has pointed out,
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
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SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens, located at 111 Center Street, Little Rock, Arkansas 72201, serves
as the Fund's and the Master Portfolio's administrator pursuant to
Administration Agreements. Under the Administration Agreement with respect to
the Fund, Stephens generally supervises all aspects of the operation of the
Fund, other than the provision of investment advice, subject to the overall
authority of the Board of Directors and in accordance with Maryland law. The
administrative services provided to the Fund also include coordination of the
other services provided to the Fund, compilation of information for reports to
the SEC and state securities commissions, preparation of proxy statements and
shareholder reports, and general supervision of data compilation in connection
with preparing periodic reports to the Company's Board of Directors and
Officers. Stephens also furnishes office space and certain facilities to conduct
the Company's business and compensates the Company's Directors, Officers and
employees who are affiliated with Stephens. For providing administrative
services to the Fund, the Company has agreed to pay Stephens a monthly fee at
the annual rate of 0.05% of the Fund's average daily net assets.
Stephens also serves as the Master Portfolio's and the Fund's principal
underwriter within the meaning of the 1940 Act and as distributor of the Fund's
shares pursuant to a Distribution Agreement with the Company. Under the
Distribution Agreement, Stephens has agreed to act as agent for the Company for
the sale of Fund shares and may enter into Selling Agreements with selling
agents that wish to make available Fund shares to their respective customers
("Selling Agents"). Wells Fargo Bank presently acts as a Selling Agent, but does
not receive any fee from the Fund for such activities.
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, including discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individual investors, foundations, insurance
companies and university endowments.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Fund's and the Master Portfolio's custodian
and transfer and dividend disbursing agent (the "Transfer Agent") but does not
receive a fee from the Company or the Master Trust for such services. Pursuant
to their separate Custody Agreements with Wells Fargo Bank, the Fund and the
Master Portfolio may each, at times, borrow money from Wells Fargo Bank as
needed to satisfy temporary liquidity needs. Wells Fargo Bank charges interest
on such overdrafts at a rate determined pursuant to the Fund's and/or Master
Portfolio's Custody Agreement. The custodial, transfer and dividend disbursing
agency activities are performed at 525 Market Street, San Francisco, California
94105.
EXPENSES
As noted previously, from time to time, Wells Fargo Bank and Stephens may
waive their respective fees in whole or in part. Any such waivers reduce the
Fund's expenses and, accordingly, have a favorable impact on the Fund's yield.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Fund bears
all costs of its operations, including a pro rata portion of the compensation of
the Company's Directors who are not affiliated with Wells Fargo Bank or Stephens
or any of their affiliates; advisory, administration fees; interest charges;
taxes; fees and expenses of independent auditors, legal counsel, expenses of
redeeming
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<PAGE> 13
shares, expenses of preparing and printing prospectuses (except the expense of
printing and mailing prospectuses used for promotional purposes), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; expenses of shareholders' meetings; expenses relating to
the issuance, registration and qualification of Fund shares; pricing services;
and any extraordinary expenses. Expenses attributable to the Fund are charged
against the Fund's assets. General expenses of the Company are allocated among
all of the funds of the Company, including the Fund, in a manner proportionate
to the net assets of each fund, on a transactional basis, or on such other basis
as the Company's Board of Directors deems equitable. The Fund bears a pro rata
portion of the Master Portfolio's Expenses.
INVESTING IN THE FUND
OPENING AN ACCOUNT
Fund shares may be purchased in one of the several ways described below. An
Account Application, which must be completed and signed to open an account,
accompanies this Prospectus. Additional documentation may be required from
corporations, associations and certain fiduciaries. Investors must not mail
cash. Investors with any questions or requiring extra forms may call (800)
552-9612. The Company or Stephens may make this Prospectus available in an
electronic format. Upon receipt of a request from an investor or the investor's
representative, the Company or Stephens will transmit or cause to be transmitted
promptly, without charge, a paper copy of the electronic prospectus.
After an Account Application has been processed and an account has been
established, subsequent purchases of different funds of the Company under the
same umbrella account do not require the completion of additional Account
Applications. A separate Account Application must be processed for each
different umbrella account number (even if the registration is the same).
Investors should call the number on their confirmation statements to obtain
information about what is required to change registration.
SHARE PRICE
The price of each Fund share is its NAV. The NAV of Fund shares is computed
at 9:00 a.m. and 1:00 p.m. (Pacific time) each Business Day (as defined below).
NAV is calculated by adding the value of the Fund's portfolio investments plus
cash and other assets, deducting liabilities and then dividing the result by the
number of shares outstanding. The Fund's investments in the Master Portfolio are
valued at the NAV of the Master Portfolio's shares. The Master Portfolio
calculates the NAV of its shares on each day and at the same time as the Fund.
As noted above, the Fund seeks to maintain a constant $1.00 NAV share price,
although there is no assurance that it will be able to do so.
The Master Portfolio's portfolio investments are valued on the basis of
amortized cost. This valuation method is based on the receipt of a steady rate
of payment from the date of purchase until maturity rather than actual changes
in market value. The Master Trust's Board of Trustees and the Company's Board of
Directors believe that this valuation method accurately reflects fair value.
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<PAGE> 14
PURCHASE OF SHARES
Investors may purchase Fund shares on any day the New York Stock Exchange
("NYSE") is open for trading (a "Business Day"). The NYSE 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 NYSE usually is closed the preceding Friday, and when
any Holiday falls on a Sunday, the NYSE is closed the following Monday. Purchase
orders that are received by the Transfer Agent before 9:00 a.m. (Pacific time)
are executed on the same day. Orders received by the Transfer Agent after 9:00
a.m. (Pacific time) are executed on the next Business Day. Purchase orders are
processed at the NAV next determined after the order is received.
Investors may purchase Fund shares on any Business Day and by any of the
methods described below. After a properly completed Account Application is
received and the investor's wire order or check is received, or an account with
a bank that is designated in the Account Application and that is approved by the
Transfer Agent (an "Approved Bank Account") is debited, the purchase order is
effective, and full and fractional shares are purchased at the next determined
NAV, which is expected to remain a constant $1.00 per share. All investments in
the Fund's shares are subject to a determination by the Company that the
investment instructions are complete. If shares are purchased by a check that
does not clear, the Company reserves the right to cancel the purchase and hold
the investor responsible for any losses or fees incurred. In addition, the Fund
may hold payment on any redemption until reasonably satisfied that investments
made by check have been collected (which may take up to 10 days). The Company
reserves the right to reject any purchase order or suspend sales at any time.
The Fund does not issue share certificates.
The minimum initial investment in the Fund is $150,000. All subsequent
purchases must be at least $25,000. There is no minimum purchase requirement for
reinvestment of dividends or capital gains. Investments in shares of more than
one fund, or shares held in more than one account, may not be aggregated for
purposes of determining whether a particular investor meets the minimum purchase
requirements. Investors with questions regarding purchases of shares, should
contact the Company at (800) 572-7797 or contact a Selling Agent (such as Wells
Fargo Bank).
Federal regulations require that an investor provide a social security
number or a certified taxpayer identification number ("TIN") upon opening or
reopening an account. See "Taxes" for further information concerning this
requirement. Failure to furnish a certified TIN to the Trust could subject the
investor to a $50 penalty imposed by the IRS.
Shares of the Fund may not be suitable investments for tax-exempt
institutions or tax-sheltered retirement plans, since such investors would not
benefit from the exempt status of the Fund's dividends. See "Federal Income
Taxes -- Special Tax Considerations" in the SAI.
Investors may buy Fund shares on any Business Day by any of the methods
described below.
INITIAL PURCHASES BY WIRE
The investor should:
1. Telephone toll free (800) 572-7797. Give the name of the Fund, the
name(s) in which the shares are to be registered, address, social security
number or TIN (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
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<PAGE> 15
wiring bank and name and telephone number of the person to be contacted in
connection with the order. An account number will be assigned. Some banks may
impose wiring fees.
2. Instruct the wiring bank to transmit the specified amount in federal
funds ($150,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: Overland Express National Tax-Free Institutional Money Market
Fund
Account Name(s): Name(s) in which the account is to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by
telefacsimile with the original subsequently mailed, to the following address
immediately after the funds are wired and must be received and accepted by the
Transfer Agent before an account can be opened:
Wells Fargo Bank, N.A.
c/o Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the NAV next determined after the
Account Application is received and accepted.
INITIAL PURCHASES BY MAIL
The investor should:
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $150,000 or more, payable
to "Overland Express National Tax-Free Institutional Money Market Fund" to the
address above.
3. Share purchases are effected at the NAV next determined after the
Account Application is received and accepted.
ADDITIONAL PURCHASES
Additional purchases of $25,000 or more may be made by instructing the
Fund's Transfer Agent to debit a designated Approved Bank Account, 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
National Tax-Free Institutional Money Market Fund" to the above address. An
investor should write the Fund account number on the check and include the
detachable stub from the investor's Statement of Account or a letter providing
the investor's Fund account number.
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<PAGE> 16
PURCHASES THROUGH SELLING AGENTS
Purchase orders for Fund shares placed through Selling Agents by 9:00 a.m.
(Pacific time) on any Business Day, including orders for which payment is to be
made from free cash credit balances in securities accounts maintained with a
Selling Agent, are executed on the same day an order is placed if notice is
provided to the Transfer Agent by 9:00 a.m. (Pacific time) and if federal funds
are received by the Transfer Agent before the close of business.
Purchase orders that are received by a Selling Agent after 9:00 a.m.
(Pacific time) on any Business Day or federal funds that are not received by the
Transfer Agent before the close of business are executed on the next Business
Day following the day the order is placed. The Selling Agent is responsible for
the prompt transmission of purchase orders to the Fund. Financial institutions
acting as Selling Agents, or in certain other capacities, may be required to
register as dealers pursuant to applicable state securities laws, which may
differ from federal law and any interpretations expressed herein.
STATEMENTS AND REPORTS
Investors are sent monthly statements of accounts after every month in
which there has been a transaction that affects such investors' share balances
or Fund account registrations. Statements with tax information are mailed to
investors by January 31 of each year and also are filed with the IRS. At least
twice a year, the Company's financial statements will be mailed to investors.
DIVIDENDS
The Fund intends to declare dividends on a daily basis, payable to
shareholders of record as of 9:00 a.m. (Pacific time). If a purchase order is
received before 9:00 a.m. (Pacific time) on any Business Day, the investor
begins earning dividends on that Business day and continues to earn dividends
through the day prior to the date the investor redeems such shares. If the
investor's purchase order is received at or after 9:00 a.m. (Pacific time) on
any Business Day, the investor begins earning dividends on the next Business Day
and continues to earn dividends through the day prior to the date the investor
redeems such shares. Dividends for a Saturday, Sunday or Holiday are credited on
the preceding Business Day. If an investor redeems shares before the dividend
payment date, any dividends credited to the investor are paid on the following
dividend payment date unless the investor has redeemed all of the shares in the
account, in which case the investor receives any accrued dividends together with
any redemption proceeds. The Fund declares and distributes any capital gains at
least annually.
Dividends declared in, and attributable to, a month are paid early in the
following month. Investors have three options for receiving distributions of
dividends and capital gains (if any). They are discussed under "Additional
Shareholder Services -- Dividend and Distribution Options."
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<PAGE> 17
HOW TO REDEEM SHARES
Investors may redeem all or a portion of their shares in the Fund on any
Business Day without any charge by the Fund. Shares are redeemed at the NAV next
calculated after the Fund has received a redemption request in proper form.
Redemption proceeds may be more or less than the amount invested and, therefore,
a redemption of shares in the Fund may result in a gain or loss for federal and
state income tax purposes. The Fund ordinarily remits redemption proceeds within
seven days after a redemption order is received in proper form, unless the SEC
permits a longer period under extraordinary circumstances. Such extraordinary
circumstances could include a period during which an emergency exists as a
result of which (a) disposal by the Fund and/or Master Portfolio of securities
owned by them is not reasonably practicable or (b) it is not reasonably
practicable for the Fund and/or Master Portfolio fairly to determine the value
of their net assets, or (c) a period during which the SEC by order permits
deferral of redemptions for the protection of security holders of the Fund
and/or Master Portfolio. In addition, the Fund may hold payment on a redemption
until reasonably satisfied that investments made by check have been collected
(which can take up to 10 days from the purchase date). To ensure acceptance of a
redemption request, investors should follow the procedures described below.
Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions.
Telephone redemption or exchange privileges are made available to
shareholders automatically upon opening an account, unless a shareholder
specifically declines the privileges. These privileges authorize the Transfer
Agent to act on telephone instructions from any person representing himself or
herself to be the investor and reasonably believed by the Transfer Agent to be
genuine. The Company requests the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, the Company
or the Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions. Neither the Company nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be genuine.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves the right to redeem accounts that fall below $1,000. Prior to
such a redemption, an investor will be given 30 days' notice to make an
additional investment to raise the account balance to the specified minimum.
Redemption orders that are received by the Transfer Agent before 9:00 a.m.
(Pacific time) on any Business Day are executed on that Business Day. Redemption
orders that are received after 9:00 a.m. (Pacific time) on any Business Day are
executed on the next Business Day.
REDEMPTIONS BY MAIL
The investor should:
1. Write a letter of instruction. Indicate the dollar amount or number of
Fund shares the investor wants to redeem. Refer to the Fund account number and
provide a social security number or TIN (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 owners must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than the
investor at the investor's address of record or to
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<PAGE> 18
the investor's designated Approved Bank Account, or other unusual circumstances
exist which cause the Transfer Agent to determine that a signature guarantee is
necessary or prudent to protect against unauthorized redemption requests. If
required, a signature must be guaranteed by an "eligible guarantor institution,"
which includes a commercial bank that is an FDIC member, a trust company, a
member firm of a domestic stock exchange, a savings association, or a credit
union that is authorized by its charter to provide a signature guarantee.
Signature guarantees by notaries public are not acceptable. Further
documentation may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians.
4. Mail a letter to the Transfer Agent at the mailing address set forth
under "Investing in the Fund -- Initial Purchases By Wire."
Unless other instructions are given in proper form, a check for redemption
proceeds is sent to the investor's address of record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides an investor with a
convenient way to have Fund shares redeemed from an account and the proceeds
distributed to the investor on a monthly basis. An investor may participate in
this plan only if the investor has a Fund account valued at $10,000 or more as
of the date of the election to participate, the investor has an Approved Bank
Account, the investor's dividends and capital gain distributions are being
reinvested automatically and the investor is not also a participant in the
Systematic Purchase Plan at any time while participating in the Systematic
Withdrawal Plan. The investor specifies an amount ($100 or more) to be
distributed by check to the investor's address of record or deposited in an
Approved Bank Account designated in the Account Application. The Transfer Agent
redeems sufficient shares and mails or deposits redemption proceeds as
instructed on or about the fifth Business Day prior to the end of each month.
There are no separate fees charged to investors by the Fund for participating in
the Systematic Withdrawal Plan.
It may take up to ten (10) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. Investors may
change the withdrawal amount, suspend withdrawals or terminate participation in
the Systematic Withdrawal Plan at any time by notifying the Transfer Agent at
least five (5) Business Days prior to any scheduled transaction. Participation
in the Systematic Withdrawal Plan will be terminated automatically if a Fund
account or Approved Bank account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
Investors may request an expedited redemption of shares of the Fund by
letter, in which case receipt of redemption proceeds, but not the Fund's receipt
of a redemption request, would be expedited. Telephone redemption or exchange
privileges are made available to investors automatically upon the opening of an
account unless an investor specifically declines such privileges. An investor
also may request an expedited redemption of shares of the Fund by telephone on
any Business Day, in which case both the receipt of redemption proceeds and the
Fund's receipt of the redemption request would be expedited. Investors may
request a redemption by telephone only if the total value of the shares redeemed
is equal to $100 or more.
Investors may request expedited redemption by calling the Transfer Agent at
(800) 572-7797.
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<PAGE> 19
Investors may mail expedited redemption requests to the Transfer Agent at
the mailing address set forth under "Investing in the Fund -- Initial Purchases
by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more are wired
or credited to an Approved Bank Account designated in an Account Application or
wired to the Selling Agent designated in an Account Application. The Company
reserves the right to impose a charge for wiring redemption proceeds. When
proceeds of an expedited redemption are to be paid to someone other than the
investor, or to an address other than that of record, or to an Approved Bank
Account or Selling Agent that the investor has not predesignated in the Account
Application, the expedited redemption request must be made by letter and the
signature(s) on the letter must be guaranteed, regardless of the amount of the
redemption. If an expedited redemption request is received by the Transfer Agent
by 9:00 a.m. on a Business Day, redemption proceeds are transmitted to an
Approved Bank Account or Selling Agent on the same Business Day (assuming the
investment check has cleared as described above), absent extraordinary
circumstances. Such extraordinary circumstances could include those described
above as potentially delaying redemptions, and also could include situations
involving an unusually heavy volume of wire transfer orders on a national or
regional basis or communication or transmittal delays that could cause a brief
delay in the wiring or crediting of funds. A check for proceeds of less than
$5,000 may be mailed to the address of record, or, at the investor's election,
credited to an Approved Bank account designated in the Account Application.
During periods of drastic economic or market activity or changes, investors
may experience problems implementing an expedited redemption by telephone. In
the event an investor is unable to reach the Transfer Agent by telephone, the
investor should consider using overnight mail to implement an expedited
redemption. The Fund reserves the right to modify or terminate the expedited
telephone redemption privileges at any time.
REDEMPTIONS THROUGH SELLING AGENTS
Investors may request a redemption of shares of the Fund through Selling
Agents. Redemption orders transmitted by a Selling Agent to the Transfer Agent
before 9:00 a.m. (Pacific time) on any Business Day generally are executed on
that day. Redemption orders transmitted by a Selling Agent to the Transfer Agent
after 9:00 a.m. (Pacific time) on any Business Day are executed on the next
Business Day. The Selling Agent is responsible for the prompt transmission of
redemption orders to the Fund.
Unless an investor has made other arrangements with the Selling Agent, and
the Transfer Agent has been informed of such arrangements, proceeds of a
redemption order made by the investor through the Selling Agent are credited to
an Approved Bank Account that is designated in the Account Application. If no
such account is designated, a check for the proceeds is mailed to the investor's
address of record or, if such address is no longer valid, the proceeds are
credited to the investor's account with the Selling Agent. An investor may
request a check from the Selling Agent or may elect to retain the redemption
proceeds in such account. The Selling Agent may charge a service fee. In
addition, the Selling Agent may benefit from the use of redemption proceeds
until the check it issues to the investor has cleared or until such proceeds
have been disbursed or reinvested on the investor's behalf.
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<PAGE> 20
ADDITIONAL SHAREHOLDER SERVICES
The Company offers investors a number of optional services. As noted above,
investors can take advantage of the Systematic Withdrawal Plan and Expedited
Redemptions by Letter and Telephone. In addition, the Fund offers three dividend
and distribution payment options and an exchange privilege, which are described
below.
DIVIDEND AND DISTRIBUTION OPTIONS
When an investor fills out an Account Application, the investor 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 Fund.
Dividends and distributions declared in a month are reinvested at NAV early
in the following month. Investors are assigned this option automatically if
they make no choice on their Account Applications.
B. The AUTOMATIC CLEARING HOUSE OPTION permits investors to have
dividends and capital gain distributions deposited in an Approved Bank
Account designated in the Account Application. In the event the Approved
Bank Account is closed, and such distribution is returned to the Funds'
dividend disbursing agent, the distribution will be reinvested in an
investor's Fund account at the NAV next determined after the distribution
has been returned. The investor's Automatic Clearing House Option will be
converted to the Automatic Reinvestment Option.
C. The CHECK PAYMENT OPTION allows an investor to receive a check for
a dividend or capital gain distribution, which is mailed either to the
designated address, or a designated 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 the investor's Fund account at the NAV 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. The investor's 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.
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<PAGE> 21
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to exchange shares of the Fund
for shares of another fund offered by the Company or shares of certain other
funds offered by other investment companies advised by Wells Fargo Bank, to the
extent such shares are offered for sale in the investor's state of residence.
The exchange privilege may be expanded to permit exchanges between the Fund and
other funds that, in the future, may be advised by Wells Fargo Bank. Investors
will be notified of any such change. Before making an exchange from the Fund to
another fund advised by Wells Fargo Bank, an investor should observe the
following:
- Obtain and carefully read the prospectus of the fund into which the
investor wants to exchange. Prospectuses may be obtained from Stephens.
- Shares will be exchanged at the next determined NAV.
- If the investor exchanges into another fund with a front-end sales
charge, the investor must pay the difference between that fund's sales
charge and any sales charge already paid in connection with the shares
which are being exchanged.
- Each exchange, in effect, represents the redemption of shares of one
fund and the purchase of shares of another, which may produce a gain or
loss for tax purposes. A confirmation of each exchange transaction is
sent to investors.
- The dollar amount of shares exchanged must meet the minimum initial
and/or subsequent investment amounts of the other fund.
- The Company reserves the right to limit the number of times shares may
be exchanged between funds, to reject any telephone exchange order, or
otherwise to modify or discontinue exchange privileges at any time.
Under SEC rules, subject to limited exceptions, the Company must notify
investors 60 days before it modifies or discontinues the exchange
privilege.
- No fees are currently charged investors directly in connection with
exchanges through the Company although the Company reserves the right,
upon not less than 60 days' written notice, to charge investors a
nominal exchange fee in accordance with rules promulgated by the SEC.
The procedures applicable to Fund share redemptions also apply to Fund
share exchanges. In particular, exchange orders received after 9:00 a.m.
(Pacific time) are processed on the next Business Day for each fund involved in
the exchange. Where exchange requests are submitted in writing, a signature
guarantee may be required if the amount being exchanged is more than $25,000.
To exchange shares, investors should write the Transfer Agent at the
mailing address under "Investing in the Fund -- Initial Purchases by Wire," or
call the Transfer Agent at 1-800-572-7797, or contact a Selling Agent. The
procedures applicable to telephone redemptions, including the discussion
regarding the responsibility for the authenticity of telephone instructions, are
also applicable to telephone exchange requests. See "How to Redeem
Shares -- Expedited Redemptions by Letter and Telephone."
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<PAGE> 22
TAXES
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"), as long as such
qualification is in the best interests of Fund shareholders. The Fund will be
treated as a separate entity for tax purposes and thus the provisions of the
Code applicable to regulated investment companies generally will be applied to
the Fund, rather than to the Company as a whole. In addition, net capital gains,
net investment income, and operating expenses will be determined separately for
the Fund.
By complying with the 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. In addition, by
complying with the applicable provisions of the Code, Fund dividends will be
exempt from personal income tax to the extent such dividends are attributable to
instruments that pay interest which would be exempt from personal income taxes
if such instruments were held directly by an individual. The Fund will attempt
to have 100% of its income derived from sources that are exempt from federal
income tax. However, dividends attributable to interest from taxable securities
and capital gains (if any) will be taxable to shareholders. The Fund does not
make any representation regarding the taxation of its corporate shareholders and
recommends that such shareholders consult their tax advisors.
The Fund seeks to qualify as a regulated investment company by investing
all of its assets in the Master Portfolio. 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, and as such, shall not be subject to
federal income tax. As a non-publicly traded partnership, any interest,
dividends, gains and losses of the Master Portfolio shall be deemed to have been
"passed through" to the Fund (and other investors) in proportion to the Fund's
ownership interest in the Master Portfolio. 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 such income,
regardless of whether or not such income has been distributed by the Master
Portfolio. However, the Master Portfolio will seek to minimize recognition by
the Fund and other investors of interest, dividends and gains without a
corresponding distribution.
The Fund, or a Shareholder Servicing Agent on its behalf, will inform
investors of the amount and nature of Fund dividends and capital gains.
Investors should retain all statements received to assist in personal
recordkeeping. A statement with tax information of the previous year will be
mailed to investors by January 31 of each year. The Company is required to
withhold, subject to certain exemptions, at a rate of 31% on dividends paid or
credited to individual shareholders of the Fund, if a shareholder has not
complied with IRS regulations or if a correct social security number or TIN (a
certified TIN when required), is not on file with the Company or the Transfer
Agent. In connection with this withholding requirement, investors are asked to
certify on their Account Applications that the social security number or TIN
provided is correct and that such investors are not subject to 31% back-up
withholding for previous underreporting to the IRS.
Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Taxes -- Foreign Shareholders" in the SAI.
The foregoing discussion regarding dividends, distributions and taxes is
based on tax laws and regulations which were in effect as of the date of this
Prospectus and summarizes only some of the important federal tax considerations
generally affecting the Fund and its shareholders. It is not intended as
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<PAGE> 23
a substitute for careful tax planning; investors should consult their tax
advisors with respect to their specific tax situations as well as with respect
to state and local taxes.
Further federal tax considerations are discussed in the SAI for the Fund.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY
The Fund is a series of the Company. The Company, an open-end management
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 is currently authorized to offer
twelve other series of shares: the Asset Allocation Fund, California Tax-Free
Bond Fund, California Tax-Free Money Market Fund, Money Market Fund, Municipal
Income Fund, Overland Sweep Fund, Short-Term Government-Corporate Income Fund,
Short-Term Municipal Income Fund, Strategic Growth Fund, Variable Rate
Government Fund, U.S. Government Income Fund and U.S. Treasury Money Market
Fund. The Board of Directors may, in the future, authorize the issuance of
shares of capital stock representing additional series or investment portfolios.
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 or class is
required by law or where the matter involved affects only one series or class.
The Company may dispense with the annual meeting of shareholders in any fiscal
year in which it is not required to elect Directors under the 1940 Act; however,
shareholders are entitled to call a meeting of shareholders for purposes of
voting on removal of a Director or Directors. 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. The Company's
principal office is located at 111 Center Street, Little Rock, Arkansas 72201.
The Board of Directors of the Company supervises the Fund's activities and
monitors its contractual arrangements with various service providers. Additional
information about the Directors/Trustees and Officers of the Company and Master
Portfolio is included in the Fund's SAI under "Management." 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. Although the Company is
not required to hold regular annual shareholder meetings, occasional annual or
special meetings may be required for purposes such as electing or removing
Directors, approving advisory contracts and distribution plans, and changing the
Fund's investment objective or fundamental investment policies.
The Master Trust was established on August 15, 1991 as a Delaware business
trust. The Master Trust's Declaration of Trust permits the Board of Trustees to
issue beneficial interests in a Master Portfolio of the Master Trust to
investors based on their proportionate investments in the Master Portfolio. The
Master Trust, on behalf of the Master Portfolio, has retained the services of
Wells Fargo Bank as investment adviser and Stephens as administrator and
placement agent. The Board of Trustees of the Master Trust is
17
<PAGE> 24
responsible for the general management of the Master Trust and its Master
Portfolios and supervising the actions of Wells Fargo Bank and Stephens in these
capacities.
VOTING
All shares of the Company have equal voting rights and will be voted in the
aggregate, unless otherwise required by law (such as when a matter affects only
one fund). Shareholders of the Fund are entitled to one vote for each share
owned and fractional votes for fractional shares owned. A more detailed
description of the voting rights and attributes of the shares is contained above
under "How The Fund Works -- Master/Feeder Structure" and in the "Capital Stock"
section of the SAI.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serve as independent auditors for the Company. Their
address is Three Embarcadero Center, San Francisco, California 94111.
LEGAL COUNSEL
Morrison & Foerster LLP serves as counsel to the Company. Its address is
2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
INFORMATION ON THE FUND
The Company will provide annual and semi-annual reports to all
shareholders. The annual reports contain audited financial statements and other
information about the Company's funds, including additional information on
performance. Shareholders may obtain a copy of the Company's most recent report
without charge by phoning (800) 552-9612. Future annual reports will contain
information about the Fund.
18
<PAGE> 25
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
The following describes certain instruments in which the Fund and Master
Portfolio of the Master Trust may invest.
Municipal Obligations
Subject to the maturity and other restrictions under Rule 2a-7, the Master
Portfolio may invest in Municipal Obligations. Municipal bonds generally have a
maturity at the time of issuance of up to 40 years. Medium-term municipal notes
are generally issued in anticipation of the receipt of tax funds, of the
proceeds of bond placements, or of other revenues. The ability of an issuer to
make payments on notes is therefore especially dependent on such tax receipts,
proceeds from bond sales or other revenues, as the case may be. Municipal
commercial paper is a debt obligation with a stated maturity of 270 days or less
that is issued to finance seasonal working capital needs or as short-term
financing in anticipation of longer-term debt. From time to time, the Master
Portfolio may invest 25% or more of the current value of its total assets in
certain "private activity bonds," such as pollution control bonds; provided,
however, that such investments will be made only to the extent they are
consistent with the Master Portfolio's fundamental policy of investing, under
normal circumstances, at least 80% of its net assets in municipal obligations
that are exempt from federal income taxes and not subject to the federal
alternative minimum tax.
The Master Portfolio will invest in the following municipal obligations
with remaining maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of purchase "Aa" or
better by Moody's or "AA" or better by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1" or "MIG 2"
(or "VMIG 1" or "VMIG 2" in the case of an issue having a
variable rate with a demand feature) by Moody's or "SP-1+",
"SP-1" or "SP-2" by S&P; and
(iii) short-term municipal commercial paper rated at the date of
purchase "P-1" by Moody's or "A-1+", "A-1" or "A-2" by S&P.
Taxable Investments
Pending the investment of proceeds from the sale of interests of the Master
Portfolio or proceeds from sales of portfolio securities or in anticipation of
redemptions or to maintain a "defensive" posture when, in the opinion of Wells
Fargo Bank, as investment adviser, it is advisable to do so because of market
conditions, the Master Portfolio may elect to invest temporarily up to 20% of
the current value of its net assets in cash reserves, including the following
taxable high-quality money market instruments: (i) U.S. Government obligations;
(ii) negotiable certificates of deposit, bankers' acceptances and fixed time
deposits and other obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the FDIC; (iii) commercial paper rated
at the date of purchase "P-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
A-1
<PAGE> 26
Moreover, the Master Portfolio may invest temporarily more than 20% of its
total assets in such securities and in high-quality, short-term municipal
obligations the interest on which is not exempt from federal income taxes to
maintain a temporary defensive posture or in an effort to improve after-tax
yield to the Master Portfolio's shareholders when, in the opinion of Wells Fargo
Bank, as investment adviser, it is advisable to do so because of unusual market
conditions.
U.S. Government Obligations
The Master Portfolio may invest in various types of U.S. Government
obligations with remaining maturities of up to thirteen months. U.S. Government
obligations include securities issued or guaranteed as to principal and interest
by the U.S. Government and supported by the full faith and credit of the U.S.
Treasury. U.S. Treasury obligations differ mainly in the length of their
maturities. Treasury bills, the most frequently issued marketable government
securities, have a maturity of up to one year and are issued on a discount
basis. U.S. Government obligations also include securities issued or guaranteed
by federal agencies or instrumentalities, including government-sponsored
enterprises. Some obligations of such agencies or instrumentalities of the U.S.
Government are supported by the full faith and credit of the United States or
U.S. Treasury guarantees; others, by the right of the issuer or guarantor to
borrow from the U.S. Treasury; still others by the discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities (including government-sponsored enterprises) where
it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Other Investment Companies
For temporary investments, the Fund and Master Portfolio may invest in
shares of other open-end investment companies that invest exclusively in
high-quality short-term securities subject to the limits set forth under Section
12 of the 1940 Act, provided however, that any such company has a policy of
investing, under normal market conditions, at least 80% of its net assets in
obligations that are exempt from federal income tax and are not subject to the
federal alternative minimum tax. Such investment companies can be expected to
charge management fees and other operating expenses that would be in addition to
those charged to the Fund or Master Portfolio; however, the Master Portfolio's
investment adviser has undertaken to waive its advisory fees with respect to
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. Under Section 12(d)(1), the Fund or Master Portfolio, together with
any company or companies controlled by it, is generally prohibited from owning
more than 3% of the total outstanding voting stock of any such investment
company, nor may the Fund or Master Portfolio, together with any such company or
companies, invest more than 5% of its assets in any one such investment company
or
A-2
<PAGE> 27
invest more than 10% of its assets in securities of all such investment
companies combined. Under Section 12, however, the Fund may invest substantially
all of its assets in the Master Portfolio.
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 with, for example, changes in
specified market rates or indices or at specified intervals. 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 floating- and variable-rate
instruments that the Master Portfolio may purchase include certificates of
participation in such obligations. Wells Fargo Bank, as investment adviser, may
rely upon either the opinion of bond counsel or counsel to the issuer regarding
the tax-exempt status of these certificates.
Wells Fargo Bank, as investment adviser to the Master Portfolio, 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. The
investment adviser, in accordance with the guidelines approved by the Master
Trust's Board of Trustees, may treat those instruments that have a demand
feature that is not exercisable within seven days as liquid, provided that an
active secondary market exists.
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 Master Portfolio may invest in floating- and variable-
rate obligations even if they carry stated maturities in excess of 13 months,
upon compliance with certain conditions of SEC rules, in which case such
obligations may be treated in accordance with these conditions as having
maturities not exceeding 13 months.
Repurchase Agreements
The Master Portfolio may enter into repurchase agreements wherein the
seller of a security 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 that could otherwise be purchased by the Master
Portfolio. All repurchase agreements will be fully collateralized based on
values that are marked to market daily. While the maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, the term of any repurchase agreement on behalf of the Master Portfolio
will always be less than twelve months. If the seller defaults and the value of
the underlying securities declines, the Master Portfolio may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the participating Master Portfolio's disposition of the security
may be delayed or limited. The Master Portfolio enters into repurchase
agreements only with registered broker/dealers, commercial banks and other
financial institutions that meet guidelines established by the Board of Trustees
of the Master Trust and that are not affiliated with Wells Fargo Bank. The
Master Portfolio may enter into pooled repurchase agreement transactions with
other funds advised by Wells Fargo Bank.
A-3
<PAGE> 28
Foreign Obligations
The Master Portfolio may invest up to 25% of its total assets in
high-quality, short-term (thirteen months or less) debt obligations of foreign
branches of U.S. banks or U.S. branches of foreign banks that are denominated in
and pay interest in U.S. dollars. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to the same uniform accounting, auditing and financial
reporting standards or governmental supervision as domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid or such lower
percentage as may be required by the states in which the Fund sells its shares.
Repurchase agreements and time deposits that do not provide for payment to the
Fund within seven days after notice, guaranteed investment contracts and some
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") (other than variable amount
master demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans may be subject to this limitation.
The Fund may purchase securities which are not registered under the 1933
Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the Company's Board of Directors, acting under
guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security.
INVESTMENT POLICIES
The Fund's investment objective and its investment policy of investing all
of its assets in the Master Portfolio, as set forth above under "How the Fund
Works -- Investment Objective and Policies," are fundamental. Accordingly, such
investment objective and policy may not be changed without approval by the vote
of the holders of a majority of the Fund's outstanding voting securities, as
described under "Capital Stock" in the SAI. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
Company's Board of Directors determines, however, that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment policy or strategy, the Company's Board may make such change without
shareholder approval and will disclose any such material changes in the Fund's
then-current prospectus.
The investment objective of the Master Portfolio may not be changed without
approval of the investors in the Master Portfolio. The classification of the
Fund and the Master Portfolio as "diversified" may not be
A-4
<PAGE> 29
changed, in the case of the Fund, without the approval of the Fund's
shareholders, or, in the case of the Master Portfolio, without the approval of
the Fund and any other investors in the Master Portfolio.
As matters of fundamental policy the Fund and the Master Portfolio may: (i)
borrow from banks up to 10% of the current value of each of their net assets
only for temporary purposes in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of their
respective net assets (but investments by the Master Portfolio may not be
purchased while any such outstanding borrowing in excess of 5% of its net assets
exists); (ii) not make loans, except that each of the Fund and the Master
Portfolio may purchase or hold debt instruments, lend its portfolio securities
and enter into repurchase agreement transactions in accordance with its
investment policies; loans for purposes of this restriction will not include the
Fund's purchase of interests in the Master Portfolio; (iii) not 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 or Master Portfolio's investments in that industry would be 25% or
more of the current value of the Fund's or Master Portfolio's total assets,
provided that there is no limitation with respect to investments in (a)
municipal securities (for the purposes of this restriction, private activity
bonds and notes shall not be deemed municipal securities if the payments of
principal and interest on such bonds and notes is the ultimate responsibility of
non-governmental entities), (b) U.S. Government obligations, and (c) certain
obligations of domestic banks; and (iv) not purchase securities of any issuer
(except securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including government-sponsored enterprises) if, as a result,
with respect to 75% of its total assets, more than 5% of the value of the
Portfolio's total assets would be invested in the securities of any one issuer
or, with respect to 100% of its total assets the Portfolio's ownership would be
more than 10% of the outstanding voting securities of such issuer.
As matters of non-fundamental policy the Fund and the Master Portfolio may:
(i) invest up to 10% of the current value of each of their net assets in
securities that are illiquid by virtue of the absence of a readily available
market or the existence of legal or contractual restrictions on resale and fixed
time deposits that are subject to withdrawal penalties and that have maturities
of more than seven days; and (ii) invest up to 10% of the current value of each
of their net assets in repurchase agreements having maturities of more than
seven days, and restricted securities (which include securities that must be
registered under the Securities Act of 1933 before they may be offered to the
public).
A-5
<PAGE> 30
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
ACCOUNT APPLICATION
[OVERLAND EXPRESS LOGO] PAGE 1 OF 5
NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND
C/O OVERLAND EXPRESS SHAREHOLDER SERVICES,
WELLS FARGO BANK, N.A. POST OFFICE BOX 83084,
SAN FRANCISCO, CALIFORNIA 94163
FOR PERSONAL SERVICE PLEASE CALL
YOUR INVESTMENT ADVISOR OR 1-800-572-7797
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION / / NEW ACCOUNT / / ADDITIONAL INVESTMENT OR CHANGE TO ACCOUNT #
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
/ / INDIVIDUAL 1. Individual - -
--------------------------------- ------ ------ --------
USE LINE 1 First Name Initial Last Name Soc. Security No.
/ / JOINT OWNERS 2. Joint Owner
USE LINES 1 & 2 --------------------------------- (Only one Soc. Security No.is
First Name Initial Last Name 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 --------------------------------------------------------------------
USE LINE 3 to Minors Custodian's Name (only one) Minor's State of Residence
- -
--------------------------------- --------------------------------
Minor's Name (only one) Minor's Sec. Security No.
/ / TRUST* 4. Trust Name
--------------------------------------------------------------------
USE LINE 4
Trustee(s)
--------------------------------------------------------------------
(If you would like Trustee's name included in registration.)
Trust ID Num --------------------------------------------------------------------
Please attach title page, the page(s) allowing investment in a mutual fund
("powers page") and signature page, and complete Section 6, "Authorization
for Trusts and Organizations."
/ / ORGANIZATION* 5. Organization Name -
USE LINE 5 ------------------------------------------------ ---------------------
*Complete "Authorization for Trusts and Tax I.D. No.
Organizations" (Section 6).
- -----------------------------------------------------------------------------------------------------------------------------------
ADDRESS:
Number and Street Apartment No.
------------------------------------------------------------------------------------ --------
City State Zip Code
---------------------------------------------------------- -------------------------- -------------------
Telephone Numbers: (DAY) - - (EVENING) - -
---------- ---------- ------------ ---------- ---------- ------------
(Area Code) (Area Code)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(CONTINUED)
<PAGE> 31
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
ACCOUNT APPLICATION
[OVERLAND EXPRESS LOGO] PAGE 2 OF 5
- --------------------------------------------------------------------------------
2. INVESTMENT INSTRUCTIONS (Minimum initial investment: $150,000.)
- --------------------------------------------------------------------------------
INVESTMENT AMOUNT: $
METHOD OF PAYMENT: / / Debit bank account designated in Section 3.
/ / Check attached (payable to National Tax-Free
Institutional
Money Market Fund)
/ / 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.
- --------------------------------------------------------------------------------
3. BANK ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Address City State Zip
- --------------------------------------------------------------------------------
Bank Account Number Bank Routing Number
- --------------------------------------------------------------------------------
4. 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 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.
- --------------------------------------------------------------------------------
(CONTINUED)
<PAGE> 32
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
ACCOUNT APPLICATION
[OVERLAND EXPRESS LOGO] PAGE 3 OF 5
- --------------------------------------------------------------------------------
5. DISTRIBUTIONS (Do NOT check boxes if you want reinvestment.)
- --------------------------------------------------------------------------------
All dividends and capital gain distributions will be automatically reinvested
in shares of the Fund unless otherwise indicated:
/ / Invest dividends in Account #_________________________of______________Fund
of the Overland Express Family of Funds.
/ / Invest capital gain distributions in Account #________________________
of_______________________________________ Fund of the Overland Express
Family of Funds.
/ / Pay dividends by Automatic Clearing House ("ACH")* and/or / / pay capital
gain distributions by ACH by crediting amounts to the bank account
designated in Section 3 (a voided check or deposit slip is attached)
/ / 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.
* Please verify that your bank participates in the ACH system.
- --------------------------------------------------------------------------------
(CONTINUED)
<PAGE> 33
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
ACCOUNT APPLICATION
[OVERLAND EXPRESS LOGO] PAGE 4 OF 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
6. AUTHORIZATION FOR TRUSTS AND ORGANIZATIONS (If Applicable.)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATIONS, TRUSTS, PARTNERSHIPS OR OTHER ORGANIZATIONS MUST COMPLETE
THIS SECTION.
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
---------------------------------- ---------------------------------- ----------------------------------
---------------------------------- ---------------------------------- ----------------------------------
---------------------------------- ---------------------------------- ----------------------------------
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
--------------------------------- -----
-------------------------------------------------
Secretary (Signature Guarantee or
Corporate Seal is Required)
FOR ALL OTHER ORGANIZATIONS: -------------------------------------------------
Certifying Trustee, General Partner, or Other
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(CONTINUED)
<PAGE> 34
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
ACCOUNT APPLICATION
[OVERLAND EXPRESS LOGO] PAGE 5 OF 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
7. SIGNATURE, TAX INFORMATION & CERTIFICATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
/ / 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 "Additional Shareholder
Services -- Exchange Privilege" and "How to Redeem Shares" in the Prospectus for more information on these
privileges.
X SIGNATURE GUARANTEE: NOT REQUIRED WHEN
-------------------------------------------------------- ESTABLISHING NEW ACCOUNTS. Required only if
Individual (or Custodian) date establishing privileges in Block 2 on an
existing account. Signature Guarantee may be
X provided by an "eligible guarantor
-------------------------------------------------------- institution," which includes a commercial bank,
Joint Owner (if any) date trust company, member firm of a domestic stock
exchange, savings association, or credit union
X that is authorized by its charter to provide a
-------------------------------------------------------- signature guarantee.
Corporate Officer or Trustee date
AFFIX SIGNATURE GUARANTEE STAMP
-------------------------------------------------------- ---------------------------------------------
Title of Corporate Officer or Trustee 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> 35
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
INVESTMENT ADVISER, 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:
NATIONAL TAX-FREE
INSTITUTIONAL MONEY MARKET FUND
C/O OVERLAND EXPRESS
SHAREHOLDER SERVICES
WELLS FARGO BANK, N.A.
P.O. BOX 63084
SAN FRANCISCO, CALIFORNIA 94163
[OVERLAND EXPRESS LOGO]
------------------------
PROSPECTUS
------------------------
National
Tax-Free Institutional
Money Market Fund
------------------------
April 1, 1996
------------------------
NOT FDIC INSURED
92P 4/96
<PAGE> 36
OVERLAND EXPRESS FUNDS, INC.
Telephone: 1-800-552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated April 1, 1996
NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND
_______________________________
Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about the NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND (the
"Fund"). The Fund seeks to achieve its investment objective by investing all
of its assets in the Tax-Free Money Market Master Portfolio (the "Master
Portfolio") of Master Investment Trust (the "Master Trust"). The Master
Portfolio has the same investment objective as the Fund.
The Fund may withdraw its investment in the 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 of Directors 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 Fund's then current Prospectus and SAI.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, also dated April 1, 1996. All terms used in this
SAI that are defined in the Fund's Prospectus have the meanings assigned in
such 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 by calling Wells Fargo Bank,
N.A. ("Wells Fargo Bank") at 1-800-222-8222.
- 1 -
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................................ 3
Investment Restrictions................................................. 3
Additional Permitted Investment
Activities........................................................... 6
Management.............................................................. 9
Calculation of Yield and
Total Return......................................................... 13
Determination of Net Asset Value........................................ 16
Portfolio Transactions.................................................. 17
Federal Income Taxes.................................................... 18
Capital Stock........................................................... 22
Other................................................................... 24
Independent Auditors.................................................... 24
Financial Information................................................... 25
SAI Appendix............................................................ A-1
</TABLE>
- 2 -
<PAGE> 38
INTRODUCTION
The Master Trust is a registered, open-end, management investment
company. The Master Trust is a "series fund," which is a mutual fund divided
into separate portfolios. The Master Trust currently offers eight diversified
portfolios: the Asset Allocation, Capital Appreciation, Cash Investment Trust,
Corporate Stock, Short-Term Municipal Income Short-Term Government-Corporate
Income, Tax-Free Money Market and U.S. Government Allocation Master Portfolios.
The Fund invests substantially all of its assets in the Tax-Free Money Market
Master Portfolio, which has the same investment objective as the Fund.
INVESTMENT RESTRICTIONS
The Fund and the Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies.
The Fund and the Master Portfolio may not:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's or the Master
Portfolio's investments in that industry would be 25% or more of the current
value of the Fund's or the Master Portfolio's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payment of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental entities);
(ii) the obligations of the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); and (iii) obligations of domestic
banks (for the purpose of this restriction, domestic bank obligations do not
include obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks), and further provided that this investment restriction
does not affect the Fund's ability to invest all or a portion of its assets in
the Master Portfolio;
(2) purchase or sell real estate or real estate limited
partnerships (other than municipal obligations or other securities secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein), commodities or commodity contracts
(including futures contracts) except that the Fund and Master Portfolio may
purchase securities of an issuer which invests or deals in commodities and
commodity contracts and except that the Fund and Master Portfolio may enter
into futures and options contracts in accordance with their respective
investment policies;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an
- 3 -
<PAGE> 39
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's or Master Portfolio's investment program (including
the Fund's investments in the Master Portfolio) may be deemed to be an
underwriting;
(5) make investments for the purpose of exercising control or
management, provided that this restriction does not affect the Fund's ability
to invest all or a portion of its assets in the Master Portfolio;
(6) issue senior securities, except that the Fund and the Master
Portfolio may each borrow from banks up to 10% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 10% of the current value of
its net assets (but investments may not be purchased while any such outstanding
borrowing in excess of 5% of its net assets exists);
(7) write, purchase or sell puts, calls, warrants, options or
any combination thereof, except that the Fund and Master Portfolio may purchase
securities with put rights in order to maintain liquidity;
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities,
including government - sponsored enterprises) if, as a result, with respect to
75% of its total assets, more than 5% of the value of the Fund's or Master
Portfolio's total assets would be invested in the securities of any one issuer
or, with respect to 100% of its total assets the Fund's or Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer, provided that this restriction does not affect the Fund's ability to
invest all or a portion of its assets in the Master Portfolio; or
(9) make loans, except that the Fund and Master Portfolio may
each purchase or hold debt instruments, lend its portfolio securities or enter
into repurchase agreement transactions in accordance with its investment
policies; loans for purposes of this restriction will not include the Fund's
purchase of interests in the Master Portfolio.
With regard to fundamental investment restriction number (1)
above, the Fund and Master Portfolio intend to reserve freedom of action to
have in excess of 25% of the value of the respective total assets invested in
obligations of the banking industry. Regarding this fundamental concentration
policy, the Fund or Master Portfolio may hold in excess of 25% of the value of
the assets in obligations of the banking industry to the extent that the Fund
or Master Portfolio holds obligations with such credit enhancements as letters
of credit issued by domestic bank issuers, which will be considered to be
obligations of domestic banks. The SEC staff's position is that the exclusion
with respect to banks may only be applied to domestic banks. For this purpose,
the staff also takes the position that U.S. branches of foreign banks and
foreign branches of domestic banks may, if certain conditions are met, be
treated as "domestic banks". The Company and Trust currently intend to
consider only obligations of "domestic banks" to be within the exclusion with
respect to bank obligations.
- 4 -
<PAGE> 40
Fundamental investment restriction number (8), above, is less
restrictive than Rule 2a-7 of the 1940 Act. Nonetheless, it is the operating
policy of the Fund and the Master Portfolio to comply with Rule 2a-7's
diversification requirements.
The Fund and the Master Portfolio are subject to the following
non-fundamental policies.
Neither the Fund nor the Master Portfolio may:
(1) purchase or retain securities of any issuer if the Officers
or Directors/Trustees of the Company, the Master Trust or the 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 interests, leases, or limited partnership interests
in oil, gas or other mineral exploration or development programs;
(3) purchase 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, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets,
provided that this restriction does not affect the Fund's ability to invest all
or a portion of its assets in the Master Portfolio; and
(4) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if, by reason
thereof, the value of the Fund's or Master Portfolio's aggregate investment in
such classes of securities will exceed 5% of its total assets.
The Fund and the Master Portfolio may each invest in shares of
other open-end, management investment companies, subject to the limitations of
Section 12(d)(1) of the 1940 Act, provided that any such purchases will be
limited to temporary investments in shares of unaffiliated investment
companies. However, the investment adviser will waive its advisory fees for
that portion of the Fund's or the Master Portfolio's assets so invested, except
when such purchase is part of a plan of merger, consolidation, reorganization
or acquisition. In addition, these unaffiliated investment companies must have
a fundamental investment policy of investing at least 80% of their net assets
in obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. However, the above restrictions do not
affect the Fund's ability to invest all or a portion of its assets in the
Master Portfolio.
In addition, the Fund and the Master Portfolio each reserves the
right to invest up to 10% of the current value of its net assets in fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, repurchase agreements maturing in more than seven days,
illiquid securities and restricted securities. However, as long as the Fund's
- 5 -
<PAGE> 41
shares are registered for sale in a state that imposes a lower limit on the
percentage of a fund's assets that may be so invested, the Fund and the Master
Portfolio will comply with such lower limit. The Fund presently is limited to
investing 10% of its net assets in such securities due to limits applicable in
several states.
Furthermore, the Fund and the Master Portfolio may not purchase or
sell real estate limited partnership interests. The Fund and the Master
Portfolio do not currently intend to make loans of their portfolio securities.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated and Downgraded Investments. The Master Portfolio may
purchase instruments that are not rated if, in the opinion of Wells Fargo Bank,
such obligations are of comparable quality to other rated investments that are
permitted to be purchased by the Master Portfolio. The Master Portfolio may
purchase unrated instruments only if they are purchased in accordance with the
Master Portfolio's procedures adopted by the Master Trust's Board of Trustees
in accordance with Rule 2a-7 under the 1940 Act. After purchase by the Master
Portfolio, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Master Portfolio. In the event that a
portfolio security ceases to be an "Eligible Security" or no longer "presents
minimal credit risks", immediate sale of such security is not required,
provided that the Board of Trustees has determined that disposal of the
portfolio security would not be in the best interests of the Master Portfolio.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Master Portfolio
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in its Part A and in this
SAI. The ratings of Moody's and S&P are more fully described in the SAI
Appendix.
Letters of Credit. Certain of the debt obligations (including
municipal securities, certificates of participation, commercial paper and other
short-term obligations) which the Master Portfolio may purchase may be backed
by an unconditional and irrevocable letter of credit of a bank, savings and
loan association or insurance company which assumes the obligation for payment
of principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of the Master Portfolio may be used for letter of credit-backed
investments, provided that the Master Trust's Board of Trustees approves or
ratifies such investments.
Loans of Portfolio Securities. The Master Portfolio may lend
securities from its portfolio to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government obligations or other
high-quality debt obligations equal to at least 100% of the current market
value of the securities loaned (including accrued interest thereon) plus the
interest payable to the Master Portfolio with respect to the loan is maintained
with the Master Portfolio. In determining whether or not to lend a security to
a particular broker, dealer or financial institution, the Master Portfolio's
investment adviser considers all relevant facts and
- 6 -
<PAGE> 42
circumstances, including the size, creditworthiness and reputation of the
broker, dealer, or financial institution. Any loans of portfolio securities
are fully collateralized based on values that are marked to market daily. The
Master Portfolio will not enter into any portfolio security lending arrangement
having a duration longer than one year. Any securities that the Master
Portfolio receives as collateral do not become part of the Master Portfolio's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. The Master Portfolio will not lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by the Master Portfolio are subject to termination at the
Master Portfolio's or the borrower's option. The Master Portfolio may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with
respect to the collateral to the borrower or the placing broker. Borrowers and
placing brokers are not permitted to be affiliated, directly or indirectly,
with the Master Trust, the Company, the investment adviser or the distributor.
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
taxes may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. The Master
Portfolio may not invest 25% or more of its assets in foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks
involve somewhat different investment risks from those affecting obligations of
U.S. banks, including the possibilities that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable
to U.S. banks. In that connection, foreign banks are not subject to
examination by any U.S. Government agency or instrumentality.
- 7 -
<PAGE> 43
Municipal Bonds. The Master Portfolio may invest in municipal
bonds. The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Municipal bonds are debt obligations issued
to obtain funds for various public purposes, including the construction of a
wide range of public facilities such as bridges, highways, housing, hospitals,
mass transportation, schools, streets, and water and sewer works. Other
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations and obtaining funds for general operating expenses or
to loan to other public institutions and facilities. Industrial development
bonds are a specific type of revenue bond backed by the credit and security of
a private user. Certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. The Master Portfolio may not
invest 25% or more of its assets in industrial development bonds. Assessment
bonds, wherein a specially created district or project area levies a tax
(generally on its taxable property) to pay for an improvement or project may be
considered a variant of either category. There are, of course, other
variations in the types of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
Municipal Notes. Municipal notes include, but are not limited to,
tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. Uncertainty concerning a municipal issuer's capacity to
raise taxes as a result of such things as a decline in its tax base or a rise
in delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities vary as a result of
changing market evaluations of the ability of their issuers to meet the
interest and principal payments (i.e., credit risk). Such values also change
in response to changes in the interest rates payable on new issues
- 8 -
<PAGE> 44
of municipal securities (i.e., market risk). Should such interest rates rise,
the values of outstanding securities, including those held in the Master
Portfolio's portfolio, will decline and (if purchased at par value) sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) would sell at a premium.
Changes in the value of municipal securities held in the Master Portfolio's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Master Portfolio.
MANAGEMENT
Directors and Officers. The following information supplements and
should be read in conjunction with the section in the Prospectus entitled
"Management of the Fund and the Master Portfolio". 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, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 44 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, 53 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, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and Secretary of Stephens
Resource Management.
</TABLE>
- 9 -
<PAGE> 45
<TABLE>
<S> <C> <C>
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51 Director Private, Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 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 and
Name and Position from Registrant 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
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
- 10 -
<PAGE> 46
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 Officers and Directors of Stagecoach Funds, Inc., and
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 is considered to be in the same "fund
complex," as such term is defined in Form N-1A under the 1940 Act, as the
Company. 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 is advised by Wells Fargo Bank pursuant to an
Investment Advisory Contract approved by the Board of Trustees of the Master
Trust. The Investment Advisory Contract for the Master Portfolio provides that
Wells Fargo Bank 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 Investment Advisory Contract, Wells Fargo
Bank also furnishes to the Master Trust's Board of Trustees periodic reports on
the investment strategy and performance of the Master Portfolio.
Wells Fargo Bank 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's portfolio.
The Investment 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
Master Trust's Board of Trustees and (ii) by a majority of the Trustees of the
Master Trust who are not parties to the Investment Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Investment 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
Master Trust has retained Stephens as administrator on behalf of the Master
Portfolio. Under the respective Administration Agreements between Stephens and
the Company and the Master Trust, Stephens shall provide as administrative
services, among other things: (i) general supervision of the Fund's and the
Master Portfolio's operations, including coordination of the services performed
by the investment adviser (in the case of the Master Portfolio), transfer
agent, custodian, shareholder servicing agent(s),
- 11 -
<PAGE> 47
independent auditors and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund and the Master Portfolio; and (ii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Company's and Master Trust's Officers,
Directors and Trustees. Stephens also furnishes office space and certain
facilities required for conducting the Fund's and the Master Portfolio's
business together with those ordinary clerical and bookkeeping services that
are not being furnished by Wells Fargo Bank. Stephens also pays the
compensation of the Master Trust's and the Company's Directors/Trustees,
Officers and employees who are affiliated with Stephens.
The Investment Advisory Contract and Administration Agreements for
the Master Portfolio or the Fund, respectively, provide that if, in any fiscal
year, the total expenses of the Fund (including expenses relating to the Master
Portfolio) incurred by, or allocated to, the Fund and the Master Portfolio
(excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses, expenditures that are capitalized in accordance with
generally accepted accounting principles, extraordinary expenses, but including
the fees provided for in the Investment Advisory Contract and the
Administration Agreements) exceed the most restrictive expense limitation
applicable to the Fund imposed by the securities laws or regulations of the
states in which the Fund's shares are registered for sale, Wells Fargo Bank 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 for the Master Portfolio and the Fund, respectively, further provide
that the Master Portfolio's and the Fund's total expenses shall be reviewed
monthly so that, to the extent the annualized expenses for such month exceed
the most restrictive applicable annual expense limitation, the monthly fees
under the contract and the agreement shall be reduced as necessary. The most
stringent applicable restriction limits these expenses for any fiscal year to
2.5% of the first $30 million of the Fund's average net assets, 2% of the next
$70 million of average net assets, and 1.5% of the average net assets in excess
of $100 million.
Custodian And Transfer And Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian for both the Fund and the Master
Portfolio. The custodian, among other things, maintains separate custody
accounts in the names 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. Wells Fargo Bank is not
entitled to receive a fee for its services as transfer and dividend disbursing
agent and custodian for the Fund and the Master Portfolio.
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<PAGE> 48
CALCULATION OF YIELD AND TOTAL RETURN
The Fund may advertise certain yield information. Yield for the
Fund is calculated based on the net changes, exclusive of capital changes, over
a seven- or thirty-day period, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7 or 365/30, as applicable) with the
resulting yield figure carried to at least the nearest hundredth of one
percent.
Tax-equivalent yield for the Fund is computed by dividing that
portion of the yield of the Fund which is tax-exempt by one, minus a stated
income tax rate and then adding the product to that portion, if any, of the
Fund's yield that is not tax-exempt.
Effective yield and effective tax-equivalent yield for the Fund
are calculated by determining the net change, or tax-equivalent assumed net
change, exclusive of capital changes in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven or thirty, as applicable, and subtracting one
from the result.
The yield for the Fund fluctuates from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.
In addition, investors should recognize that changes in the net
asset value of shares of the Fund will affect the Fund's yield for any
specified period, and such changes should be considered together with the
Fund's yield in ascertaining the Fund's total return to shareholders for the
period. Yield information for the Fund may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The Fund's yield, however, may not be comparable to
the yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.
The Company may disclose in advertising, and other types of sales
literature, information and statements, relative rankings of performance, asset
level, fee level and risk level published in books, magazines, newsletters and
newspapers including, but not limited to, the Wall Street Journal, Money
Magazine, Barrons, Kiplingers, Business Week, Fortune, Forbes, Worth, Bank
Investor, Mutual Funds Magazine, American Banker, Smart Money, Morningstar,
Investor Business Daily, Value Line, The 100 Best Mutual Funds, The Boston
Globe, The Chicago Sun-Times, The Los Angeles Times, The New York Times, The
San Jose Mercury News, The San Francisco Chronicle and The Washington Post.
The Company may also disclose in advertising and other types of
literature, information and statements, the distribution rate on the shares of
the Fund. Distribution rate, which may be annualized, is the amount determined
by dividing the dollar amount per Fund share of the most recent dividend by the
most recent NAV or maximum offering price per share as of a date specified in
the sales literature. Distribution rate will be accompanied by the standard
30-day yield as required by the SEC.
The Company may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996, Wells Fargo Bank provided investment advisory
services for approximately $56 billion of assets of individuals, trusts,
estates and institutions and $17 billion of mutual fund assets.
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<PAGE> 49
Performance Comparisons. From time to time and only to the extent
the comparison is appropriate for the Fund, the Company may quote the Fund's
performance or price-earning ratio in advertising and other types of literature
as compared to the performance of the 91-Day Treasury Bill Average (Federal
Reserve), Lipper Money Market Fund Average, Donoghue Taxable Money Market Fund
Average, Salomon Three-Month Treasury Bill Index, Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), Dow Jones Industrial Average, Lehman Brothers 20+ Treasury Index,
Lehman Brother 5-7 Year Treasury Index, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics and which is an
established measure of change over time in the prices of goods and services in
major expenditure groups), average annualized certificate of deposit rates
(from the Federal Reserve G-13 Statistical Releases or the Bank Rate Monitor),
the Salomon One Year Treasury Benchmark Index, the Consumer Price Index (as
published by the U.S. Bureau of Labor Statistics) other managed or unmanaged
indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds or
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 Fund's performance also may be compared to the performance of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.
(including the Lipper General Bond Fund Average, the Lipper Intermediate
Investment Grade Debt Fund Average, the Lipper Bond Fund Average, the Lipper
Growth Fund Average, the Lipper Flexible Fund Average), Donoghue's Money Fund
Report, including Donoghue's Taxable Money Market Fund Average, Morningstar,
Inc., or other independent services which monitor the performance of mutual
funds. The Fund's performance will be calculated by relating net asset value
per share at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions and dividends
paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include in advertisements and other types of
literature references to certain marketing approaches of the Distributor and
may also refer to general mutual fund statistics provided by the Investment
Company Institute.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis
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<PAGE> 50
(assuming reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
The Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as some 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 disclose in sales literature the assets and
categories of assets under management by the Fund's or Master Portfolio's
investment adviser and its affiliates. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by a fund's investment adviser or sub-adviser and the
total amount of assets under management by Wells Fargo Investment Management
Group. As of December 31, 1995, IMG had $30.1 billion in assets under
management.
The Company also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's Rating
Group. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare
the Fund's performance with other investments which are assigned ratings by
NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
The Company also may discuss in advertisements and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Fund may be made via a "sweep" arrangement.
Such advertisements and other literature may include, without limitation,
discussions of such terms and conditions as the minimum deposit required to
open a Sweep Account, a description of the yield earned on shares of the Fund
through a Sweep Account, a description of any monthly or other service charge
on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any express transfer or "AutoSaver" plan offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
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<PAGE> 51
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Fund is determined by the
Custodian on each day the Fund is open for trading. The Fund's investments in
the Master Portfolio are valued at the net asset value of the Master
Portfolio's shares.
As indicated in the Fund's Prospectus, the Master Portfolio uses
the amortized cost method to determine the value of its portfolio securities
pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates
on the market value of the security. While this method provides certainty in
valuation, it may result in periods during which the value, as determined by
amortized cost, is higher or lower than the price that the Master Portfolio
would receive if the security were sold. During these periods the yield to a
shareholder may differ somewhat from that which could be obtained from a
similar fund that uses a method of valuation based upon market prices. Thus,
during periods of declining interest rates, if the use of the amortized cost
method resulted in a lower value of the Master Portfolio's portfolio on a
particular day, a prospective investor in the Master Portfolio would be able to
obtain a somewhat higher yield than would result from investment in a fund
using solely market values, and existing Master Portfolio shareholders would
receive correspondingly less income. The converse would apply during periods
of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Master Portfolio must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7) of thirteen months or less and
invest only in those high-quality securities that are determined by the Master
Trust's Board of Trustees to present minimal credit risks. The maturity of an
instrument is generally deemed to be the period remaining until the date when
the principal amount thereof is due or the date on which the instrument is to
be redeemed. However, Rule 2a-7 provides that the maturity of an instrument
may be deemed shorter in the case of certain instruments, including certain
variable- and floating-rate instruments subject to demand features. Pursuant
to the Rule, the Master Trust's Board of Trustees is required to establish
procedures designed to stabilize, to the extent reasonably possible, the Master
Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Master Portfolio's
portfolio holdings by the Master Trust's Board of Trustees, at such intervals
as it may deem appropriate, to determine whether or not the Master Portfolio's
net asset value calculated by using available market quotations deviates from
$1.00 per share based on amortized cost. The extent of any deviation will be
examined by said Board of Trustees. If such deviation exceeds 1/2 of 1%, said
Board will promptly consider what action, if any, will be initiated. In the
event the Board determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, the
Board will take such corrective action as it regards as necessary and
appropriate, including the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
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<PAGE> 52
PORTFOLIO TRANSACTIONS
The Master 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 Master Trust's Board of Trustees, Wells
Fargo Bank is responsible for the Master Portfolio's portfolio decisions and
the placing of portfolio transactions. In placing orders, it is the policy of
the Master Trust to obtain the best results taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors such as the dealer's risk in positioning the securities
involved. While Wells Fargo Bank generally seeks reasonably competitive
spreads or commissions, the Master Portfolio will not necessarily be paying the
lowest spread or commission available.
Purchase and sale orders of the securities held by the Master
Portfolio may be combined with those of other accounts that Wells Fargo Bank
manages, and for which it has brokerage placement authority, in the interest of
seeking the most favorable overall net results. When Wells Fargo Bank
determines that a particular security should be bought or sold for the Master
Portfolio and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transactions among the participants equitably.
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Master Portfolio also purchases portfolio securities in underwritten offerings
and may purchase securities directly from the issuer. Generally, municipal
obligations, taxable money market securities, adjustable rate mortgage
securities and collateralized mortgage obligations are traded on a net basis
and do not involve brokerage commissions. 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 Master Portfolio are prohibited from dealing with the Master Portfolio
as a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is
otherwise available.
The Master Portfolio may purchase municipal obligations from
underwriting syndicates of which Stephens or Wells Fargo Bank is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Master Trust's
Board of Trustees.
Wells Fargo Bank, as the Master Portfolio's investment adviser,
may, in circumstances in which two or more dealers are in a position to offer
comparable results for a portfolio Master Portfolio transaction, give
preference to a dealer that has provided statistical or other research services
to Wells Fargo Bank. By allocating transactions in this manner, Wells Fargo
Bank is able to supplement its research and analysis with the views and
information of securities firms. Information so received will be in addition
to, and not in lieu of, the services required to be performed by Wells Fargo
Bank under the Investment Advisory Contracts, and the expenses of Wells Fargo
Bank will not necessarily be reduced as a result of the receipt of this
supplemental
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<PAGE> 53
research information. Furthermore, research services furnished by dealers
through which Wells Fargo Bank places securities transactions for the Master
Portfolio may be used by Wells Fargo Bank in servicing its other accounts, and
not all of these services may be used by Wells Fargo Bank in connection with
advising the Master Portfolio.
Portfolio Turnover. Because the Master Portfolio's portfolio
consists of securities with relatively short- term maturities, the Master
Portfolio can expect to experience high portfolio turnover. A high portfolio
turnover rate should not adversely affect the Master Portfolio (or the Fund),
however, because portfolio transactions ordinarily will be made directly with
principals on a net basis and, consequently, the Master Portfolio (and,
accordingly, the Fund), usually will not incur excessive transaction costs.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of
distributions by the Master Portfolio and the Fund. This section of the SAI
includes additional information concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities or options thereon; (b) the Fund
derives 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 (c) the Fund diversifies its holdings so that, at the end of each quarter
of the taxable year (i) at least 50% of the market value of the Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government obligations and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses. For purposes of complying with
these qualification requirements, the Fund will "look through" to the Master
Portfolio's investments. 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
shareholders at least 90% of its net investment income and tax-exempt income
earned in each year.
Generally, dividends and distributions of capital gain are taxable
to shareholders when they are received. However, dividends and distributions
of capital gains declared payable as of a record date in October, November or
December of any calendar year are deemed under the Code to have been received
by the shareholders on December 31 of that calendar year if the dividend is
actually paid in the following January. Such dividends will, accordingly, be
taxable to the recipient shareholders in the year in which the record date
falls.
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<PAGE> 54
In addition, a 4% nondeductible excise tax will be imposed on the
Fund (other than to the extent of the Fund's tax-exempt income) to the extent
it does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund will either actually or be deemed to distribute all of
its net investment income and net capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the Fund is expected to consist of securities of foreign
issuers, the Fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.
It is expected that the net income of the Fund will be a positive
amount at the time of each determination thereof. If, however, the Fund's net
income determined at any time is a negative amount (which could occur, for
instance, upon non-payment of interest and/or principal by an issuer of a
security held by the Master Portfolio), the Fund would, pursuant to a decision
of the Board of Directors as provided by SEC rules, first offset the negative
amount with respect to each shareholder account from the dividends declared
during the month with respect to each such account. If and to the extent that
such negative amount exceeds such declared dividends at the end of the month,
the Fund will reduce the number of its outstanding shares by treating each
shareholder as having contributed to the capital of the Fund that number of
full and fractional shares in the account of such shareholder which represents
the shareholder's proportion of the amount of such excess. Each shareholder
will be deemed to have agreed to such contribution in these circumstances by
investing in the Fund.
Although dividends will be declared daily based on each day's
earnings, for federal income tax purposes the Fund's earnings and profits will
be determined at the end of each taxable year and will be allocated pro rata
over the entire year. For federal income tax purposes, only amounts paid out
of earnings and profits will qualify as dividends. Thus, if during a taxable
year the Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. If during the year, the
Fund had reduced the number of shares, as described above, due to such a
shortfall, shareholders who had redeemed shares prior to such reduction could
be deemed to have realized a capital gain to the extent of the reduction, while
shareholders redeeming shares after the reduction could be deemed to have
realized a capital loss to the extent of the reduction. It is expected that
the Fund's net income, on an annual basis, will equal the dividends declared
during the year.
Gains or losses on sales of portfolio securities by the Master
Portfolio will generally be long-term capital gains or losses, except in
certain cases where the Master Portfolio acquires a put thereon. Gain
recognized on the disposition of a debt obligation (including, tax-exempt to
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 of the portion of the market
discount which accrued during the period of time the Master Portfolio held the
debt obligation. Market discount earned on tax-exempt obligations, will
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<PAGE> 55
not qualify as tax-exempt income. To the extent that the Master Portfolio, and
thereby the Fund, recognizes long-term capital gains, such gains will be
distributed at least annually, and these 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 a designated capital gain distribution
with respect to a 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 thereon. In addition, any loss
realized by a shareholder upon the sale or redemption of Fund shares held less
than six months is disallowed to the extent of any tax-exempt interest
dividends received by the shareholder, thereon. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28% and the
maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35%.
However, 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
of up to $11,750 and corporations which have taxable income in excess of
$15,000,000 for a taxable year will be required to pay an additional amount of
income tax of up to $100,000.
Any loss realized on a redemption or exchange of shares of the
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of. In addition, if a shareholder exchanges or otherwise disposes of
Fund shares within 90 days of having acquired such shares, and if, as a result
of having acquired those shares, the shareholder subsequently pays a reduced
sales charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) 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.
If, in the opinion of the Fund, ownership of its shares has or may
become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
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<PAGE> 56
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, non-resident
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.
Special Tax Considerations -- Federal. The portion of total
dividends paid by the Fund with respect to any taxable year that qualifies for
exclusion from gross income ("exempt-interest dividends") will be the same for
all shareholders receiving dividends during such year. In order for the Fund
to pay exempt-interest dividends during any taxable year, at the close of each
fiscal quarter at least 50% of the aggregate value of the Fund's assets must
consist of tax-exempt securities. The exemption of interest income derived
from investments in tax-exempt obligations for federal income tax purposes may
not result in a similar exemption under the laws of a particular state or local
taxing authority.) Not later than 60 days after the close of its taxable year,
the Fund will notify its shareholders of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code.
The federal alternative minimum tax ("AMT") rules attempt to
ensure that at least a minimum amount of tax is paid by corporate and
high-income noncorporate taxpayers who obtain significant benefit from certain
tax deductions and exemptions. Some of these deductions and exemptions have
been designated "tax preference items" which must be added back to taxable
income for the purposes of calculating the AMT. Among the tax preference items
which must be considered when calculating the AMT is tax-exempt interest from
"private activity bonds" issued after August 7, 1986. To the extent that the
Fund invests in private activity bonds, shareholders who pay AMT will be
required to report that portion of Fund dividends attributable to income from
the bonds as a tax status of distributions made by the Funds. Persons who may
be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds should consult their tax advisors
before purchasing shares in the Fund. With respect to corporate shareholders
of such Funds exempt-interest dividends paid by a Fund is included in the
corporate shareholder's adjusted current earnings" as part of its AMT
calculation, and may also affect its federal "environment tax" liability. As
of the printing of the SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions
or concerns about AMT should consult their tax advisors.
Long-term and/or short-term capital gain distributions will not
constitute exempt-interest dividends and will be taxed as capital gains and
ordinary income dividends, respectively. Moreover, interest on indebtedness
incurred by a shareholder to purchase or carry shares of the
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<PAGE> 57
Fund is not deductible for personal income tax purposes to the extent the
shareholder receives exempt-interest dividends during his or her taxable year.
Exempt-interest dividends will be tax exempt for purposes of personal income
tax.
Other Matters. Fund shares would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from the Fund. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.
CAPITAL STOCK
The Company, an open-end, management 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. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of fifteen series of shares, each representing an
interest in one of the funds in the Overland Express Family of Funds -- the
Asset Allocation Fund, the California Tax-Free Bond Fund, the California
Tax-Free Money Market Fund, the Money Market Fund, the Municipal Income Fund,
the National Tax-Free Institutional Money Market Fund, the Overland Sweep Fund,
the Short-Term Government- Corporate Income Fund, the Short-Term Municipal
Income Fund, the Strategic Growth Fund, the U.S. Government Income Fund, the
U.S. Treasury Money Market Fund and the Variable Rate Government Fund. 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 Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by series is required
by law or where the matter involved only affects one series. For example, a
change in the Fund's fundamental investment policy would be voted upon only by
shareholders of the Fund. Additionally, approval of an Investment Advisory
Contract is a matter to be determined separately by the Fund. As used in the
Fund's Prospectus and in this SAI, the term "majority," when referring to
approvals to be obtained from shareholders of the Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (ii) more than 50% of the outstanding shares of the Fund.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
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<PAGE> 58
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of the Fund represents an equal proportional interest
in the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
The Master Trust, a no-load, diversified, open-end, series
management investment company, was organized as a Delaware business trust
August 15, 1991. In accordance with Delaware law and in connection with the
tax treatment sought by the Master Trust, the Master Trust's Declaration of
Trust provides that its investors would be personally responsible for Master
Trust liabilities and obligations, but only to the extent the Master Trust
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that the Master Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Master 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 Master 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 exists and the Master Trust
itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the
Master Trust are not binding upon the Trustees individually but only upon the
property of the Master Trust and that the Trustees will not be liable for any
action or failure to act, but 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 shares of the
Fund. The Master Trust also intends to dispense with annual meetings, but is
required by Section 16(c) of the Act to hold a special meeting and assist
investor communications under the circumstances described above with respect to
the Company. 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.
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<PAGE> 59
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 April 1, 1996, the shareholder identified below was known by
the Company to own 25% or more of the Fund's outstanding shares and, as such,
could be considered a "controlling person" as such term is defined in the 1940
Act, of the Fund.
<TABLE>
<CAPTION>
Name and Percentage Capacity
Address of Shareholder of Fund Owned
---------------------- ---------- ------
<S> <C> <C>
Stephens Inc. 100% Record
111 Center Street
Little Rock, Arkansas
72201
</TABLE>
Upon commencement of the public offering of the Funds shares and
thereafter it is anticipated that Stephens will own a significantly smaller
percentage of the Fund's shares and will no longer be considered a controlling
person.
OTHER
The Registration Statements of the Company and the Master Trust,
including the Fund's Prospectus, the SAI and the exhibits filed therewith, may
be examined at the office of the SEC in Washington, D.C. Statements contained
in the Prospectus or the SAI 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 Statements, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP have been selected as the independent
auditors for the Company and the Master Trust. KPMG Peat Marwick LLP provides
audit services, tax return preparation and assistance and consultation in
connection with review of certain SEC filings. KPMG Peat Marwick LLP's address
is Three Embarcadero Center, San Francisco, California 94111.
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<PAGE> 60
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the year ended December 31, 1995, are hereby
incorporated by reference into this SAI by reference to Amendment No. 8 to the
Registration Statement of Master Investment Trust (SEC File No. 811-6415), as
filed with the SEC on Form N-1A on March 21, 1996. The portfolio of
investments, audited financial statements and independent auditors' report for
the Funds are attached to all SAIs delivered to shareholders or prospective
shareholders.
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<PAGE> 61
SAI APPENDIX
The following is a description of the ratings given by
Moody's and S&P to corporate and municipal bonds, municipal notes, and
corporate and municipal commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal
bonds are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of
the "best quality" and carry the smallest amount of investment risk. Bonds
rated "Aa" are of "high quality by all standards," but margins of protection or
other elements make long-term risks appear somewhat greater than "Aaa" rated
bonds. Bonds rated "A" possess many favorable investment attributes and are
considered to be upper medium grade obligations. Bonds rated "Baa" are
considered to be medium grade obligations; interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds have speculative characteristics as well. Moody's also
applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1
indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds
are "AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings
assigned by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding group." Notes rated "MIG 3" or "VMIG
3" are of "favorable quality," with all security elements accounted for, but
lacking the strength of the preceding grades.
A-1
<PAGE> 62
S&P: The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations." Issuers rated
"P-2" (Prime- 2) "have a strong capacity for repayment of short-term promissory
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate and municipal commercial
paper indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
S&P: The two highest ratings for corporate notes are "SP-1" and
"SP-2." The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
A-2
